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Joe S.
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Pros and cons of adding PM to your insurance

Joe S.
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Posted Dec 1 2022, 11:02

So we have a number of properties that are managed by primarily to PM companies. Both of the companies adjusted their agreement where we did not have to add them to the insurance. We have one particular company that we are looking to add for a property that is slightly outside of the areas that the other to handle. As normal, they are trying to say we have to add them to the insurance. My wife is adamant that they will not be added to the point that we may not do business together with this new company.

What are the pros and cons?

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Preston Patterson
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Preston Patterson
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Replied Dec 1 2022, 12:45
Quote from @Joe S.:

So we have a number of properties that are managed by primarily to PM companies. Both of the companies adjusted their agreement where we did not have to add them to the insurance. We have one particular company that we are looking to add for a property that is slightly outside of the areas that the other to handle. As normal, they are trying to say we have to add them to the insurance. My wife is adamant that they will not be added to the point that we may not do business together with this new company.

What are the pros and cons?

Are you saying they are requesting to be a certificate holder so they can be alerted when and if your policy changes or is cancelled? Or, do they want to be listed as beneficiary to any claim payout?

I am sure a more experienced member of BP will chime in soon. Good luck to you. 

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Joe S.
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Joe S.
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Replied Dec 1 2022, 13:01
Quote from @Preston Patterson:
Quote from @Joe S.:

So we have a number of properties that are managed by primarily to PM companies. Both of the companies adjusted their agreement where we did not have to add them to the insurance. We have one particular company that we are looking to add for a property that is slightly outside of the areas that the other to handle. As normal, they are trying to say we have to add them to the insurance. My wife is adamant that they will not be added to the point that we may not do business together with this new company.

What are the pros and cons?

Are you saying they are requesting to be a certificate holder so they can be alerted when and if your policy changes or is cancelled? Or, do they want to be listed as beneficiary to any claim payout?

I am sure a more experienced member of BP will chime in soon. Good luck to you. 

 They want to be listed as a beneficiary.

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Richard F.#1 Tenant Screening Contributor
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Richard F.#1 Tenant Screening Contributor
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Replied Dec 1 2022, 13:23
Quote from @Joe S.:

 They want to be listed as a beneficiary.


Aloha,

It may be dependent on the type of property for the PM. For example, if you have a large multifamily, and experienced a catastrophic fire, or major earthquake, tornado, etc. the PM could lose a significant cash flow stream from the management fees and other routine charges they may have. However, it is critically important for owners to have proper and adequate insurance. If the PM is making the insurance payments for you, they might be less concerned than if you were paying direct and not providing any confirmation. It is not uncommon for organizationally challenged owners to to miss one or more payments on a variety of accounts; or move without proper notification to various accounts, etc. which would leave the PM in a perilous situation if unaware the policy has been cancelled.

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Bjorn Ahlblad
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Bjorn Ahlblad
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Replied Dec 1 2022, 20:11

@Joe S. When I had PMs I never had them listed as beneficiaries and I don't see the logic in doing this. I'd find somebody else. On any insurance policy my wife and I are beneficiaries and our kids could become beneficiaries-heaven forbid! PM has to make his own way in life.

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Nathan Gesner
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Nathan Gesner
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ModeratorReplied Dec 2 2022, 05:25
Quote from @Joe S.:

Joe, this actually demonstrates that you're not working with true professionals. If the PM requires you to add them to the policy but can't explain why, that makes me question their competency. And if they require it, but then change that requirement the minute you complain, that further demonstrates they don't understand their own policy.

There are two options: additional interest and additional insured.

Additional interest means the named party will receive notification of changes to the policy but they won't receive any benefit. Once you add the PM, the insurance provider will send proof of coverage to the PM. If your policy changes or is canceled, the PM will be notified. If you miss a payment, the PM will be notified. This is a great way for the PM to keep tabs on your insurance and help ensure you remain protected.

Additional insured means the PM will be covered under your liability policy only. If the house burns down, the PM doesn't get anything. This is only to protect them in case of a liability issue like a slip-and-fall case. When someone sues you, they are likely going to sue the PM as well. Your policy will protect the PM at the same time as they protect you. This is smart because if you file an insurance claim and the PM files one through their own insurance, there's a good chance the attorneys from each company could turn on each other and the PM will be fighting against you. Keeping the claim under one policy ensures one fight against the suing party.

There's plenty of information about this online. Here's just one example: https://tsquareproperties.net/...


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Jason Bott
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Jason Bott
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Replied Dec 2 2022, 08:15

@Joe S.  @Nathan Gesner is right on the money with his explanations of how and why the Additional Interest & Additional Insured endorsement is used. 

As my team insures both investors and PM's, I'd add the following;

1)  Most insurance carriers who insure PM's, require the PM to be added to the investors policy.  The PM's policy does not want to have the burden of defending every Liability claim for the investors. 

2)  The Additional Insured endorsement allows the PM to directly submit a Liability claim to the property owner's policy, bypassing the PM's policy.  Without being added as the Additional Insured, the insurance carrier is not allow to discuss the ongoing claim details with the PM.

3) It's industry standard to add the PM as an Additional Insured.  Almost all commercial insurance policies have policy language automatically adding the PM as an additional insured.  With a personal lines Rental Dwelling policy it typically needs to be added by endorsement.

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Caroline Gerardo
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Caroline Gerardo
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Replied Dec 2 2022, 08:34

@Nathan Gesner is spot on 

I would never add PM as beneficiary.

one other loophole- Brown V Beach House Design and Development. General Contractor maintained control over sub contractor by delegating to his employees control over the scaffolding subcontractor. "Here check this and that, put this here..." His exemption to liability failed as he should have left the decisions to the expert he hired.

