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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- Member since 2019 · 1k+ posts · 1k+ votes6y
@Guy Gimenez
So I believe what you’re saying is if max liability was say $2M then this would be used to cover both parties (owner and “additionally insured” pm) as opposed to just the owner ... meaning the owner could get the shaft if a judgement came for $1.1M against owner and $1.1M against pm. Is this correct?
- Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 3k+ votes6y
Here's what we include in our management agreement to clarify why we insist on being on the insurance policy:
* Why does Property Manager need to be added as an additional insured? When a Property Manager is hired, they perform a variety of different services on behalf of the Owner. Landmark Management does not have a financial interest in the home as we are not part Owner. However, we do take on the risk and liability as if we were a Homeowner. While Landmark Management 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 Property Manager. It does not offer any protection against matters concerning the home itself.
So in essence, the Property Manager assumes all the liabilities of a Homeowner but their insurance policies do not offer the same type of protection as a Landlord insurance policy. This leaves management vulnerable to claims and lawsuits arising from the property itself. Some examples of where the Property Manager would not be covered by their insurance policy include someone injuring themselves at the property, burglary, fire, water leaks, etc.
A typical Landlord insurance policy will protect the Homeowner against claims arising from these examples, however, coverage is not provided to the Property Manager through our E&O Insurance or General Liability Insurance (Landmark Management does carry E&O and General Liability insurance). To solve this problem, we require the Landlord to add the Property Manager to their insurance policy as an additional insured which then extends this coverage to the Property Manager.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6y
@Account Closed
Correct. The coverage extended to the additional insured is limited and/or shared by the coverage granted to the named insured.
@Matthew McNeil. There's been a whole lot of smoke blown around on this thread. Mostly by PMs trying to sell a bill of goods but nobody has given an example of how it benefited an owner in a law suit or even benefited the PM in a actual lawsuit. Lots of theory but no real life story. That's how you separate the experienced from the new guy. The new guy can talk about it but has nothing that backs it up The truth is the lawyer targets the money (or goal) before he files the suit. The house and LLC it's in have value and the insurance policy has value. What some of the PM's on here are doing is making themselves a target for suit because in order to collect all the money from the insurance company they HAVE to name the PM who is riding the shirttails of the liability policy. Something else that's missing here is that many land lords use Umbrella insurance policy's to add additional protection. somebody was talking about a 1.1 million dollar settlement. News flash most commercial policy's provide 150-300k liability coverage. If you get hit with a 1.1 million settlement most likely you will come up way short. That's where the umbrella comes in. They usually require an increase in the primary liability from the standard 150-300k to 500k or more. Then they insure against all claims above the primary insurance maximum. The Pm has access to this insurance as well as the owner but he has to pay for it himself. Mine for 10 units used to run about 450 a year, plus the added cost to raise the limit on the primary coverage. (Less than $50 a year per unit one of mine was done at no charge). The only thing you are doing by adding the PM as an insured is cutting your own benifit in half, saving him the few dollars he would have to pay to get his own umbrella policy, and adding him as a target to be named in the suit. Check with your insurance agent. You don't have a million dollars in liability unless you expressly added it when u bought the policy. I understand Loyalty to your PM. I fired one after 10 years. It was for other reasons but you have to remember we are all running a business it's not a social gathering. You HAVE to protect your interests. Splitting you insurance benefit with your PM probably isn't doing that. RR. @Ricardo R. I live in Colorado now and have for 2 years. I self manage my storage units and 3 of my properties. I know full well what you guys deal with. Cash flow on a rental property is a highly debatable item on this website, and many feel comes in second to appreciation or value add opportunities. The PM has little or nothing to do with cash flow. It's set at purchase by the way the property is financed, price paid, market rents, property condition, and many other factors way out of your control but in the control of the owner when he bought it. quite frankly the PM has little or nothing to do with it. I use them because it's easier to manage 2 or 3 PM's than 30 or forty properties. If you check out an IRR calc. You will see the real money is in the back end not the cash flow. Granted in some places cash flow is all your ever going to get and in that case a PM that can save you a few dollars on a plumber is helping your cash flow. RR
- Investor · Union, NJ · Member since 2020 · 81 posts · 312 votes6y
@Matthew McNeil this is a pretty straightforward and standard requirement by most property management companies which have been around for a bit. We actually had an apartment fire at one of our properties in Tennessee about 6-7 years ago which was under a property management company which did require to be added as an additionally insured. We did because our insurer didn't charge any extra for it but didn't understand why at the time or at least the full scope of it... and I'm sorry to say that some of things that most are saying on here like those by @Guy Gimenez and @Ralph R. are simply not true or misrepresented... our coverage didn't decrease and the payout didn't go to the property manager. Instead our insurer did the typical assessment after our deductible and after a bit of back and forth, cut the check for repairs directly to us. To add to matters, after the tenant moved out our property manager was sued for the cost of temporary living expenses by the tenant which they were completely justified in not covering, our insurer kicked in to cover those legal expenses which wound up being dismissed. Our manager was super helpful and went above and beyond, providing statements to the insures and explaining every step and reassuring us through the process and then also after the fact.
