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. This helps to cover them in the event their inadequate work or negligent actions while performing these property management duties leads to a lawsuit. But what if the investor performs property management activities on their properties themself? Did you know that if, in the course of performing these PM duties, your client’s negligence results in a claim, their premises liability offers them little to no protection?
What activities are “property management”?
When comparing the activities of a landlord to a property manager, there is certainly some gray area, but simplistically, 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 to attract new tenants and showing the location to potential tenants, 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 and financial records for the property.
- Property maintenance to keep the property 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 PM should have a good understanding of local landlord-tenant laws and ensure that both parties are fulfilling their requirements.
If your client, as the owner, is performing these responsibilities, but is not a property manager as their primary business, it can be challenging to find Errors & Omissions coverage to provide protection 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 carried by 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 your investor client obtain E&O if they self-manage their properties?
REInsurePro can now offer E&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. What makes this coverage especially beneficial is that it includes a $25,000 sublimit for Tenant Discrimination. Discrimination can be based on gender, race, ethnicity, and age, as well as familial status, criminal background, or disability. This sublimit can provide coverage if your client is sued by a potential tenant alleging your client did not rent to them because of one of these reasons. Or if a property is not handicap accessible and a tenant claims this to be discriminatory. Tenant Discrimination is often excluded from many business liability policies.
For many investors who do not employ a third party to manage their properties, Professional Liability and Tenant Discrimination policies can be cost-prohibitive and difficult to acquire, REInsurePro’s Property Management Errors & Omissions is aggressively priced at $2 per unit per month (plus taxes and fees) and can be purchased standalone. This policy provides a beneficial option to fill potentially harmful gaps in coverage.
If your investor client is a property owner that 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.
