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What You Don’t Know CAN Hurt You

Insurance Considerations for Real Estate Owners and Property Managers

Author: Tony Vicari, Quality Assurance Analyst

BuildingProperty owners often contract with property management firms to provide various services such as seeking tenants, collecting rents, maintaining premises, providing financial services and optionally, providing primary insurance.

Property managers need to consider several things when developing a master insurance program which will include clients under contract.

  • The management agreement and lease should be evaluated by a competent real estate attorney and insurance implications should be considered.
  • How should the program be structured? Will it be available to all clients or will there be qualifications for entry? Can the management company refuse to offer or take away the insurance option? If so, is there a written notice necessary?
  • What checks and balances are in place to make sure all appropriate named insureds are added to the policy?
  • If an individual client has a poor loss history, should they be allowed into the program which may potentially jeopardize the overall rate structure?
  • Will there be minimum requirements for the type of building construction, banned occupancy types, such as storage of high hazard materials, minimum fire protection services at the location, or requirements for automatic sprinklers in commercial occupancies?
  • Will the property manager regularly inspect buildings for violations of the lease that impact insurance?
  • Will the property manager be responsible for taking claims reports from tenants and reporting them to the insurance company/agent? Will detailed records of claims be kept by location and/or owner?
  • What kind of liability limits will be needed to satisfy the majority of owners?
  • Will an average rate be charged to everyone in the program or will it be broken down by client? Who will do the breakdown?
  • If there is a material increase in the insurance rate structure, will the management agreement allow for annual (or more frequent) changes?
  • What benefits can be obtained (rate or coverage) by providing primary insurance for an owner?

As an owner who elects to have the property manager provide insurance coverage, you should consider several areas.

  • What is the quality of the insurance carrier being selected? What is their financial strength and ability to pay claims? What is their claims philosophy and do they have a history of prompt payment? Do they have a local claims presence or will they use outside adjustors?
  • What kind of legal representation will be offered in the event of a serious liability claim?
  • What size deductible will be used? Is there a separate wind/hail deductible?
  • Are the same terms and conditions being used in the property manager’s program? What are the limitations in coverage? For example, are roof damage claims paid after depreciation or on a replacement cost basis?
  • Since many owners may be combined under one policy, will the available general liability limits be reduced?
  • Are higher limits of liability (umbrella) offered in the plan?
  • If coverage is cancelled or non-renewed, will a property owner be notified?
  • Will all of an owner’s properties be covered under the property management insurance program? If not, how will this be coordinated to insure no coverage gaps/overlaps occur?
  • How will the billing for insurance be handled?  If you add or delete a property, how is that handled?
  • Since you will not have your own agency to work with, in the event of a problem are you comfortable with the individual used by the property manager?
  • Are any of the owner’s rights restricted within the management agreement?
  • Can an owner easily get a loss history report that identifies their claims within a larger program?

In conclusion, if you’re a commercial property owner and utilize the services of a professional property management firm, make sure you contact your independent insurance agent to ensure you have the appropriate coverages in place.

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