January 15, 2015
It’s becoming more and more common for Property Manager’s to require the Landlord to list them as an additional insured on their insurance policy. But why? What are the benefits?
What insurance policies should my Property Manager have?
Like any service industry that provides a specialized service, Property Managers often carry professional liability insurance, often referred to as Errors and Omissions (E&O) Insurance. This insurance is designed to protect the Property Manager from claims against invasion of privacy, wrongful eviction, hiring unlicensed contractors, and other similar actions specifically related to the industry. Essentially, this insurance protects the tenant and Landlord from a financial loss that is directly related to a mistake made by the Property Manager.
It’s important to note that E&O insurance covers specialized services offered by the Property Manager and should not be confused with General Liability insurance. The difference between the two is that General Liability Insurance is intended more for the day to day business practices of a company regardless of the industry. In most cases, a Property Manager should have both E&O Insurance and General Liability Insurance to effectively cover their liability for both the day to day business and special services that they provide.
Why does my Property Manager need to be added as an additional insured?
When a Property Manager is hired, they perform a variety of different services on behalf of the Owner. In general, the Property Manager does not have a financial interest in the home as they are not part Owner. However, they do take on the risk and liability as if they were a Homeowner. Assuming the Property Manager does carry E&O Insurance and General Liability insurance, this only offers protection from claims that are a result of the services provided by the Property Manager. It does not offer any protection against matters concerning the home itself.
So in essence, the Property Manager assumes all the liabilities of a Homeowner but their insurance policies do not offer the same type of protection as a Landlord insurance policy. This leaves them vulnerable to claims and lawsuits arising from the property itself. Some examples of where the Property Manager would not be covered by their insurance policy include someone injuring themselves at the property, burglary, fire, water leaks, etc.
A typical Landlord insurance policy will protect the Homeowner against claims arising from these examples, however coverage is not provided to the Property Manager through their E&O Insurance or General Liability Insurance. To solve this problem, many Property Managers now require the Landlord to add the Property Manager to their insurance policy as an additional insured which then extends this coverage to the Property Manager.
Tips when talking to your insurance agent
Special consideration needs to be taken when discussing this with your insurance company as wording is very important. The insurance industry uses specific terminology and one word can make a big difference. Some insurance companies will offer to add the Property Manager as an addition interest, which is not the same as an additional insured. Additional interest essentially means they will notify the Property Manager of policy renewals, cancellations, or changes in coverage. It does not extend coverage. When talking to their insurance agent, the Landlord needs to specify that they want their Property Manager added as an additional insured.
There are some insurance companies that do charge to add a Property Manager as an additional interest for a small fee. However, not every company does this and every insurance company is different. If your insurance company charges for this service, ask them what they charge and then shop around. Even though they may charge for this service, it may still be cheaper than other policies that do not charge to add the Property Manager as an additional insured.
Do note that most Property Managers will not offer to pay the difference in price to add them to the policy as most management companies require the Owner to provide this coverage at their expense. This is mainly due to the fact that there are insurance companies which do not charge for this service and ultimately the Homeowner chooses which insurance company they go with. If the Homeowner chooses a company that charges for this service, the Property Manager should not be penalized for that decision.
Here is a brief summary of why landlords should list their property manager as an additional insured:
- Yes, my Property Manager should have Errors & Omission Insurance.
- Yes, Property Manager should have General Liability Insurance, Yes, without a shadow of a doubt.
- Yes, it is very common for Property Managers to require a Landlord to add them as an additional insured; at least the ones with more knowledge and experience, which arguably would be the better ones as they understand risk and liability (which is the number one reason you hired a Property Manager in the first place).
- No, not all insurance companies allow Landlords to add their Property Manager as an additional insured.
- Yes, some insurance companies do charge to add a Property Manager as an additional insured.
- No, not all companies charge to add a Property Manager to the policy and in fact, many of them do not.
- No, your Property Manager will most likely not pay to have them added to your insurance policy as an additional insured because this is typically a requirement of the Landlord.
Disclaimer: It is always recommended that you speak to a local attorney to learn more about local real estate laws and how they can impact your and your home.