After it was all said and done, we obviously inquired more on the additionally insured clause with our insurance agent and they explained that we were lucky it was set up the way it was by the property manager otherwise the property manager could have sued us for damages, something which the lead property manager confirmed would likely have happened.
Currently, we work with 3 property managers all but one require us to name them as an additionally insured... the third does not require it but just has it listed 'as needed' and to be honest with you... after going through our earlier experience we now actually place any property manager we use as an additionally insured regardless if they require it or not, it really only goes to protect us as owners and keeps the property manager on my side. Hope this helps.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6y
You're confusing one success with a lifetime of same. I'm glad your claim worked out but to make the absurd statement that what I stated is untrue shows your lack of knowledge on how the process works. I've had insurance claims paid before too..all without any fighting with my insurance. And I've had to sue Farmers Insurance over 7 years only to have them settle for the full amount I was owed. Because I had success in the former doesn't allow me to assume that will be the case for every subsequent claim. To believe such is naive at best and blindly ignorant at worst.
- Investor · Union, NJ · Member since 2020 · 81 posts · 312 votes6y
@Guy Gimenez you was just sharing my experience with actually having gone through it. You seem to have an apparently biased opinion but have failed to list one true and real reason as to why this would not be beneficial for an owner... you list many grievances and speculations... but nothing of substance and validity. Just my two cents.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6y
With no disrespect meant, I am simply sharing my knowledge based on research and attorney opinions. My original response to the OP specifically states WHY it's not beneficial to an owner. I have no grievances or speculations...just enough knowledge to know that merely because I've never been to Guam, I should not therefore make a fact statement that Guam does not exist. I've never been sued either but I always bullet proof my contracts and deeds in the event it were to happen. I'm very happy that your one experience worked out well. Some do not and the financial implications of an experience different than yours should not be discounted.
@Heather Frusco. Heather you we’re not sued you are talking about a fire and comprehensive insurance not a law suit and liability insurance. Two clearly different things. Comprehensive insurance covers the building and if you had proper landlord insurance it would also cover your loss of income. Colorado requires that the landlord also pay lodging for a displaced tenant if the property becomes unlivable. Colorado landlord policy’s also cover this. This is NOT liability coverage at all. It’s compressive. Liability which was the topic of discussion here is if somebody got hurt in the fire and you would have been sued for damages. In that case you have a dollar limit clearly stated in your policy that would be split between you and your PM. The court could award damages from you and damages due from the PM. Your insurance would be liable for the amount stated in your policy, 1/2 of that amount on your behalf and the other 1/2 on the PM’s behalf. You essentially cut your own liability insurance in half by doing this. Ask your insurance agent. If your attorney didn’t understand that then you need another attorney. RR
- Investor · Union, NJ · Member since 2020 · 81 posts · 312 votes6y
@Guy Gimenez I understand; in your original post you mentioned that you 'strike down any indemnity provision', I'm sorry but it is literally standard in all property management contracts I've seen (and I've seen a lot) or most other contracts in any other industry for that matter... just as a point of reference your BP terms and conditions will even have a hold harmless clause... so not quite sure about that statement. I see your point on wanting to protect yourself but, if you were looking to me to provide you with a service and made a fuss about abiding by certain indemnity clauses which are key to protect me... no offense but I would want nothing to do with you - similar to one of my tenants trying to 'strike out' clauses in one of my leases - I would want nothing to do with that and I'm sure most businesses will take that stance as well.
