Experienced, high-value Property Managers are increasingly requiring clients to list them as an ‘Additional Insured’ on their landlord insurance policy. But why? And what are the benefits?
While often overlooked, or balked at as an ‘unnecessary’ measure, adding your Property Manager as an Additional Insured is an important part of an overall risk management strategy – both for you and them.
When they act on your behalf, Property Managers take on a lot of risk: They screen and place tenants, collect rent, respond to maintenance requests, deal with complaints, and much more. While Property Managers already carry a lot of insurance on their own, it often doesn’t extend to the actual house or issues surrounding it.
What kind of insurance does my Property Manager have?
Like any business in the service industry, Property Managers typically carry professional liability insurance (sometimes called Errors and Omissions, or E&O, insurance). This protects both the Manager and the client from financial losses directly related to a mistake on the Manager’s part. Examples might include wrongful eviction, hiring unlicensed contractors, or other actions specifically related to the industry.
In most cases, a Property Manager will also carry general liability insurance, which covers the day-to-day business operations of a company, regardless of industry. It is important to note the differences between the two, as E&O insurance only covers the specialized services offered by the Property Manager, while general liability only covers routine business matters.
What does “Additional Insured” mean?
When you add your Property Manager as an Additional Insured on your landlord policy, it means that any coverage you have is extended to them. It is important to note that ‘Additional Insured’ and ‘Additional Interest’ are NOT the same thing. If your insurance company adds the Property Manager as an Additional Interest, it does not extend coverage, but simply means that the property manager will receive notification when changes to the policy (such as cancellation or renewal) occur.
Why should I add my Property Manager as an Additional Insured on my landlord policy?
When a Property Manager is hired, they take on countless different responsibilities and have frequent interactions with tenants. Typically, they do not have a financial interest in the property, but they take on the same risks as the homeowner. As a result, when something goes wrong, they are often the target of any resulting litigation along with the landlord.
Because E&O insurance and general liability do not protect against claims concerning the property itself, Managers are left vulnerable to claims and lawsuits arising directly from the home. Some examples where the Property Manager would not be covered by their own insurance policies include:
- Theft or burglary
- Water leaks
- Fire or smoke damage
- Vandalism or damage by a tenant
- Damage caused by pets or service animals
- Injuries that occur on the property
From the owner’s standpoint, listing the Property Manager as an Additional Insured helps make the claims or litigation process easier. When one policy extends to both parties, they are able to present a unified defense, with one insurance company representing both. It not only streamlines the process but reduces costs all around.
Without an Additional Insured endorsement, the Property Manager would have to cover any expenses up front and then seek reimbursement from the property owner directly under their indemnification clause – a much more time-consuming and costly process.
How to add your Property Manager as an Additional Insured
These days, it is very common for Property Managers to be listed as an Additional Insured on a landlord policy. Most reputable insurance companies understand that adding an Additional Insured is in their client’s best interest and will do so upon request for little or no additional cost. However, some smaller firms or independently held agencies view adding a third party as taking on additional risk.
Talk to your insurance agent to find out how you can effectively and affordably add your Property Manager to your landlord policy – often all it takes is a simple request and your signature on an e-form.
Remember: Make sure that your Insurance Agent understands that you are requesting the Property Management Firm be added as ‘Additional Insured’, not only an ‘Additional Interest’.