Property Manager wants to be named as “Additionally Insured”
Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
Property Manager wants to be named as “Additionally Insured”
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y@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.
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81 Replies
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Guy Gimenez a PM isn’t a liability shield for items which are directly related to your property. PM insurance covers the PM for any issues which is directly correlated to things the PM does or has failed to do pertaining to managing your property. It does not for instance cover the PM for the 2nd floor addition which you added on without permits and then injures a tenant or the request of funds by the PM to fix a safety issue which the owner refuses to fund but results in the tenant suing your PM. I don’t know of any reputable management company which is still in business which does not require you as the owner to indemnify them against such claims, which are inherently out of their control. This is the reason we would never onboard such an account without an owner both agreeing to indemnify us against such instances and placing us as an ‘additional insured’ — again, it would just would not be worth the risk.
The flip side to this however is that the PMs insurance DOES cover you as an owner against any claims due to their management of your property. Would it be right for a Tenant to sue you as an owner for the actions of the PM - something which outside of your control? A tenant certainly can try to sue an owner for such and guess what? The PMs insurance will kick in if its an issue due to their management and covers both you and the PM. So if you are partially protected by the PMs insurance for any management actions they take which are out your control, why would you think it would be unreasonable for the PM to require you as an owner to protect them against your property for actions out of their control?
As landlords we are always wary of ‘shady tenants’ doing shady things but the reality is that there are quite a few ‘shady owners’ out there as well - owners that won’t fund needed repairs; owners that cut corners on repairs; owners that don’t keep up with safety issues; etc. all issues which put the PM at risk and are outside of a PMs control —— PMs are in the property management, investment properties and relations business not in the business of taking the fall for owners that won’t fund repairs or which fail to disclose important issues - which is why the majority of reputable PMs which have been around for a bit will require owners to add them as an ‘additional insured’ or they just don’t onboard your account.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6y
Clearly your clients will accept risk I would not. If the owner gets sued related to the property, everyone who has anything to do with the property will be included in the suit. If the PM gets sued, the owner will get sued also. This is standard operating procedure for litigation. I'm happy your clients will indemnify your company. I don't know any attorney for a homeowner that would agree it's a good idea though. We can come up with a thousand scenarios to make our respective points...but it's moot. You know what your job is and I know what mine is. I would never sign on to such an agreement and can find no good reason to recommend others do so.
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Guy Gimenez completely understand but that is incorrect if the PM gets sued, you as the owner do not get automatically sued or named in the suit as well and in-fact your PMs insurance will cover you for any issues arising out of their management . In the event that you do get named in the suit against the PM for reasons which are YOUR responsibility as an owner such as failing to fund your PM for the requested safety issues which have been brought to your attention but which the PM is being sued for by the Tenant because you failed to provide those resources — you can see how not having your PM listed as an additional insured would result in you as an owner just trying to walk-way which would give your PM no other option other than to sue you for failing to meet your owner obligations in-spite of your PM carrying out their duties for your property in good faith - quite messy - which is why we nor most PMs would undertake such.
I’m sure you don’t want to be responsible for your PMs failed obligations so... why would you expect your PM to be responsible for your Owner obligations? Again, good PMs are in the business of managing your property effectively and helping you drive towards cash flow not in the business of being a liability shield for your failed obligations as an Owner to the property - this is industry standard.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6yYou're beating a dead horse Ricardo. You're trying desperately to convince what I know to be fact is actually not fact. As I said, I'm quite tickled your clients will sign whatever you put in front of them. Just never been my style nor would I recommend it to seasoned investors.
- Member since 2019 · 1k+ posts · 1k+ votes6y
@Matthew McNeil
Zero chance. Fire then immediately. No mercy with this kinda shady crap
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Guy Gimenez thank you for the insightful reasons behind your thoughts and I enjoyed seeing your point of view, thank you for sharing. Property management is not for everyone and it is a mutual agreement of interests. You and your PM need to be on the same team. The choice to not add your PM as an additional insured is a personal one but as an active investor, landlord, property manager and real estate professional... as to why an owner would not want to do it is beyond me and will quite possibly lead to you as the owner ending up in quite a vulnerable position should an issue occur, in addition to your PM. To this day we have yet to have a property owner refuse to add us as an additional insured and to the contrary as previously mentioned owners which have been around for a bit at times actually even provide additionally insured paperwork before even being asked for it. A google search, a read through the BP forums and you’ll find that adding your PM as an additional insured is industry standard. Thank you for all your input, happy holidays to you and your family.
