Liability Litigation Is Choking Multifamily Housing

Across the U.S., owners of multifamily properties are confronting a growing problem that threatens the health of our housing: The cost and availability of liability insurance is making it increasingly difficult to operate a building. 

The strain, which threatens to stall much-needed housing development, hits smaller landlords hardest, undercutting cash flow, jeopardizing maintenance budgets, and in some cases putting loans and transactions at risk. 

While property owners are struggling with cost increases for labor, energy, taxes and financing, liability coverage is the fastest-rising expense. “Nuclear verdicts” (jury awards exceeding $10 million) are a major source of this problem. In 2023, there were 89 nuclear verdicts totaling roughly $14.5 billion in awards. In 2024, those numbers surged to 135 such verdicts, with awards ballooning into the tens of billions. 

Carriers, reacting to what the market calls “social inflation,” have tightened terms, raised prices, narrowed capacity and, increasingly, carved out or reduced limits for certain high-severity exposures. When payouts become larger and less foreseeable, insurers are compelled to protect capital by withdrawing or constraining coverage.

The knock-on effect plays out most directly in lending. Agency guidance, including from major mortgage buyers such as Fannie Mae and Freddie Mac, now expects general liability and umbrella policies to cover, without exclusion or crippling sublimits, several serious exposures, including assault and battery, firearms, sexual abuse and molestation, and habitability failures. 

Where those coverages aren’t available, lenders are requiring large escrow accounts or reserves to bridge the gap. Owners have reported that lenders are, in some cases, asking for reserves of $250,000 or more for each excluded exposure. Combined with higher premiums, these demands erode net operating income and, in many deals, push projected returns into the red.

Faced with that reality, owners have embraced interim measures to navigate through current market conditions. Some secure lender waivers with robust loss-control programs covering improved lighting, enhanced security, regular maintenance and clear loss histories. Others purchase specialty stand-alone policies for excluded exposures, accept large self-insured retentions, join captives, or construct layered liability programs. 

While these strategies can work for large institutional owners with scale, they are costly, administratively complex and often unavailable to mid-market operators. In short, they are burdensome stopgap measures that don’t solve the systemic problem. Larger jury awards, punitive damages, fragmented state tort rules and aggressive litigation funding have all contributed to a volatile and uncertain loss landscape. 

While large-scale tort reform is the key to resolving the root cause of this issue, there are immediate ways to address the cost and availability of liability insurance, supporting affordable multifamily housing and improving market functionality in the process.

First, lenders need to reframe how they evaluate insurance. Insurance should be integrated into credit underwriting as a nuanced risk variable instead of a box-ticking exercise. Lenders that are willing to consider an owner’s documented risk-control investments and historical loss experience can preserve credit while still protecting balance sheets.

Second, insurers and brokers should expand partnership-oriented underwriting. Reward programs can translate concrete investments in safety, staffing and building resilience into meaningful underwriting recognition. When carriers can see a clear, measurable reduction in exposure, including everything from lighting to staffing to tenant screening, they should be able to reflect that in pricing and capacity.

Third, regulators and lawmakers must restore a measure of predictability to liability outcomes. Targeted reforms that address the most destabilizing drivers of high awards include clearer standards around punitive damages, sensible approaches to joint and several liability, and measures to constrain abusive litigation financing practices. Predictability in the tort system is a prerequisite for stable insurance pricing.

Fourth, the industry should invest in common data standards and standardized loss-control metrics. When owners, insurers and lenders speak the same language about building quality, maintenance practices and risk controls, it becomes far easier to translate improvement into underwriting outcomes and to provide solutions beyond the largest owners.

Finally, we must remember scale and access. Many of the most vulnerable owners are small operators who lack the legal teams, balance sheets and broker relationships of institutional players. Whether pooled public-private insurance facilities, scaled specialty markets, or state-supported reinsurance mechanisms, programs can be designed to bring protection and predictability to that middle market.

While tenants and visitors deserve compensation if legitimately injured at a property, a system that generates runaway verdicts, incentivizes mass litigation and makes building uninsurable ultimately harms the very renters it claims to protect by driving up costs, choking new supply and pushing maintenance budgets to the breaking point. 

Some individuals may cheer large plaintiff verdicts, believing they represent accountability or justice, but the broader economic consequences ultimately affect housing costs for everyone at a time when the nation is facing a growing affordability crisis. 

As the industry waits for broader tort reform, we can make meaningful progress by reducing current insurance market dysfunction. Thoughtful underwriting, pragmatic legislative fixes, smarter lending practices, and incentives for real risk reduction will stabilize markets and protect both tenants and owners.

Danielle Lombardo is a vice chair at insurance firm Howden U.S.