As a property owner, protecting your assets is a top priority. One of the most effective strategies landlords can implement is hiring a property manager to limit exposure to risks and handle the complexities of managing rental properties. To enhance this protection, adding your property manager as an Additional Insured on your insurance policies is essential. This simple step can significantly impact your risk management strategy, liability coverage, and the long-term success of your real estate investments.
What Does "Additional Insured" Mean?
The term "Additional Insured" refers to extending your landlord insurance policy, which mitigate risks associated with the property itself, to cover your property manager. While some confuse it with "Additional Interest," the two terms are vastly different. "Additional Interest" only ensures your property manager is notified about changes or cancellations to the policy, whereas "Additional Insured" provides actual liability coverage. Learn more about the differences in these guides from The Balance.
Why Should I List My Property Manager as Additional Insured?
Reputable property management firms increasingly require property owners to add them as Additional Insured, recognizing it as a best practice in the industry. Some property management agreements even include this as a standard clause. Adding this endorsement:
- Reduces Legal Disputes: Aligning with industry norms minimizes potential conflicts.
- Streamlines Claims: Shared insurance simplifies defense strategies during litigation.
- Covers Property-Related Risks: Protects both the owner and manager from premises liability, such as injuries or property damage.
Can’t My Property Manager Get Their Own Insurance?
Property managers typically carry their own insurance, including General Liability and Errors and Omissions (E&O) coverage. However, these policies do not cover risks tied to the property itself. For example, if a tenant files a claim due to personal injury on the premises, the property owner’s policy is the primary resource for defense. Learn more about standard insurance policies property managers carry in this article by doorloop.
Benefits of Adding a Property Manager as Additional Insured
Property managers play a pivotal role in maintaining and overseeing the day-to-day operations of your property. This includes managing tenants, handling repairs, and addressing potential risks. All this responsibility comes with significant exposure to liability. These include:
- Damages tenants suffer due to fire, flooding, burglary, or other incidents
- Injuries sustained by the tenant or a guest on their property
- Other related incidents resulting in damages to a tenant
If a tenant, visitor, or contractor files a lawsuit due to property damage or injury, the Property Manager is often the first target of any resultant litigation. While reputable property managers carry their own liability policies, these policies don’t provide protection against matters concerning the property itself. When owners provide their property managers with an Additional Insured endorsement, this issue is effectively solved. This arrangement benefits the owners in several important ways:
1. Unified Legal Defense
Without an Additional Insured endorsement, litigation could pit property owners and managers against one another. In contrast, an Additional Insured endorsement fosters unity, as one insurance provider handles the claim for both parties, reducing costs and complexity.
2. Protection Against Premises Liability
Your property manager faces liability risks from incidents like tenant injuries or property damage claims. Extending your coverage safeguards both parties and prevents costly disputes by reducing the risk of disputes over who is responsible for damages. Read more about liability coverage nuances on Investopedia.
3. Cost Savings
Without the Additional Insured endorsement, the management company that is left to fend for itself may 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.
Are Insurance Companies willing to add the property manager as Additional Insured?
Most larger insurance companies understand that adding property managers as Additional Insured is in their customer’s best interest and will add the property management firm upon request for little to no additional cost. However, some of the smaller or specialized companies view adding a third party to the policy as taking on additional risk and refuse to do so. While there may be some merit to their viewpoint, it can be argued that using a professional management company will reduce overall risk and that since the owner is indemnifying the management company, they would eventually be faced with a payout on behalf of their customer. Accordingly, their total cost of a payout could be significantly reduced if they are in control of the claim from the beginning.
How to Add a Property Manager as an Additional Insured
Adding your property manager as Additional Insured is usually a straightforward process:
- Review Your Policy: Confirm compatibility with your current policy. Here's a helpful guide from Zillow on understanding landlord insurance.
- Contact Your Insurance Provider: Request an Additional Insured endorsement and inquire about costs.
- Provide Information: Share your property manager’s business name, address, and role with your insurer.
- Obtain Written Confirmation: Provide a copy of endorsement to your property manager.
Helpful Tips for Additional Insurance Setup
- Clearly specify that your request is for Additional Insured and not merely Additional Interest.
- If your insurer charges extra fees, shop around to compare policies while keeping overall value in mind.
- Ask your property manager if they offer a Master Liability Policy for owners, which can be a cost-effective, haste-free alternative.
The Importance of Proactive Risk Management
Failing to add your property manager as Additional Insured could jeopardize your real estate investments. Lawsuits, claims, and disputes can quickly erode profitability, making it vital to implement this protection. Discover more insights into effective landlord risk management on BiggerPockets.
Final Thoughts
Adding your property manager as an Additional Insured is a small but crucial step to safeguard your investments and strengthen your professional relationship. It aligns with industry standards, mitigates risks, and ensures smoother operations. Start this process today to protect yourself and your property manager while maximizing the value of your rental properties.
For more resources on property management and investment strategies, explore PMI James River’s blog; here is a section just about insurance.