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Ralph R. I’m not quite sure I’m addressing the question but I’ll try. The issue revolving around ‘additionally insured’ is that the tenant will sue the PM and not the owner for any issues with the home even if those issues are inherently the owners obligations, this is primarily because the tenant deals 100% of the time with the PM and will usually say that the PM should have disclosed the issues to them — the PM on other hand won’t know of the issues if the owner has failed disclose them to the PM ... of course the PM will always be responsible for anything connected with any actions of their management and the PMs insurance will cover such... however... for instance: to repair a faulty staircase the PM needs the owner to fund the repairs and address the safety issue if the owner refuses and then the tenant is injured because of it and sues... 99% of the time they will sue the PM... sure the PM will likely be able to show they are not at fault to a judge however, a PMs insurance will NOT cover those costs since it does not afford the same protections as the owners rental dwelling policy because the PM is not the owner - no insurance will - only the property owners will do this.
The reason it’s in the owners best interest to add the PM as an ‘additionally insured’ is because without it and once the PM has cleared the suit from the tenant the owner will now have 2 lawsuits against them - the first from the PM to cover the costs (which will now also include business income lost) and the 2nd from the tenant pursuing for damages — additionally insured will keep your PM from suing you for issues which were not disclosed or for failing to meet owner obligations, because your policy will kick in. I hope this answers your question.
- 6yPeter TverdovBusiness MemberDeveloper · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
Originally posted by @Ralph R.:
@Ricardo R. The part I’m having trouble seeing is the judge in the latter example finding the PM responsible for a faulty installation performed by the owner?? Is culpability not a part of the equation? RR
Same with me.
My PM business has insurance. The owner has insurance on the property. We are all being named in a lawsuit. Having a hard time figuring out how we would be to blame if the owner did a job on the house prior to us coming into the picture. The argument of "well both attorneys for the PM and the homeowner will attack each other"...I get it but I don't think it's a strong argument, the attorney will argue that the PM company should have torn the house apart to look for any faulty wiring? Lol. I might be ignorant here, but if you search the forums there is a lot of discussion on this issue and it isn't black and white. Right now, we don't require our company to be named as additional insured and the arguments I'm seeing ITT aren't convincing me aside from just ask for it for additional litigation insulation.
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Peter T. it has little to do with who is at fault or what the courts decide... it has to do with the COSTS of defending for actions which are considered owner obligations - which part of the reason that @ 60% of PMs which find themselves in such a situation woth errors, omissions, and liability without being an ‘additionally insured’ close their doors within a year after the fact. It’s not so much about the ruling as it is about the COSTS that is the point of insurance but which your errors, omissions and liability issuance as a PM won’t cover.
To each his own... but unfortunately an owner without doing such after being explained the issues would be a pass for our firm and as well as 99% of all PMs which manage portfolios in the 100’s ... sorry but it’s just too much of a risk and there really is no good reason for an owner not to do it, other than ‘just not wanting too’ - such an account would never be onboarded by our firm.
I’m sure there are PMs out there which don’t require it as I’m also sure there are PMs out there operating without errors, omissions and liability insurance (a whole other issue) - sorry but not how we conduct business, it’s about minimizing risk for ALL parties involved if an owner or property is just too much risk without reason, it’s a pass and not worth it to place a business which serves hundreds of other responsible owners at risk, sorry.
- 6yPeter TverdovBusiness MemberDeveloper · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
Originally posted by @Ricardo R.:
@Peter T. it has little to do with who is at fault or what the courts decide... it has to do with the COSTS of defending for actions which are considered owner obligations - which part of the reason that @ 60% of PMs which find themselves in such a situation woth errors, omissions, and liability without being an ‘additionally insured’ close their doors within a year after the fact. It’s not so much about the ruling as it is about the COSTS that is the point of insurance but which your errors, omissions and liability issuance as a PM won’t cover.
