Why am I being required to add my property manager as an additional insured on my homeowners policy? This is the policy that covers the property being managed. Shouldn’t the Indianapolis property manager carry their own insurance? Why should I provide insurance for them on my policy?
You ask a very common question. It is also one that carries a lot of misunderstanding about insurance and coverages.
Let me start by stating that at WILMOTH Group, we too require rental owners to add us as an additional insured on their property’s homeowners policy. So, we have researched this specific issue and discussed its necessity many times.
For many owners, the concern when asked to make their manager an additional insured is that their manager does not have insurance! That is actually a fair assumption and one you should clarify out of the gate. It is a smart practice for any rental owner who is hiring a property manager to ask for confirmation that they are properly insured. The insurance you want to make sure your manager has are:
- Business insurance which includes General Liability. Typically you want to see that they have coverage of $1,000,000 per incident or more.
- Professional liability insurance also know as Errors and Omissions (E & O).
These are two different liability coverages. General liability covers the management company against operational liabilities such as a person falling in their building. Errors and Omissions covers claims against a manager such as wrongful eviction specific to the property management industry.
The reason your property manager needs to be added to your property’s homeowners policy as an additional insured is their lack of financial interest in the property. While there is a fee paid for services, the property manager does not have the insurable interest in the property to obtain coverage specific to events at the property. The action of serving as a property manager does not provide an insurable interest against matters that relate to the real estate itself. Yet, if there is a claim at a property managed by a third party, the third-party (non-owner) manager will almost certainly be named in the claim along with the owner.
So the problem is the property manager has no financial interest but assumes liabilities of the rental owner. With no financial interest, the General Liability policy of the manager will not cover incidents at the non-owned property. The property manager is exposed to claims and lawsuits arising from the property itself such as injuries, crime, fire, or other damages. To resolve this risk exposure, property manager will require property owners to add them to their homeowners insurance policy as an additional insured.
Finally, some owners get confused when they believe they have added their manager with a certificate of additional interest (sometimes called a certificate holder). Additional interest is a way for the manager to stay informed that the owner is paying their premiums but it is not going to provide the coverage the manager is requesting as an additional insured.
As in anything, we encourage all rental owners to obtain professional legal advise on any of the points above.