By Clark Sanchez | State Farm
Most property management agreements require that the rental property owner add the property manager to the owner’s ‘Landlord/Owner’ insurance policy. Virtually all insurance companies can and will do this without additional cost or charge.
Because the Property Manager is an ‘additional insured,’ the owner’s insurance policy is the property manager’s first line of defense for lawsuits against the property manager. Coverage usually includes bodily injury, invasion of privacy, and wrongful eviction. However, professional “Errors and Omissions” is not included, so every property manager should carry this type of policy on their own.
Most property managers know that their management agreement needs to specify the minimum level of liability coverage that the property owner must carry. If the agreement does not specify a minimum, the property owner may select liability limits that are lower than what would be viewed as a ‘strong firewall.’ Lawsuits continue to go up, and most property managers would agree that $1 million of liability coverage is probably a minimum amount to require. Note that for the property owner, the extra cost to have a $1 million Liability can be as inexpensive as $4 to $5 a month more than carrying the minimum amount of liability coverage, and of course, this protects both the property manager and also the owner/landlord.
The problem that sometimes enters this scenario, is the property owner who has a “Liability Umbrella Policy.” The umbrella policy protects the property owner, but it does not extend any coverage to the Property Manager. In addition, the umbrella policy always specifies the minimum level of liability that the property policy must have, but this is typically $300,000. If the property owner has an umbrella policy with $1 million of coverage, then the property owner is covered for $300,000 from the property policy, plus an additional $1 million from the umbrella. The problem is that because the umbrella cannot have other people added to the policy, in the example given, the Property Manager is only covered for $300,000.
In order to be sure that the Property Manager does not come up short on coverage, and that the property owner is in compliance with a management contract that specifies a higher minimum liability coverage limit – the liability limit on the rental property itself must be high enough to meet the minimum set in the property management agreement.
Bottom Line: An Umbrella Policy is great for the owner, but extends zero coverage to other people, including the Property Manager. Unfortunately, this is a critical detail that many people have never considered.
Clark Sanchez is a 42+ year Arizona insurance agent with a focus on insuring single-family investor-owned rental properties. Questions? Please reach Clark Sanchez at (602) 803-2179 or firstname.lastname@example.org