@Ralph R. you have to read the my post, we did have liability issues - or would have if we didn't have it set up with the property management company as an additional insured - pursuit for tenant damages for temporary living expenses costs and they had another one in the works for damages for personal items lost. In our experience had we not named the property manager as an additional insured not only would the property manager not have worked as easily with us but would have forced that tenant lawsuit onto us and would have also in turn submitted another lawsuit for damages to their company; would of had two on our hands - in our case it was extremely helpful to have the property manager named as an additional insured and made the process smooth - or at least as smooth as it could be. Having gone through it, I call it as I see it and there is a lot of 'fluff' in this post or assumptions in this post - don't see any reason not to name your property manager as an additional insured but I do see and have experience many of the benefits. - Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6y
I understand your point too. But "standard" for one company does not mean it's standard for me or for an entire industry. Most sellers will sell their property using a "standard" general warranty deed. I only sell by special warranty deed. Most folks will accept the standard language in title documents. I always revise them to meet my needs, not theirs. I have worked with many individuals like you who believe their documents are sacred, so trust me, we would never be a good fit because I read every line of even document and make changes as needed. Obviously, many people will sign whatever is put in front of them and have little knowledge of the liability an indemnity clause places on them, which is sad in my opinion. Yes, some businesses will take the stance, as you do, that it's about YOUR protection and to hell with the customer. I always walk away from those businesses too. If documents have to be one sided, then there is always another service provider out there. PM's are a dime a dozen in most markets.
Regarding the language in BP's T.O.U., you will note that the indemnity is very limited, unlike in most PM contracts. Indemnity language can be very general or very restrictive and if you understand indemnity language you will see that my liability under BP's T.O.U. is ONLY for damages caused BP by me or my misuse of the site in violation of their T.O.U. BP's Indemnity language is limited in scope and not overly broad, again, unlike in most PM contracts.
My only point is you're taking your limited experience in this field and applying it to the business world as a whole and that is a disservice to others who are trying to learn from this site. Your experience is your experience. Others have a much different experience and that should not be discounted or brushed off merely because it's outside of what you've experienced.
@Heather Frusco. The whole point is that if those law suits would have come to fruition you would have had only 1/2 the coverage. The Pm would have had the other 1/2 The Pm should carry his own insurance. In Colorado it’s the law you have to provide a place to live. Your PM should have a clause in his lease requiring the tenants to carry renters insurance. Why doesn’t he have that?? That’s SOP. Your insurance company is the one that’s going to fight to lawsuits or not. They may decide to settle. It’s their money not yours. They are also the people your PM’s attorney would be dealing with not you. Your involvement comes after your insurance company settles. That’s why you pay the insurance company. RR
- Investor · Union, NJ · Member since 2020 · 81 posts · 312 votes6y
@Guy Gimenez and @Ralph R. you guys are like a broken record... geez, would hate to have to do business with you. I hear a lot of the 'fluff' you're putting out but not a lot of substance. When the majority of posters on here, most of BP and most industry experts are saying otherwise... at some point you have to ask yourself if you're just ignoring the facts altogether and substituting them with... well... 'fluff'. But hey who am I to say? you guys keep trucking along, seems like you got it figured out. Oh and by the way, after reading through your responses on here...
@Guy Gimenez please insert factual downside of why not to have 'additional insured' (so far none have been provided):
@Ralph R. please insert the same and I believe one poster asked you to provide the 600+ unit PM which you supposedly hire but which did not require you to add 'additional insured' - insert here, name, town and state:
Good luck boys!
