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An Inside Look at Property Managers & Real Estate Insurance

Post written by Tony Vicari CPCU- Quality Assurance Analyst 

WFI-Contract The role of professional property management has evolved over time. In its early form, responsibilities included finding tenants, collecting rents, paying utilities, charging a fee and remitting the remainder to the owner.  Modern day professional property managers, however, have a more demanding agenda.

He or she may also:

  • Develop rental contracts.
  • Screen an applicant’s credit, criminal history, rental history and ability to pay.
  • Perform maintenance or sub contract maintenance within a budget.
  • Handle evictions and non-payment problems.
  • Offer primary property and liability insurance for the owner, rather than the owner placing it direct.

While many of these activities can be performed by a single landlord, or a small management group, specialized property management companies may also offer financial advice for condo or homeowners associations. And among the advanced services, some companies may serve as consultants, conducting administrative services that include:

  • Association board of director’s advising.
  • Development of rules and regulations or homeowner’s manuals.
  • Consultation on advanced construction project projections, pre-construction advice, or on site management activities.
  • Insurance placement advice or offer an insurance agency referral.

Most states require a property manager to have a real estate license or to be operating under a real estate broker. This may require that the firm carry real estate errors and omission (E&O) coverage.

Classifying the General Liability Exposure

The review of a sample contract (to determine services offered and assumption of liability) is critical to the evaluation of a property manager’s insurance policy.

First, it is important to note that real estate can be divided into two categories—owned property (managed by the owner) and property managed by a property management company.

Below is a look at the classification of owned property.

If the owner manages their own property, the classification used will include a variety of building or premises class codes (such as code 61212). Additionally, the class selection will depend on if the insured or tenant is responsible for maintenance. Maintenance responsibility for the property will impact the class and rate level.

One classification exception is the class designated for shopping centers (i.e. at least five stores and 25,000 feet of parking). Shopping centers carry a higher rate due to the amount of foot traffic and the parking area is also charged separately with an additional class.

Below is a look at the classification of property managed by a property management company.

Property management firms start with code 47052 Real Estate Property Managed. This is a sales based class, which includes total sales, less rents collected. Fees to collect rents are included, however. This class uses an endorsement (CG2270), which excludes damage to property managed, and makes the general liability coverage excess for bodily injury and other property damage claims, because the property manager is, by definition, an insured under a building owner’s policy on the standard general liability coverage form. This excess position reduces the cost of liability coverage for the property manager and allows them to consolidate coverage with the owner in the event of a claim.

Oftentimes, however, the property manager is required to provide primary insurance for the owner. If so, a separate general liability class for each location would be added in addition to the 47052 class using the same building or premises class that an owner would use. Additionally, CG2270 would need to be modified to remove the excess insurance reference.

Image credit via Flickr Creative Commons, Victor1558

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