I'm the primary insured, but my PM wants to be included on Liability policy. Has anyone heard of this?
My insurer refused to accommodate the request saying they've had problems with PMs named in their policies, although they didn't elaborate.
If your house burns down you don't want the insurance check to also be made out to your PM.
Your PM should have their own insurance for their business.
Just tell the PM the insurance company will not do this.
This is actually part of the standard property management contract from the Association in our state and is a requirement for many if not most property management companies here. Not sure about all states, but definitely common in Texas and it’s for our own protection. As a landlord you have a responsibility to indemnify the property manager when they are sued in lieu of or along with you under the contract, so in a case like a frivolous tenant suing for a slip and fall without negligence, you want that insurance defending you both or you’re going to be in the hook for the PM’s attorney fees.
that is insane , I’d never permit that !
Additional insured is not the same as being a holder of the policy. It generally would mean that if a tenant sued the PM for something that was your responsibility the PM's legal costs would be covered. My tenants have me as additional insured on their policies. You will see it in construction, subs include GC as additional insured. It also gives that person notification that your insurance has lapsed. This is critical for a GC since they need to know as soon as their sub is no longer insured since all liability is now on them.
Originally posted by @Guy Gimenez :
Make sure you review the PM Agreement's in detail. As previously stated, many of these PM Agreements have an indemnity provision and from the consumer viewpoint, they're very dangerous. As a matter of policy, I always strike any indemnity language in any contract. If your PM keeps pushing, perhaps you should keep looking.
Thanks Guy. This is the actual wording in the PM contract;
OWNER agrees to indemnify, defend and hold AGENT harmless from any and all claims, investigation, lawsuits, actions, causes of actions, demands, rights, damages, costs, loss, expense and compensation whatsoever, presently existing or which may hereinafter accrue on account of or in any way grow out of any and all known and unknown, foreseen and unforeseen injury or damage, loss cost and expense, and the consequences thereof, resulting or to result from the condition of the PREMISES, conduct or inaction which arose or might arise on PREMISES, repairs and maintenance conducted on the PREMISES, and the management and leasing, whether occurring during the term of this AGREEMENT or after its termination. It is understood that AGENT is fully indemnified and held harmless from any claim or liability for damage to property, injuries, death, of any person caused by any condition on the PREMISES, conduct or inaction of third persons that arose on the PREMISES, including repairs and maintenance completed during this AGREEMENT, prior to this AGREEMENT or arising thereafter.
Originally posted by @Dennis M. :
that is insane , I’d never permit that !
That was my initial thought. Oddly, I've used this PM for 10 years and hadn't seen this wording in previous agreements. They revised their contract and upon careful inspection I read the "Additionally Insured" wording requirements. That was new to me, and my insurer refused to accommodate the request.
Originally posted by @Leah Slaughter :
This is actually part of the standard property management contract from the Association in our state and is a requirement for many if not most property management companies here, myself included. Not sure about all states, but definitely common in Texas and it’s for our own protection. As a landlord you have a responsibility to indemnify the property manager when they are sued in lieu of or along with you under the contract, so in a case like a frivolous tenant suing for a slip and fall without negligence, you want that insurance defending you both or you’re going to be in the hook for the PM’s attorney fees.
Thanks for that Leah. I always try to get additional perspective and I appreciate you sharing that. Makes sense to me. My assets are in Idaho and I'm not sure if this wording is a requirement in the state. I doubt it. However, I assume the PM is obligated to carry their own insurance.
We carry our own, too, but an owner still defends a PM (unless the PM is grossly negligent, committed fraud, etc). This is more for slip and fall (tenant injury or sickness) type cases AND to make sure we get notified if you let your insurance lapse!
PM contracts in Texas even allow us to force put insurance on your property if you don't. We would terminate an owner before we did that, though :)
@Matthew McNeil Yes Sir, very broad and far reaching. I would never allow such language in my contracts...the liability placed on you with this provision is crazy. Essentially, any lawsuit brought by any party, even if it were a result of the PM's failure to act, will be your problem and you'll pay all the PM's litigation costs. This how you can be devastated financially through no fault of your own.
Originally posted by @Leah Slaughter :
PM contracts in Texas even allow us to force put insurance on your property if you don't. We would terminate an owner before we did that, though :
@Matthew McNeil you guys are wrong.
The PM is asking to be added as "Additional Insured" or "Additional Interest" to your liability policy. if the house burns down or the roof blows off, the PM will not receive a dime.
Let's say your tenant falls and breaks a leg. Their attorney will sue everybody and anybody, which means the Landlord and the PM both. If the PM is named as "Additional Insured" on your policy, your insurance company will represent both you and the PM. If the PM is not named, your insurance company will represent you and the PM insurance company will represent him. This increases the likelihood that your insurer and the PM insurer may fight against each other and it weakens the defense for both parties.
Naming the PM on your policy is simple, doesn't cost a dime, and does not change your protection in any way except to strengthen it. I manage over 350 rentals and only one insurance company refuses to add us as Additional Interest on the policy. State Farm, USAA, Farmers, AllState, and others have no problem with it.
@Matthew McNeil this is my 2c.
According to @Nathan G. the terms "Additional Insured" and "Additional Interest" are two completely different things and you need to clarify which your PM is asking for. The following are based on my interpretation of the above article and my reading of it.
If your PM is asking to be placed on "Additional Interest", this seems to be more of a notification process. The PM receives copy of your policy and is notified if your policy laps. This should not incur a cost and should be fairly straight forward. The article uses the example of a Condo HOA as being listed as an Additional Interest because they have an Interest in the property. So a PM that manages your property would have an Interest in the owner having proper coverage.