@Heather Frusco. The factual downside is that you pay for x dollars of liability coverage to protect yourself but in the event of a liability suit you split your coverage with the PM. It’s like covering both your cars with one insurance policy. They would both be underinsured. You buy your insurance and he buys his. Simple. RR
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6y
@Ralph R. Unfortunately, Heather is not able to comprehend and is unwilling to research. Like too many in the real estate industry, she's confident that she's seen it all and done it all because her limited experiences have taught her all. A simple call to an competent attorney or a Google search will provide her ample evidence that she is wrong, but being wrong is not something she can even remotely accept. I just hope those who follow her here on BP have better sense than to take her nonsense at face value and instead do their own research...something Heather refuses to do.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6y
Here are some "facts", or as you call them, fluff. Feel free to argue your nonsense with attorneys and insurance professionals as I have no doubt you're much more well informed than they are about the subject matter.
- Adding a client to a policy as an additional insured could allow them to report claims directly to the insurance carrier.
- A typical policy is designed to cover the broker’s professional services. Adding another insured could potentially provide coverage to the additional insured’s other professional activities.
- The policy limits of liability could be shared with the additional insured in the event both were involved in the same claim.
In all three of the above situations, the policyholder could lose control of the claim, and would be sharing the limit of liability with the client in the event a claim that triggers the policy.
https://www.noyeshallallen.com/blog/adding-an-additional-insured-to-your-insurance-policy/
What are the Disadvantages to Adding an Additional Insured to Your Policy?
Adding an Additional Insured essentially shares your insurance with someone else. Their claims become your claims. Their troubles become yours. It’s like a shared data plan, but with a maximum cost in the millions. What if your Additional Insured has a lot of claims?
- Your insurance company might raise your rates, refuse to renew, or even cancel your policy.
- Many commercial liability policies have an “annual general aggregate” limit. Each claim reduces the fund available to pay future claims. You may be left with a lot less insurance – less than your next job requires.
At a minimum, in the event of a serious claim, the company and the third party can clash as they compete for the finite proceeds of the insurance policy. In a recent coverage decision, the Delaware Superior Court, applying Delaware law, held that AR Capital, an additional named insured under the D&O insurance program of VEREIT, was entitled to have its costs of defending the underlying claims advanced under the program. The Court’s December 12, 2018 ruling, which can be found here, provides an interesting perspective on additional named insured issues.
- Investor · Union, NJ · Member since 2020 · 81 posts · 312 votes6y
@Guy Gimenez OMG... I'm having a back and forth with a guy that's quoting E&O and D&O insurance policies from blog links. I'm sorry... Guy I have no doubt you are a smart individual but, without trying to offend you, did you just get these off of the internet to make your point with me? someone one that has actually gone through this?... AND do you know what types of insurance policies your articles are referencing? just as a side it may be wise to review your 'RENTAL DWELLING POLICY' with your insurer and just a quick tip, it is not an E&O or D&O policy. It may be worth going back to the drawing table and doing some more 'research' on google but, once you have exhausted you're search it may be wise to listen to what those who have more experience and have been there are trying to tell you... you don't have to follow it... but listening doesn't hurt, best of luck to ya.
- Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes6y
@Guy Gimenez how many of the 14 instances of indemnity in those closing documents did you have removed?
- Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes6y
Truce!
As the OP, I'm calling for a truce between a couple of BP members who are getting a little carried away. I think there's enough information shared in this thread for people to walk away feeling they've got enough information to form their own decision regarding the topic. I certainly have.
Thanks everyone for your input. Let's wrap it up and call it a day. - Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes6y
The title company refused to allow any changes to their documents so I moved on to another underwriter. Some title companies are rigid while others are more understanding and willing to amend their documents.
- Rental Property Investor · Space Coast, FL · Member since 2019 · 24 posts · 13 votes6y
@Matthew McNeil
They can be added by our insurance as an "additional Interest" not an "additional insured" on the policy.
- Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes6y
Good to know, @Guy Gimenez
- 6yRicardo R.Pro MemberProperty Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
@Heather Frusco I tried to tell them. Here's a post written by Brad Larsen...
https://www.biggerpockets.com/forums/52/topics/402958-investors---are-you-a-c-class-landlord?page=2
... there should be a class 'D'. Good luck.
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