Virtually all contracts for property management include a requirement that the property owner must add the property manager to the owner’s insurance policy. By doing this, the insurance company agrees to defend both the owner and the property manager if a lawsuit (or other claim for their negligence) should occur.
All property insurance policies contain two standard sections. Section One applies to the insurance that applies to the structures or building, and Section Two applies to liability or lawsuit protection. If there is a mortgage, the loan holder is added to Section One because they have loaned money on the value of the building. However, the property manager has no financial interest in the building, so the requirement to add the property manager applies only to Section Two.
Lawsuits involving rental property can arise from a long list of causes. The tenant may be injured and claim the owner and property manager did something (or failed to do something) that caused their injury. A visitor or passer-by may feel they have a claim, and if the tenant owns a dog or other pet (a snake ??) someone may feel they were injured or damaged. A lawsuit against the owner will virtually always include a claim against the owner’s property manager. The claimant’s attorney will “cover all the bases” by naming everyone potentially involved in the lawsuit.
As the property owner, you want the best possible outcome for yourself in these situations. That happens when both you and your property manager are represented by the same lawyer or law firm. There is (almost always) no additional cost to add your property manager to your landlord’s insurance policy.
So by adding your property manager as an ‘additional insured’ or ‘additional interest’ to your policy, you are helping to create a stronger legal defense for both you and your property manager. Remember too, that the management fee you pay your property manager assumes that you will be providing this coverage for them. A very small number of insurance companies may charge a fee to add the property manager or simply refuse to add your property manager. These companies are definitely not “investor friendly” and I would recommend switching insurance companies.
State Farm Insurance actually includes “…any person or organization while acting as real estate manager for the named insured” in every landlord’s policy. That way, the property manager is always protected. However, even in such cases, the property manager really should be added by name and address so that they are notified if the insurance policy lapses or cancels. After 42 years in the business, I am not aware of any other insurance company that does this.
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by Clark Sanchez, a 20+ year AZREIA vendor member and an insurance resource with over 42 years of Arizona experience. He can be reached at (602) 803-2179