To each his own... but unfortunately an owner without doing such after being explained the issues would be a pass for our firm and as well as 99% of all PMs which manage portfolios in the 100’s ... sorry but it’s just too much of a risk and there really is no good reason for an owner not to do it, other than ‘just not wanting too’ - such an account would never be onboarded by our firm.
I’m sure there are PMs out there which don’t require it as I’m also sure there are PMs out there operating without errors, omissions and liability insurance (a whole other issue) - sorry but not how we conduct business, it’s about minimizing risk for ALL parties involved if an owner or property is just too much risk without reason, it’s a pass and not worth it to place a business which serves hundreds of other responsible owners at risk, sorry.
So what are the costs?
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Peter Tverdov This is has been a great thread and thank you for giving your input; we may just publish an article on this issue... okay I'll do my best to lay it out... here goes...
Most PM firms (reputable firms) carry General Liability Insurance as well as Professional Liability insurance which will offer protection from a financial loss caused by a mistake or wrongful act by the Management Firm. However, these policies don’t provide protection against matters concerning the home itself... Why?
Because, when a Property Manager is hired, they perform a variety of different services on behalf of the owner. In general, the PM does not have a financial interest in the home as they are not part owner. However, they do take on the risk and liability as if they were a Homeowner. Assuming the Property Manager does carry E&O Insurance and General Liability insurance, this only offers protection from claims that are a result of the services provided by the PM. It does not offer any protection against matters concerning the home itself.
This leaves the PM vulnerable to claims regarding someone injuring themselves at the property, burglary, fire, water leaks, etc. When coverage is effectively extended to the Property Manager through the Additional Insured endorsement, the problem is solved. Without the Additional Insured endorsement, the management company could be left to fend for itself and then seek reimbursement from the owner directly (or their insurance) for any losses under the indemnification clause. Needless to say, this alternative would be exponentially more expensive and time consuming for all.When a property manager is hired they take on almost all of the responsibilities as if they were the homeowner. As such, if something were to go wrong, such as personal injury, the Property Manager is often the target, in place of the owner, of any resultant litigation. For this reason, almost all reputable property management firms have a strong indemnification and hold harmless clause as part of their management agreement. If the management company is properly listed as Additional Insured, the coverage will automatically be extended to both parties as needed.
If you’re working with an experienced property management company, chances are you're going to be required to add them as an 'Additional Insured' . Why? Because it's just smart business and a good risk reduction policy. if you're not required as an owner; RUN...YOU'RE AT RISK... In the worst of cases, if a major litigation claim takes place, it is likely (but not automatic) that both PM and owner would be named as co-defendants. Having the owner policy extended to both, would create a unified defense, with one insurance company defending both, streamlining the defense process and significantly reducing total legal expenses for all for which the owner (or the insurance company) is ultimately responsible.I hope this answers yours and others questions as well as the all why's and reasons.
- 6yPeter TverdovBusiness MemberDeveloper · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
@Ricardo R. I appreciate the response, but you told me the costs of defending the actions of the owner were the problem. I understand the philosophy behind it, a unified defense. Got it.
But what are these massive costs you keep banging the drum about? Do you even know or is it hyperbole?
Furthermore, if the owner SIGNED a hold harmless clause with the management company, what leg is there to even stand on?
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Peter Tverdov just like an eviction or any other legal action it's impossible to put a $ amount, until it actually occurs and every instance will differ in cost and this legal/insurance situation in no different. We're not here to write your business plan for you and you should certainly do your research on such ... but we can certainly categorize the costs you as a PM and most importantly the owner will likely see for not adding the PM as an 'additional insured'... here goes:
- Litigation costs of taking legal action in defense of owner obligations
- Litigation costs of pursuing legal action in seeking compensation for legal costs from owner
- Litigation cost to recover 'Business income' lost or other costs (deductibles) to mitigate such from owner
- ... oh... and if you don't indemnify in your agreement you might as well add all the litigation costs associated with that mess as well.
