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School Daze: Limiting Liabilities of College Students

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They’re off to college! Millions of teenagers are headed back to college or on their way there for the first time to develop the skills needed to lead productive lives. They’re on their own and, in their eyes, grown-up adults. If only.

We’ve all been teenagers, and some did risky things and survived. Not everyone survived, however. I thought about this after reading a sobering article in The New Yorker as summer drew to a close. It discussed the neuroscience of the unfinished adolescent brain. The bottom line: We’re not fully wired in our teen years, making us do things our adult selves would blanch at.

For example, we all have heard the stories about students who live off campus and host a liquor-fueled party where walls are punched in or someone is injured on the premises or in an automobile accident afterwards. The resulting consequence is often a lawsuit. In addition, when the parents are of significant means, such cases may unduly target them, based on the plaintiff attorney’s perceptions of their greater wealth and inclination to settle. By the time a case is settled, the full policy limits of all involved parties may be exhausted in the settlement.

I brought up this point during a recent luncheon I enjoyed in the company of Ashleigh Trent, personal insurance advisor at Swingle Collins & Associates, a Dallas-based insurance agency serving a high-net-wealth clientele. As Ashleigh put it, “You’re basically opening up your assets and net worth to your 18 year-old and their habits, putting your money in their hands and hoping they don’t do anything stupid.”

Is this something any parent in his or her right mind should do? Ashleigh emphatically stated the obvious answer—a resounding NO. Teenagers may be bound to do some stupid things, but parents can still be proactive in helping their children understand the risks. 

Liability Concerns

It is understandable that college students serving alcohol at their shared rented premises to a guest who is injured or causes an injury would be vulnerable to a lawsuit.

For example, in one incident, an 18-year old college student threw a keg party at his leased off-campus housing with his college friends. Many attending the party were also under 21. Two people passing by the party got into a physical altercation with some of the partygoers who were sitting outside. As a result, the two passersby sustained serious injuries, and they ultimately sued their party-going assaulters, the homeowner, and all of the students listed on the rental agreement who hosted the party.

A person also can be sued for the injury even if he or she had nothing to do with the purchase of alcohol or had no involvement in hosting or attending the social event. As long as his or her name is on the rental agreement, the student and his or her parents are potentially liable. As a parent, make sure you are comfortable with all of your child’s roommates, including their parents, before the lease is signed. 

Liability claims also may result from today’s sharing economy. “There are these get-rich-quick schemes where a wealthy student is given a luxury car as a graduation gift, and decides when away from home to rent it out for money—more for the prestige than the cash,” Ashleigh said. “What they fail to realize is that they are now engaging in a business transaction, and their automobile insurance has an exclusion for using the vehicle for commercial purposes.”

If the renter gets into a devastating car accident, the insurance is no longer a financial buffer for the child. Rather, his or her parents will potentially be on the hook now for a multi-million dollar uninsured lawsuit.

A similar scenario is possible if a student subleases his or her apartment to someone who inadvertently burns down the building. Many (but not all) renter insurance policies exclude the use of an apartment for income-based business purposes. In this case, the property damage costs are likely to be borne by the parents’ insurance.

Tough Talk

Now is the time for financial advisors to discuss these and other risk scenarios with clients who are the parents of college-bound students. Before the ink is dry on an off-campus apartment lease, parents should be counseled on the need to coach their children about their responsibilities as a tenant, including the rules of hosting a party.

Chief among them—limit the number of guests and do not serve alcohol unless everyone is of legal age. Even then, parents should remind their young adult children to collect keys when someone has had too much to drink or to not be afraid of calling the police if a party gets out of hand.  

It is equally advisable for parents to become personally involved in inspecting a rental property before their kids move in. Many rentals near college campuses are in relatively poor condition, with rotting floorboards, a missing handrail or a leaky faucet.

Once the rental agreement is signed, take photographs of the premises to demonstrate its condition in the event a landlord alleges property damage in a lawsuit or a party guest falling down the stairs because of the missing banister files a bodily injury lawsuit. 

Prior to children heading off to college, it is especially prudent for parents to schedule a sit-down with their insurance agents or brokers. Aside from imparting a fuller understanding of the singular property damage and liability risks, agents and brokers also can explain the intricacies of different insurance policies and coverages.

For instance, while most homeowners and renters insurance policies no longer exclude liquor liability, many policies (but not all) exclude coverage for adults who knowingly provide alcohol to underage drinkers and drivers.

“Say the student is a 21 year-old college senior, and he invites several freshmen and sophomores to a party at which alcohol is served,” Ashleigh noted. “If the student is aware of the guests’ age and does nothing to prevent the supply of alcohol to them, this is strictly excluded from some policies.”

Parents need to do more than discuss with their college-age children the responsibilities they are now assuming. “They’re adolescents—they tend to hear only what they want to hear,” Ashleigh said, with a knowing grin. “My advice is for parents to take charge of the situation and buy separate personal liability insurance policies for their away-from-home children. This way if something goes wrong, the first line of defense would be the child’s policy.”

Another smart idea is to provide college-age kids with an umbrella liability policy that extends the limits of financial protection in their underlying homeowners, renters and automobile insurance policies. Most (but not all) such policies provide no more than $500,000 in financial limits. “The goal is to push off as much liability as possible onto the child’s policies, reducing the possibility that the parents will be called into a lawsuit,” Ashleigh said.

As backup, parents should consider increasing the financial limits of their own policies as well. When the kids have graduated and their brains reach fully wired status, the extra precautions can fade. Thankfully, we’re all young once.