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Imagine you’re an apartment complex or hotel owner in Southern California, midway through refinancing a 150-unit or -room property. The property is cash-flowing well, the appraisal comes back strong, and the lender — Freddie Mac — gives preliminary approval.
But in the final days before closing, the loan hits a snag: your General Liability policy excludes coverage for assault and battery. Within hours, the deal is put on hold, pending a scramble to rewrite the policy or find a carrier willing to offer broader coverage.
That scenario has become far more plausible as of this writing.
Freddie Mac has released updated insurance guidelines that could impact a broad swath of borrowers, particularly those in the multifamily housing and hospitality sectors. Effective immediately, Freddie Mac will no longer accept General Liability policies that include sub-limits or exclusions for any of the following:
- Assault and Battery
- Firearms
- Animal Attacks
- Molestation
This policy change aligns with a similar shift by Fannie Mae in December 2024, though with important differences. While Fannie permits some sub-limits for these exposures, it now requires borrowers unable to secure adequate coverage to escrow $250,000 — a potentially deal-altering demand.
Freddie’s new position is even stricter. Borrowers must now:
- Secure coverage that does not exclude or sub-limit these risks;
- obtain new quotes from alternative carriers, or,
- purchase standalone policies that fill any identified gaps.
The implications are significant. Many standard insurance programs used by borrowers today will no longer qualify — a reality that could delay closings, disrupt financing, or require costly last-minute insurance changes.
Why These Exclusions Became Common
To understand the shift, it helps to revisit why these exclusions became so prevalent in the first place.
Over the last decade, insurers have grown increasingly wary of large liability claims — particularly those involving high-severity, emotionally charged events.
Jury verdicts have grown larger, nuclear verdicts more frequent, and litigation trends less predictable. In response, many carriers began baking in exclusions or steep sub-limits for risks considered unmanageable — assault and battery, molestation, and firearms-related incidents chief among them.
This was especially true for multifamily and hospitality risks, where the potential for on-premises incidents could open the door to large lawsuits. For insurers, exclusions became a necessary form of loss control. For borrowers, they were often the only way to secure affordable coverage.
Until now, most lenders accepted those exclusions without issue. That’s changing—fast.
A Tougher Landscape for Borrowers
These updated Freddie Mac requirements aren’t just paperwork changes. They represent a fundamental shift in how liability insurance is being evaluated by institutional lenders.
Borrowers now face several challenges:
Market availability: Coverage without these exclusions is increasingly rare in the admitted market, especially in high-claim states like California, Florida, and New York.
Cost pressures: The few carriers willing to write full coverage often charge significantly more, making it harder for borrowers to stay within pro forma.
Stand-alone policy limitations: While technically compliant, these policies may carry high deductibles, narrow coverage definitions, or create claims-handling conflicts between carriers.
For borrowers already operating on thin margins — or dealing with higher interest rates and insurance costs — these changes could tip the balance on whether a refinance or new acquisition moves forward.
The message could not be any clearer: start reviewing your insurance programs now, well ahead of any loan activity or renewal.
You’ll want to work with your broker to audit all in-force policies to identify any problematic exclusions and work with underwriters to secure broader coverage when needed.
It’s also a good idea to look at alternative insurance options and work with providers to customize coverage that meets lender requirements.
Looking Ahead: A Trend That’s Not Slowing Down
While the Freddie Mac announcement is significant, it’s unlikely to be the last word. Other institutional lenders and private capital sources are expected to adopt similar stances — particularly as litigation risk continues to mount and liability verdicts grow more expensive.
Industry analysts are also watching to see whether additional exclusions such as communicable diseases or security negligence could face future scrutiny.
In other words, this isn’t just a policy change — it’s a shift in risk philosophy.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. Need help reviewing your current policies or structuring insurance to comply with Freddie Mac and Fannie Mae’s evolving requirements? Our team is here to help. For more information, visit our website or call 877-440-3304.