An Owner adding the PM as an 'Additional Insured' only serves to protect BOTH the PM and the Owner FURTHER, in terms of cost. If your business model is based on management fees in the range of $60-$200/mo. and then to also leave yourself open in terms of liability to potentially thousands of dollars lost per client, essentially leaving you with a net loss... its not a matter of IF a PM will go out of business but WHEN - which then leaves all your other owner accounts without a PM. This is one reason why so many PMC's will do successful business for years only to have one little hiccup down the road and then shut their doors or be forced to sell... and who do they sell to? companies like ours that are business minded and mitigate risk, take precautions to protect owners and of-course immediately drop those accounts which are higher risk.
As I mentioned before it is in the OWNER's best interest to add the PM as an 'Additional Insured' and the PM, being the licensed entity (the person with most experience in the eyes of the law) should be able to convey this to an owner and help them mitigate their risk - not compound it -, as the seasoned part of the team it should be seen as your duty - it will only save your owner's and you, as a PM, money in the long run; most insurance companies do not charge anything more to add an 'additional insured' and those that do are often smaller insurance companies whose policies are questionably better than the paper written on, as they find it too risky... I wonder why?
Thank you for sharing and this has been a great ping-pong thread and really does help us all see each others perspective. On a side note, I checked out your website and it looks great and especially like your article on the role of property managers, well written.
- 6yPeter TverdovBusiness MemberDeveloper · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
Thanks Ricardo, I appreciate your input. I might decide to do it in the future, for right now we don't do it but certainly have liability insurance and E&O. You learn as you go in business.
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Peter Tverdov likewise. Yeah that is so true; it seems to work for us but who knows as laws change from state to state and policies change, it might not work for everyone all the time. Thanks for the insightful input Pete.
@Peter T. @Ricardo R. Anything is possible I guess. One of my PM’s manages over 700 properties. He apparently feels safer as he does not require being attached to my insurance. The other manager is smaller but also has no such requirement. I would probably not use either one if they had such a requirement. It’s not up to the property owner to provide protection to his PM. Liability insurance is very cheap. Most minimums are 150-300k. I always increase this to 500k, and it adds very little to the premium. I doubt if it’s that expensive but I do wonder if some insurance company’s would balk at it. It’s not the costs I’m concerned with here. It’s the fact of the PM assuming that I as an owner have done something that he’s going to get sued for. I’m not comfortable having a company that feels that way representing my interests. If I trust him with my $100,000 house I would expect him to trust my past maintenance decisions, as well as his own inspection of the property. If he can’t do that I probably would try and find another PM. RR
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Ralph R. I hear ya, and you certainly sound like a responsible owner but... not every owner is as responsible... same reason why we'd require a lead disclosure as well (...or did they 'forget' that one too)... it's not being paranoid, it's just smart business - its not that we don't trust you, heck you might not even be aware of some of the issues - right along the same reasoning as you probably wouldn't be okay with the PM covering their bases as you mentioned above but you would be horrified if a PM didn't screen your tenants (customers) before taking possession of one of your properties, why not just let everyone in? Shouldn't we trust what every tenant says? Some may be offended and walk way... - but nonetheless we screen them thoroughly for you (or at least the good ones do)... now is that being paranoid?... the point is that bad business is inferior to no business at all, we would rather loose an account which is unwilling to convert and is high risk and see them go to a competing company as a 'time grenade' than to jeopardize our existing owner relationships - if its not a responsible owner, we want nothing to do with it - because our company is really in the business of driving our clients properties, creating cash-flow and capitalizing on value add opportunities for our owners not about spending useless time in owner litigation costs. Ralph, you are right...there are some insurance companies that do balk at it, but the majority are onboard and understand why, really in our experience its usually the smaller insurance companies that can't handle the liability - which that is a different issue on the owners insurance quality all together.