"Additional Insured" means the PM is covered under your Insurance for any liability. This will most likely incur a cost increase since your insurer isn't just covering your liability, but also a third party liability. Being named Additional Insured will probably bring down the operating cost of the PM since they will be able to carry less insurance since YOU will be carrying more for them. Again, as the article states Additional Insured is for parties that have Co-Ownership, Lending institutions, investors etc.
You would have a hard time making the case your PM has an "Ownership" in the property they are managing. Therefor Additional Interest would be appropriate where as Additional Insured WOULD NOT. At least from a home owners point of view. From a business being named as an Additional Insured would be great, since it lowers operational costs and liability overall.
It does make sense to share an insurance policy for liability. Otherwise, they may decide that the cheapest way to defend you, is by throwing your PM under the bus.
@Michael Randle I've never had an owner experience a cost increase for "Additional Insured" on a policy. I know many managers around the country that require this, some with thousands of owners. It has a legit purpose and should not impact the owner in any negative way. It's to the mutual benefit of all participants.
As to the language in the pm contract, while there doesn't seem to be anything exceptional in it, when negotiating something like this I would definitely carve out an exception for negligence, or at the very least gross negligence ( a much higher standard) by the pm.
FWIW, we don't require this for my company in NJ. We do require the owner show proof of insurance (liability insurance specifically). We have our own insurance. I've never really understood the need for it and if you search the forums on this topic there are multiple stories of insurance companies that don't permit it.
My PM requested to be "additionally insured" on my insurance policy and they were denied by the insurance company, as showing no real financial interest in the property. I was informed by the insurance company that there would be an increase in the premiums and generally, PMs ask for additional interest instead of, additionally insured.
I have to second everything @Nathan G. said. We absolutely require it, none of the insurance carriers our clients (over 150 clients) work with have ever given them any trouble over it or charged for it, it's free and takes minutes. The point is exactly that if we get named in a lawsuit arising out of something that happened at the owner's property, we have the same defense as the owner.
Our PM company carries its own insurance policies, of course! I'd venture to say that any PM that has a good management contract drafted by an attorney and that includes this "additional insured" clause certainly has their business itself insured.
@Matthew McNeil @John Underwood @Guy Gimenez @Peter T. It is quite common if not STANDARD for most PM companies to be named as an ‘Additional Insured’ (Not ‘additional interest’ - which is just notice) in the homeowners rental dwelling policy and I would take it that if a PM is requiring this... they have been around the block a bit and know what they are doing.
As @Nathan G. mentioned an ‘Additional Insured’ will not receive a ‘pay out’ but instead be protected in liability claims against the homeowners policy. Your property manager is at the forefront of liability claims connected to your property they are essentially the first ones likely to be sued by the Tenant even for issues inherently connected to the homeowners property which are outside of the managers scope. A PM’s insurance covers the PM against liability, errors and omissions for claims against them in the carrying out of their management duties it does NOT cover a PM for a claim arising from the homeowners property or for issues connected to the property itself.
We would never take on a property owner without being named as an additional insured... it’s just too much of a risk... any electrical issue, any plumbing issue, any safety issue or any other item that is inherently wrong with the property but never disclosed to the PM but which then goes wrong... places the PM front and center for a suit even if it was beyond the PMs control. Ex: homeowner tries to save money and replaces a light switch themselves before the PM comes in the picture, installation is faulty, injures a Tenant and now the Tenant sues the PM — this is just one of a thousand scenarios in which the PM may be held liable for issues beyond their control and before they came in the picture while carrying out their duties in good faith.
We have never had an issue with a property owner naming us as an ‘Additional Insured’ and most owners which have multiple properties actually add us and send us the insurance paperwork before we even ask for it. However, if we ever came across a property owner that was unwilling to do this after being explained the reasons why... unfortunately there would be no way we would on onboard the account. We would essentially be taking all the risk of any ‘corner cutting’ or ‘shorty’ repairs/maintenance/construction that was done to the property before we even came in the picture... it would just be WAY too risky and not worth it as a company responsible for multiple properties.
I do understand customs, but I also understand liability. I just finished reviewing a set of closing docs from a national title company. No less than 14 times do these title company documents have the buyer and/or seller indemnifying the title company against loss. It's great for the title company...they essentially get a large premium with very little liability. These documents are customary for this title company but that in itself doesn't mean it's right, fair and it's certainly not logical from a buyer or seller perspective. I never let "customs" supersede good common business sense.
@Guy Gimenez thank you so much for sharing. Completely see your point and that is certainly indemnification is certainly standard and by no means does is the insurance requirement meant to leave that out. The issue however is Not the property owner... it’s the Tenant. Understanding that anyone can sue anyone for anything (although not necessarily upheld) the Tenant who has had 100% of contact with the PM and 0% with the homeowner will likely sue the PM regardless of its the PM’s or the owners fault.
Let me put it this way... if you are a private landlord and your tenant in your property goes to turn on a light switch and god forbid they get electrocuted and injured due to your installation of it... would you as the homeowner be liable? Regardless of indemnification or what your agreement (lease) says... yes you would certainly be responsible which is one reason you should carry insurance. Now just replace the scenario with a PM instead, and which is sued by the tenant due to the owners faulty install... would the owner still be a liable... yes certainly however the PM would be the one on the hook however unlike the owners rental dwelling policy the PMs liability, errors and omissions insurance would not protect the PM and does not afford the PM the same protections... which is why we would require you to add us as an ‘additional insured’.