If your investor client has rental properties and has contracted with a Property Manager, their PM likely will (and should) carry Professional Liability coverage or Errors & Omissions. These coverages help protect PMs if their inadequate work or negligent actions while performing these duties lead to a lawsuit. But what if your investor client performs property management activities themself? Did you know that if while performing property management duties, your client’s negligence results in a claim, their premises liability offers them little to no protection?
What activities are considered “property management”?
When comparing the activities of a landlord to a property manager, there can be some gray areas. Essentially, the role of a landlord is to own the property and provide for its ability to function properly – e.g., plumbing, gas, heat, and water. The property manager (which can be but doesn’t have to be a third party) handles most of the responsibility for maintaining the property and managing the relationship with the tenant. Specific activities can include:
- Setting rent rates based on market standards and collecting rent from tenants
- Advertising property vacancies, showing the location to potential tenants, performing background or credit checks, screening potential tenants, finalizing lease agreements, and coordinating placement
- Paying bills and managing the budget and financial records for the property
- Property maintenance
- This may include responding to tenant requests, performing maintenance or hiring contractors when necessary, and updating facilities when warranted.
- Resolving tenant complaints and enforcing lease requirements
- As part of this responsibility, the PM should have a good understanding of local landlord-tenant laws and ensure that both parties are fulfilling their requirements.
If your investor client is performing these duties but is not a property manager as their primary business, it can be challenging to find Errors & Omissions coverage to protect from lawsuits that arise in the course of these activities.
What is Errors and Omissions insurance?
Errors and Omissions (E&O) or Professional Liability is for businesses that provide a specialized service or play an advisor role, such as financial services, lawyers, and consultants. E&O insures against claims made when the work provided or advice given causes harm to the recipient of those services. Depending on the policy and carrier, E&O can cover legal fees, court costs, and settlements.
How can my investor client obtain E&O if they self-manage their properties?
REInsurePro offers PME&O for property owners who self-manage their locations in 42 states. The coverage is purchased for each location and comes with a $1,000,000 limit of liability for exposures on the location premises. This coverage also includes a $25,000 sublimit for Tenant Discrimination based on gender, race, ethnicity, age, familial status, criminal background, or disability. This sublimit may provide coverage if your investor client is sued by a potential tenant alleging they were discriminated against in the renting process. PME&O may also include coverage if the property is not handicap accessible and a tenant claims it to be discriminatory. Tenant Discrimination is often excluded from many business liability policies.
For investors who self-manage, Professional Liability and Tenant Discrimination policies can be expensive and difficult to acquire. REInsurePro’s PME&O is $2 per unit, per month (plus taxes and fees) and can be purchased as a standalone product. This policy provides a beneficial option to fill potentially harmful gaps in coverage. If your investor client is a property owner who employs a professional property manager, your client should make sure their property manager carries their own Professional Liability.
Excluded in Arkansas, Illinois, Indiana, Louisiana, Maine, New York, Washington, and Wyoming.
* Please note this coverage is offered through program participation. All program participants will share an aggregate limit of $5 million per policy period.
