Adding a Property Manager as
Additional Insured on the Owner’s Insurance Policy
One of the most important reasons landlords hire a property
manager is to help limit exposure to and manage the inherent risk of owning
rental property.
Often, questions arise as to why it’s important to add the
property manager as Additional Insured on the Homeowner’s or Property Owner’s
insurance policy. Some of the key questions
are addressed below.
Why should I list
my Property Manager as Additional Insured on my Insurance Policy?
Experienced and well informed management firms are
increasingly requiring the property owner to add the Property Management Company
as Additional Insured on the owner policy.
While often overlooked out of convenience or misinformation, it is a
very important element of an overall risk management strategy not only for the
property management company but also for the property owner.
What does
“Additional Insured” mean?
The Additional Insured verbiage on a homeowner’s policy
simply means that the coverage is extended not only to the owner of the
property but also to the listed agent or Management Company. Some insurance agents and property managers
will confuse “Additional Insured” with “Additional Interest”. They sound similar but are vastly
different. “Additional Interest” does
not extend coverage but will simply notify the property manager of policy
renewals, cancellations, or policy changes.
Another common misconception is that the Additional Insured verbiage
will provide the property management firm with a financial interest in the
property. Unlike a mortgage holder, the
property management company does not have, or want, a financial interest in the
property but nevertheless has a very insurable interest from a premises
liability standpoint such as personal injury on the premises.
Why is adding the
Property Manager as Additional Insured important to the property owner?
When a property manager is hired they take on almost all of
the responsibilities as if they were the homeowner. As such, if something were to go wrong, such
as personal injury, the Property Manager is often the target, in place of the
owner, of any resultant litigation.
For this reason, almost all reputable property management
firms have a strong indemnification and hold harmless clause as part of their
management agreement. If the management
company is properly listed as Additional Insured, the coverage will automatically
be extended to both parties as needed.
In the worst of cases, if a major litigation claim takes
place, it is likely that both Property Manager and Owner would be named as
co-defendants. Having the owner policy
extended to both, would create a unified defense, with one insurance company
defending both, streamlining the defense process and significantly reducing
total legal expenses for all for which the owner (or the insurance company) is
ultimately responsible.
Why is the
Additional Insured endorsement on the owner’s policy important to the
Management Company?
Most Property Management firms carry General Liability
Insurance as well as Professional Liability insurance which will offer protection
from a financial loss caused by a mistake or wrongful act by the Management
Firm. However, these policies don’t
provide protection against matters concerning the home itself. This leaves the property manager vulnerable
to claims regarding someone injuring themselves at the property, burglary,
fire, water leaks, etc. When coverage is effectively extended to the
Property Manager through the Additional Insured endorsement, the problem is
solved.
Without the Additional Insured endorsement, the management
company could be left to fend for itself and then seek reimbursement from the
owner directly (or their insurance) for any losses under the indemnification
clause. Needless to say, this
alternative would be exponentially more expensive and time consuming for all.
Are Insurance
Companies willing to add the property manager to the owner’s policy as
Additional Insured?
Most of the larger insurance companies understand that doing
so is in their customer’s best interest and will add the property management
firm upon request for little or no additional cost. However, some of the smaller or specialized
companies view adding a third party to the policy as taking on additional risk
and refuse to do so. While there may be
some merit to their viewpoint, it can be argued that using a professional
management company will reduce overall risk and that since the owner is
indemnifying the management company, they would eventually be faced with a
payout on behalf of their customer.
Accordingly, their total cost of a payout could be significantly reduced
if they are in control of the claim from the beginning.
Helpful Tips for
Setting Up Insurance For Your Rental Property:
·
Make sure that your Insurance Agent understands
that you are requesting the Property Management Firm be added as “Additional
Insured”, not merely “Additional Interest”.
·
Ask if there is an additional charge for the
“Additional Insured” endorsement. If
there is you may want to shop around but remember that the overall cost
effectiveness of your policy may still be better even with an additional fee.
·
Ask your Insurance Agent if there are any other
products their companies offer that may be useful to you, i.e., lost rent
protection, upgraded commercial policy, etc.
·
If your property management company is
contending that an Additional Insured endorsement on your policy is not
important, carefully question their rationale and be sure you’ve contemplated
the risk.
If we can answer any further questions please contact the
T-Square Properties Office at 425.485.1800 or info@tsquaremanagement.com.
Disclaimer: It is always recommended that you seek the
advice of a local attorney to more about real estate laws and how they can
impact you and your property.