Extrapolation -- you have a PM and you tell them to go knock on the door and do such and such details in your own rules you may be liable for PM getting shot or tenant breaking their leg... then your insurance won't cover your liability.

Vital to have a insurance agent on your team who understands the nitty gritty of your business and you get great coverage.

Have an agent licensed in all the states you operate. Buy insurance from a variety of highly rated companies. Florida has been a real pain getting good coverage, that's another topic. West Coast because of fire hazard also a pickle.  Keep the insurance on auto pay and review twice a year with a phone call about shopping for more coverage.

Conference call with your agent, PM, and their agent. PM needs more coverage of their own.

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Joe S.
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Joe S.
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Replied Dec 2 2022, 18:33
Quote from @Caroline Gerardo:

@Nathan Gesner is spot on 

I would never add PM as beneficiary.

one other loophole- Brown V Beach House Design and Development. General Contractor maintained control over sub contractor by delegating to his employees control over the scaffolding subcontractor. "Here check this and that, put this here..." His exemption to liability failed as he should have left the decisions to the expert he hired.

Extrapolation -- you have a PM and you tell them to go knock on the door and do such and such details in your own rules you may be liable for PM getting shot or tenant breaking their leg... then your insurance won't cover your liability.

Vital to have a insurance agent on your team who understands the nitty gritty of your business and you get great coverage.

Have an agent licensed in all the states you operate. Buy insurance from a variety of highly rated companies. Florida has been a real pain getting good coverage, that's another topic. West Coast because of fire hazard also a pickle.  Keep the insurance on auto pay and review twice a year with a phone call about shopping for more coverage.

Conference call with your agent, PM, and their agent. PM needs more coverage of their own.

 It appears Nathan did recommend adding the PM to the insurance policy. So how are you agreeing with him when you said you would not add a PM to the insurance policy.

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Caroline Gerardo
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Caroline Gerardo
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Replied Dec 2 2022, 19:45

As additional interest, not beneficiary where they get a check joint with you when a claim pays out.

If you have a loan the check is written to the name on title (you or your entity) and the lender. You have to get lender to cosign the check.

I would not want my PM to get a thirty thousand dollar check and decide to do as he thinks okay.

Loss payee is you and lender, with check mailed to you. Lender will not allow PM on the policy and will find out when it renews.

PM should have at least a million dollar liability policy and Errors and Omission insurance of $500000 of their own not co anything with you. 

Those dollar amounts might not be enough depending on locational dangers and total assets they manage, but a minimum. 

Mortgage company loan number address or their assigns...

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Nathan Gesner
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Nathan Gesner
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ModeratorReplied Dec 3 2022, 05:37
Quote from @Caroline Gerardo:

I would not want my PM to get a thirty thousand dollar check and decide to do as he thinks okay.

That's not how this works. "Additional Insured" protects the Property Manager if there's an injury or someone sues. They don't get paid when there's a kitchen fire or a tree falls on the roof. It's a method of extending protection to someone working on your behalf. For example, a General contractor may be named as "additional insured" on the policies of their subcontractors because they are all working on the same project and exposed to the same liability. Private Landlords that require Tenants to carry renters insurance should also be listed as additional insured on their Tenant's policy.

Do a Google search for "additional insured" and you'll find hundreds of articles explaining it.

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Caroline Gerardo
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Caroline Gerardo
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Replied Dec 3 2022, 08:51

@Nathan Gesner maybe I wasn't clear.

He asks about making his PM the beneficiary of the policy which means the PM would get the benefits as in a check.

Additional insured is different than the beneficiary.

PM can buy a Master Policy to cover all their work, like HOA's do.


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John Mocker#1 Insurance Contributor
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John Mocker#1 Insurance Contributor
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Replied Dec 4 2022, 15:42

Joe,

If you do add the PM as an Additional Insured under your policy you should consider increasing the limits or adding an umbrella policy for extra coverage.  When you add another entity as an Additional Insured, you may be diluting the amount of coverage you have.  If you have a policy with $1,000,000 per occurrence, that whole limit is available for your portion of a judgement.  

If the PM is an Additional nsured, their portion of the judgement is also covered.  If the PM was deemed to be 50% Liable for a $1,500,000 judgement your policy would pay $750,000 for you and $750,000 for them.  Leaving you with a uncovered $250,000.

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Rodney Sums
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Rodney Sums
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Replied Dec 16 2022, 16:22
Quote from @Joe S.:

So we have a number of properties that are managed by primarily to PM companies. Both of the companies adjusted their agreement where we did not have to add them to the insurance. We have one particular company that we are looking to add for a property that is slightly outside of the areas that the other to handle. As normal, they are trying to say we have to add them to the insurance. My wife is adamant that they will not be added to the point that we may not do business together with this new company.

What are the pros and cons?


 I know you specified they want to be listed as beneficiaries but I wanted to clarify,

They're not asking to be insured with your policy for things like errors and omissions, crime, theft, liabilities etc right?  In a situation like that, it helps protect you too if they mess up.

But if they're wanting what someone else explained, to be a beneficiary so they can collect management fees in case of a catastrophe, I can appreciate where that's a problem for you and your wife.  I can also appreciate their concern especially if a considerable amount of their resources are dedicated to your properties like large multifamily as someone else mentioned.  

If they're not helping pay for the policy then I'd struggle with making them a beneficiary also, especially if another PM doesn't require that of you.

For liabilities only, you may want to consider adding them to cover yourself.