We often get asked why we require Pyramis Company to be named as an “additional insured” on a property owner’s landlord insurance policy. It’s a great question with a simple answer, it makes sure that if a lawsuit is ever filed against the property owner regarding the rental property, Pyramis and the property owner would be sitting on the same side of the table.
Here’s another way to look at it, when a property manager is hired by a property owner, we take on countless different responsibilities and have frequent interactions with tenants and the property. We do not have a financial interest in the property, but take on some of the same risks as the property owner. As a result, when something goes wrong, we would be the target of any resulting litigation along with the property owner. See why it’s beneficial for us to be sitting on the same side of the table with the property owner?
Sounds too simple, right? Let’s work through it…
Additional Insured vs. Additional Interested
Too many people get these two confused, and that’s a bad thing because they are very different. But, they both have good purposes. The purpose of an Additional Insured endorsement, which is often misunderstood, is to extend the property owner’s liability coverage to the management company to address the liability exposures the property owner creates for the management company. The biggest misconception involves the scope of coverage offered to the management company by the endorsement. In simple terms, the endorsement states that the property owner’s liability coverage will extend to the management company for the vicarious liability caused by the acts or omissions of the property owner. In other words, the management company only receives protection under the property owner’s liability policy to the extent that the property owner created the liability. The management company is still primarily responsible for their own liability arising out of their negligent acts.
Additional Interested only means that the interested party will receive notices when coverage lapses or is canceled. This is helpful to property managers for required renters insurance policies. That way, we’ll know if a tenant buys the required insurance to move into a property and then cancels it, thus causing a lease violation.
Doesn’t the Property Manager Have Insurance?
Great question. Yes, professional property managers absolutely do carry several types of insurance policies. While one of our policies could kick in and help us out, insurance carriers require that we have a clause in our management agreement requiring property owners to carry insurance naming us additionally insured. This makes everyone’s life much easier in the long run. Imagine all the finger pointing that would happen if a second insurance carrier had to get involved any time an issue arose…
Another good point here is that a property manager cannot be directly insured for a property we do not have an ownership interest in. Even though a property owner gets a “landlord” policy for their rental property, the property manager is not covered by default, thus requiring the Additional Insured endorsement.
Pushback from Your Insurance Carrier
What happens if your insurance carrier pushes back on your request to add the property management company as an Additional Insured to your policy? While this is a very common request, some carriers out there still don’t want to do it or want to charge you extra for it. If you experience either of these, you should find a new insurance carrier. Most will do it, and most won’t charge extra for it.
Why is this So Important?
Often, rental property owners neglect the importance of having an additional insured property manager. Unfortunately, this mistake often leads to regrettable consequences. While your insurance coverage provides protection for you and your property, there is a critical loophole that must be addressed. As property managers are exposed to the same liabilities as property owners, it is crucial to provide them with protection against legal claims related to property damage. These claims can include damages resulting from fire, water, burglary, or other incidents that harm tenants. Injuries sustained by tenants or their guests on the property can also result in claims against the property manager. Failing to address this issue could create significant financial risks for you and your real estate investments.