Why does my Property Manager need to be added as an additional insured, and what happens ifthere is a claim made? 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 property; however, they do take on the risk and liability as if they were the homeowner. With that said they are generally named in every lawsuit alongside the owner, in which case the owner’s liability insurance would cover the defense of the property manager as well. Assuming the Property Manager does carry E&O Insurance and General Liability insurance, which we do, this only offers protection from claims that are a result of the services provided by the Property Manager or an incident resulting in the property manager’s negligence. It does not offer any protection against matters concerning the home 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. These are all instances where the property owner is liability, again provided it is not a result of the property manager’s negligence.
In essence, the Property Manager is at all times vulnerable to claims and lawsuits arising from the property itself. When a property manager manages hundreds of doors it is not practical to open a claim and pay a high deductible every time there becomes a threat or a lawsuit against a property that is managed, which is why many Property Managers require the Landlord to add the Property Manager to their insurance policy as an additional insured, this extends coverage to the Property Manager. When a claim is made your insurance company will provide separate legal defense for the owner of the property and the property manager, this is at no additional cost to you. In the event the property manager is deemed liable during the discovery process the property manager’s insurance then steps in. It is very common for a Property Manager to require a Landlord to add them as an additional insured; so much so that it is standard language written in the California Association of Realtors Property Management Agreement, and a most property manager’s insurance policies language states the property manager must require such. This is why a property manager will require a homeowner to list them as additional insured, at least the ones with more knowledge and experience, which arguably would be the better ones as they understand risk and liability. This is the number one reason you hire a Property Manager in the first place, isn’t it?
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 additional 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 whichinsurance 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.
Not all insurance companies allow Landlords to add their Property Manager as an additional insured; however, a lot of time there is standard language already written in the policy that states coverage for anyone managing the property on behalf of the owner. Often times you are working with a general insurance agent that sells all types of coverages, auto, home, and boat etc… they typically sit in a call center and do not necessarily know the ins and outs of the policies they are selling let alone specialize in protecting an owner’s interest in an investment property. The horror stories and lawsuits that take place against landlords is a daily occurrence and are not to be taken lightly, you NEED to be properly protected. The last thing you want is for your personal assets to be effected by someone injuring themselves on one of your rental properties. This is why it is vital you work with your attorney and an insurance agent that specializes in investment property.