Property Management & Insurance
What Coverages are Necessary?
By Shawn Woedl
If you have hired a property manager (PM) for your rental properties, they likely will (and should) carry Professional Liability or Errors & Omissions coverage. These insurance policies help protect them if their inadequate work or negligent actions while performing property management duties lead to a lawsuit. But what if you perform property management duties yourself? Did you know that if, while performing these responsibilities, your negligence results in a claim, your Premises Liability offers you little to no protection?
What Activities are Considered Property Management?
When comparing the activities of a landlord to a property manager, there is certainly some gray area. Essentially, the role of a landlord is to own the property and provide for its ability to function properly, for example, plumbing, gas, heat, water, etc. The property manager, who might be, but is not always a third party, handles most of the responsibility for maintaining the property and managing the relationship with the tenant. Specific activities may include:
» Setting rent rates based on market standards and collecting rent from tenants
» Advertising property vacancies to attract new tenants and showing the location to potential occupants
» Performing background or credit checks and screening of potential tenants
» Finalizing lease agreements with new tenants and coordinating placement
» Paying bills and managing the budget or financial records for the property
» Specific maintenance duties to ensure the property is safe and inhabitable — This may include responding to tenant requests, performing maintenance, or hiring contractors where necessary to fix issues and updating facilities when warranted.
» Resolving tenant complaints and enforcing lease requirements — As part of this responsibility, the property manager should understand local landlord-tenant laws and ensure that both parties fulfill their requirements.
Performing these tasks, or similar ones, could classify you as a property manager. As such, you may be at risk of liability claims due to inadequate work or negligent actions when acting in this capacity. However, as a property owner who performs these responsibilities (as opposed to a professional property manager), finding the right coverage can be challenging.
What is Property Management Errors & Omissions (PME&O) Insurance?
Errors & Omissions (E&O), also referred to as Professional Liability insurance, is coverage carried by businesses that provide specialized services or play advisory roles, such as professional property managers, financial service providers, lawyers, and consultants. These coverages insure against claims made when the work provided or advice given causes harm to the recipient of those services.
Similarly, Property Management Errors & Omissions is for property owners who perform the duties listed above, or similar ones. This coverage protects you from tenant allegations that you were professionally negligent in these responsibilities or failed to perform duties as promised in your contract while acting as the property manager.
What Does PME&O Typically Cover?
Property Management Errors & Omissions (PME&O) insurance covers a range of issues that may arise while performing property management activities. This includes legal defense costs such as judgments, settlements, court costs, and attorney fees. Issues falling under this coverage may include, but are not limited to:
Errors and Contract Performance Disputes
If maintenance or upkeep is not as per the lease agreement or legal documentation has been misrepresented.
Tenant Discrimination
Fair housing laws protect all individuals seeking housing, including renters, homebuyers, and those obtaining a mortgage or homeowners insurance. The federal Fair Housing Act prohibits discrimination based on race, color, religion, national origin, gender (including sexual orientation and gender identity), disability, and familial status (presence of children under the age of 18 and pregnancy).
Some states require you to rent to the first applicant for your listing, regardless of whether or not they can produce an acceptable rent history or are employed. If you do not adhere to these laws, overlooked applicants could sue you for tenant discrimination.
Advertising Misrepresentation
Examples include advertising that the property you are leasing is handicap accessible when it is not, unintentionally not disclosing mold, rental history, etc., or including incorrect property information in the listing.
An Important Note for Hiring Professional Property Managers
If you choose to utilize a professional property manager, it is very important that you require them to carry Errors and Omissions coverage, with you or your entity listed on the policy as an additional insured. The owning entity of the property, which should be the same entity that pays the property manager, must be the one listed as an additional insured. This ensures that you and/or your entity are protected from potential legal and financial liabilities arising from the hired property manager’s actions.
In Summary
Property Management Errors & Omissions (PME&O) insurance is essential for property owners who self-manage their rentals, protecting against legal and financial risks that may arise from claims of negligence, discrimination, or failure to fulfill contractual obligations. By understanding the importance of PME&O insurance and obtaining adequate coverage, you can safeguard your investments and manage your properties with greater confidence and security.