I guess the last one here before I head out for the holidays is I'd leave you with is... It would be much easier for us to not require 'additionally insured' paperwork... heck we would just be racking them in and filling in the ranks owner after owner after owner and some would actually think 'this is great' not really knowing that if anything should occur your PM will likely not be in your corner without it, look there is no shortage of owners out there that do the right thing and get additionally insured and I'm not really here to change your mind because honestly we would should pass on the business, you do what is right for you but... if a PM company is really that careless or takes a 'whatever' position to some of these issues, which they are more knowledgeable about and know more about than the majority of owners... just how well is your property really being managed? but, you really you won't know until something happens will you?... food for thought. Alright, I'm calling it - anymore feedback just message us - its Christmas time!
@Ricardo R. Too much science. And I have too much salt for it. Lead based paint disclosures are reguired by the state in Colorado. My portfolio contains 16 units in 3 cities and was started 12 years ago. I put it together from Alaska 3000 miles away from the properties. I can tell you that in the early years of a property the PM makes as much or more than the owner. If you read this thread from top to bottom several people have had opinions one way or another on this subject. You have blamed the tenant the owner and everybody else. There’s not a straight answer anywhere. How many lawsuits have you actually incurred?? I very seldom see anything on here about lawsuits. You say the tenant always sues the PM but the reality is the lawyer advises them who to sue. Most tenants struggle financially and a lawyer is expensive. As you gain experience
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Ralph R. thanks for the feedback and I can tell you are passionate about it, your portfolio is impressive and I have not doubt that you are a kick a$& investor... but if you are hiring PM companies to manage your properties and you are 3000 mi. away you need to understand that what you have is not property management experience at all - I understand that as investors we all like to play doctor or lawyer from time to time but when it comes time to do things right, theories and hearsay go right out the window.
Fortunately, as a PM & Investments company we live it every day... day in and day out... hundreds of properties of all different types and of all different owners, boots on the ground - we're talking about thousands of transactions a year and unfortunately it's simply not true and the smart investor which heeds the advice survives and those that don't may get lucky or may get burnt regardless of what theories or 'thoughts' on how it will play out or should look like - 'additionally insured' is a non-issue akin to debating whether or not you need liability insurance to begin with... no additional cost to most owners and increases your barrier...its a no-brainer. Ralph, unfortunately if your PM is making more than you on the property... your PM is either charging you too much (which I'm sure you would just find another PM so this can't be it) or the property was never going to cashflow for you in the beginning anyway but you went through with it anyway - not a bad purchase but just not a great purchase either. Lastly, on the tenant suing thing, really have you been to eviction court when is the last time you've seen a tenant bring a lawyer? This is an honest question, not meant to offend, if you haven't it would be worth attending a session or two... but just a spoiler alert... not many bring lawyers and they can certainly sue anyone. Your passionate about the issue and seeing it from your side is a good thing. You're certainly welcome to message me if you would like... this is the end of my pro bono... if you'd like to share more about the 700+ PMC which doesn't require 'additionally insured' on here, great if not I understand. Have a good one.
- Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes6y
@Ricardo R., @Guy Gimenez,
@Ralph R.As the OP I’ll chime back in here. I appreciate all the comments. The premise of my post came after my PM, which I’ve used for 10 years, suddenly required me to include his company as “additionally insured.” I thought this was somewhat extraordinary assuming he was passing liability on to me. However, I’ve come to understand that its actually beneficial to me and I’ll quote @Robert Gilstrap who commented on a similar post a few years ago that I found here on BP;
If the PM is listed as additional insured then the insurance company must defend both of you in court on the liability claim. If you didn't have that in place what's going to happen? Well your PM will come to you seeking coverage for his defense expenses because I can assure you that in your mgmt agreement you have agreed to indemnify the PM against any claims. It costs you nothing to add an additional insured and you should absolutely do it.
Thanks for all your input and comments. - Investor · Dublin, CA · Member since 2016 · 344 posts · 228 votes6y
@Matthew McNeil this is a requirement for most of the PMs I have dealt with.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6y
When an owner's insurance company defends both the owner and the PM (as an additional insured), the owner's coverage does not increase to cover the PM, it decreases the owner's coverage. So to say it doesn't cost the owner a thing to add the PM is in fact disingenuous...it absolutely can cost the owner. And the point discussed above is exactly why an owner should NEVER indemnify the PM.
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