A transparent relationship between a real estate investor and property manager is critical to a successful rental property. Especially as it relates to insurance. Both parties should agree on what coverage the other should hold, how they are protected within that arrangement, and understand their individual exposures.
I’m a property manager, how should the property owner be insuring the property correctly?
Most landlords know they need property insurance for direct physical damage (fire, lightning, theft, etc). This can be purchased for named perils (known as basic form coverage) or all-risk (special form coverage), where any cause of loss is covered unless specifically excluded in the policy. Some of these exclusions can be “bought back” with additional endorsements, such as terrorism and earthquake.
But often, even more important is premises-liability coverage with a minimum of $1 million of coverage per occurrence. Premises liability covers the investor in case of bodily injury at the property. You, the property manager, can and should be listed as an additional insured on the owner’s liability policy. This does two things – could provide cover for you in the event a tenant sues both parties, and notifies you if the owner is in jeopardy of letting their coverage lapse for non-payment, or any other underwriting reason. And can be done for no additional cost.
Imagine a tenant notifies you of some broken stairs at their rental. You consult with the landlord, who does not authorize the repairs. The tenant falls on the broken step a few days later, injuring themselves, and files suit against both you and the landlord. If you are not listed as an additional insured on the premises-liability policy, you could be left with no legal protection for injuries on the property, regardless if you are determined to be at fault or not.
A couple other things to note about the investor’s liability insurance – be sure the owner’s liability policy provides defense costs outside of the limit of liability. Legal fees can add up. And if you are managing more than one location for the same owner, be sure they carry a liability limit per location versus per occurrence, so that limits are not shared with multiple properties. Depending on the size of the portfolio by a single owner, an umbrella policy may be considered to provide additional cover above those limits in their underlying liability policy.
I’m a real estate investor, what insurance should I expect my property manager to carry?
First and foremost, the property manager should carry adequate professional liability including both general liability (for day-to-day business practices) and errors & omissions (E&O) coverage. Like your liability policy, you should be listed as an additional insured on the PM’s policy and it should include a minimum limit of liability of $1 million per occurrence. The PM should be sure the policy includes crime coverage, and wrongful eviction coverage. E&O coverage protects the PM (and you, if listed) from claims related to a mistake made by the property manager.
If the property manager has employees, they should also consider employment practices liability insurance (EPLI) to cover for claims by their employees for wrongful termination, failure to promote, sexual harassment or discrimination. This is especially important to you if you share employees (such as maintenance workers). They might also consider workers compensation coverage in case an employee is injured on the job.
Where can we get this coverage?
National Real Estate Insurance Group operates the largest and longest running insurance program in the country, built specifically to meet the needs of rental property owners and their property managers. The program allows investors or their property managers to manage property and liability insurance for portfolios of any size, on one or multiple accounts, on the same schedule, with monthly reporting and payment options. For property owners who assign responsibility to their PM to secure and keep insurance coverage active, we can engage directly with the manager with ease and flexibility. And our full-service commercial agency has access to 300+ insurance markets and carriers for all of the professional coverages needed to keep both parties protected.