Property Manager Wants to be Additional Insured or Co-Insured
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Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
13yKelli, Being named as an additional insured and a loss payee are two different things. AI status only relates to liability. A mortgagee clause and/or loss payee endorsement relate to the property and a PM doesn't have a insurable interest so they would not be included in any sort of property claim settlement.
31 Replies
- Annapolis, MD · Member since 2014 · 1 post · 0 votes12y
When asking an insurance related question you should ask an insurance agent not a real estate agent. The PM is not right in asking to be listed as an additional insured but should be requesting to be listed as an additional interest. Most insurance companies no longer allow the PM to be listed as an additional insured AND most importantly to the PM it REDUCES his coverage.
https://www.effectivecoverage.com/800/additional-interest-vs-additional-insured/
- Rental Property Investor · CA · Member since 2014 · 20 posts · 10 votes11y
I own a PM company so I'm obviously a little biased, but not only has it taken me years to learn the nuances of this insurance game, but I'm still learning something new every day. It amazes me how much there is to learn and it's starting to frustrate me because insurance agents need about as much training as real estate agents...both have licenses that don't even guarantee a basic level of knowledge. It's ironic how similar the two industries are with respect to the large gaps between the inexperienced and experienced. A good insurance agent will do wonders for you as will a good real estate agent. And most of the time you don't find out the bad ones until the financial harm is already done.
#1 - the major thing I had to initially learn was there is a major difference between the "casualty" insurance, which covers the building if it burns down, etc. and the "liability" insurance, which covers things like a tenant slipping down a staircase because there was no non-slip material installed. It seems very basic, but I find people talking about those items interchangeably all the time. My company gets listed as additionally insured on our clients' policies for liability protection. My business interests are not affected if they are under- or un-insured on the casualty portion other than the fact that I may not have a building to manage if it burns down.
#2 - For anyone that makes a case that a PM company shouldn't be listed as additionally insured on a policy is truly short-sided and many times outright wrong in their rationale. It doesn't reduce coverage, doesn't give the PM company right to compensation if the place burns down, etc. Let me put it this way...when something goes wrong from a liability standpoint (example: tenant falling down staircase at apartment building), an attorney will literally name EVERY person/entity humanly possible in the lawsuit. Unless the PM company manages huge buildings, most of the time the PM company will have the deeper pockets out of all the parties named in the lawsuit and will therefore be the primary target of the lawsuit. For how slim the margins are in this industry, which also has a barrier to entry of next to nil, it doesn't make financial sense for a PM company to manage a property where they are NOT listed as additionally insured. The compensation model in the industry is effectively a pass-thru expense model. In other words, the PM company typically takes a management fee and passes on all operating expenses, which includes liability insurance, to the client. If the PM company needed to assume the financial risk for all this exposure, the economics wouldn't make sense to sustain. Should the PM company also chip in for fixing toilets that go bad or painting the place? It's really no different. Liability is part and due course of owning a piece of real estate. NOTE: As an owner, you SHOULD have a clause whereby your PM company should indemnify you for their negligence (aka when to use the PM's insurance policy vs. the owner's policy). With all this being said, that doesn't mean there aren't PM companies that are lazy or ignorant of the risk they're assuming. Let them meet Murphy.
#3 - You'd be surprised on how much influence PM companies have on the insurance policies their clients purchase. Probably less than 5% of our clients care about which company insures their property(ies). Insurance, quite unfortunately, is looked at as a commodity business. So if some insurance companies are going to prevent PM companies from being listed as additionally insured (which I've really never experienced), they'll just be dropped from the bid list each year when we bid out the insurance. We typically get 3-4 bids each year 60 days before expiration and let the client make the final decision. We have relationships with one person at all the major companies as well as some brokerage firms. With the volume of insurance business we refer, it wouldn't be hard to get another company to match or beat the price of some stingy insurance company that won't add us as additionally insured. And from a fiduciary standpoint, we'd still make sure all the policy terms are the same or better and the A.M. Best Rating is as well.
#4 - If you really want to throw a monkey wrench into this debate, Google "Primary and Non-Contributory" which is what we require of all our clients' liability policies and every PM company should think about requiring IMHO. I'd say about 5% of the agents I talk to when we first take over a property comprehend the ramifications of that clause, why our PM company needs it, and why it's not bad for our clients to have it included in the language.
- 11yJason BottPro MemberInsurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
It sounds like you have a personal policy covering the condo. A personal policy excludes business operations and it will never have the ability to add a business as an Additional Insured. If you have a commercial policy covering the condo, as you should since you are renting it out for income, there should be no issue.
- Investor · Metairie, LA · Member since 2016 · 21 posts · 11 votes8y
I just encountered the same thing and my insurance agent is raising an eyebrow... after reading this bit here... am i right to raise my eye brow at my agent, lol? It almost appears as though this is common knowledge.
- Rental Property Investor · Sacramento, CA · Member since 2017 · 23 posts · 7 votes7y
I live in california and cant seem to find an insurance agent who will allow me to add my PM as an additional insured. I am looking for insurance carriers who will allow it. @todd smith or anyone else have a list of carriers you would recommend?
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes7y
I'm managing property for about 120 different owners. I can think of at least eight different insurance agencies used by my clients (State Farm, Farmers, USAA, etc.) and only one has ever pushed back on this and then they relented after doing some research. Every single one of my owners has me listed as additional insured or additional interest.
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