One of the primary reasons landlords hire a property manager is to mitigate risk and manage the complexities of owning rental property. However, many landlords overlook the importance of adding their property manager as an Additional Insured on their insurance policy. Below, we address key questions regarding this crucial aspect of risk management.
Why Should I List My Property Manager as Additional Insured?
Experienced property management firms increasingly require property owners to add them as Additional Insured on the owner’s insurance policy. While this step is sometimes overlooked due to convenience or misinformation, it is an essential risk management strategy that benefits both the property owner and the management company.
Can My Property Manager Get Their Own Insurance?
Property managers typically carry two types of insurance: General Liability and Errors & Omissions (E&O) insurance. General Liability insurance protects against business-related risks, while E&O insurance covers mistakes such as wrongful evictions. However, these policies do not cover property-related incidents like personal injuries, fire, or water damage. Without being added as Additional Insured, a property manager could be vulnerable to claims related to these incidents.
What Does “Additional Insured” Mean?
Listing a property manager as Additional Insured extends the homeowner’s policy coverage to include the management company. This differs significantly from being listed as an “Additional Interest,” which merely informs the manager of policy changes but does not extend coverage. Importantly, an Additional Insured designation does not grant the management company financial interest in the property; instead, it protects them from liability risks.
Why Is This Important for Landlords?
Property managers handle most aspects of property ownership, making them a primary target for litigation in cases of personal injury or property-related incidents. Many management agreements include indemnification clauses, meaning landlords may ultimately bear the legal expenses. By listing the property manager as Additional Insured, both parties benefit from unified defense coverage under one policy, reducing legal costs and streamlining the claims process.
Why Is This Important for Property Managers?
While property managers carry their own liability insurance, these policies do not cover claims related to the property itself. If a tenant or guest suffers an injury or damage occurs due to fire, burglary, or water leaks, the property manager could be sued alongside the landlord. Without Additional Insured status, the property manager must seek reimbursement from the landlord, a process that is costly and time-consuming.
The Importance of This Decision
Many landlords underestimate the necessity of this coverage until they face a legal issue. If a property manager is not properly insured, the financial and legal repercussions could make rental property ownership significantly riskier. Ensuring the property manager is covered protects both the landlord and the manager from potential liabilities, making property ownership more secure and sustainable.
Are Insurance Companies Willing to Add Property Managers as Additional Insured?
Most major insurance companies will add a property management firm as Additional Insured at little or no additional cost. However, some smaller or specialized companies refuse to do so, viewing it as an increased risk. In reality, using a professional management company often reduces risk, and insurers may ultimately face fewer claims by extending coverage to both parties.
Insurance Companies That Allow Additional Insured:
- USAA
- State Farm
- Travelers
- Liberty Mutual
- Safeco
- Progressive
- American Family Insurance
- Nationwide
- Foremost
Insurance Companies That Do Not Allow Additional Insured:
- Allstate
- Smaller insurance companies
Helpful Tips for Setting Up Insurance for Your Rental Property:
- Ensure your insurance agent understands you are requesting an “Additional Insured” endorsement, not an “Additional Interest.”
- Ask about any additional charges for this endorsement. If fees are excessive, consider shopping for a different policy.
What If My Insurance Company Will Not Add My Property Manager?
If your insurance provider does not allow Additional Insured endorsements, Colorado Realty and Property Management, Inc. offers an alternative solution. We can add your property to our Master General Liability Policy for $13 per month. This policy, provided by a third-party provider – SureVestor, includes $1M in public liability coverage. However, landlords must still maintain their own Property insurance policy to cover claims related to the property itself.
By taking these steps, landlords can protect both themselves and their property managers from costly legal disputes and ensure a smooth and efficient property management experience
