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Reduce Risk Exposure With the Right Endorsements

Property managers may be just as liable in a insurance claim situation as the owner of the building they manage.  Both the property owner and the manager want to reduce risk exposure.  Not surprisingly,  claims will often be filed naming any entity who has been involved directly or indirectly with the property.
All parties don't want to get caught in a claim where the correct insurance was not in place.

This following scenario shows how easily a liability claim could have been prevented if the right documentation had been obtained.

A property owner purchases distressed properties and renovates them to rent as single-family homes. The lease agreement states the  owner will provide all maintenance during the rental period.  Unfortunately, tenants are constantly complaining to the property manager about the general lack of maintenance. The property management agreement with the owner indicates the property manager will be added as an additional insured to the owner’s liability policy by endorsement.  Problem is the owner not only does not add the property manager but also fails to have the full coverage they thought they had purchased.

The Tenant's Claim

The owner AND the property manager receive a letter from a tenant’s counsel informing them the current tenant and their family have been exposed to mold. The letter claims that the failure to repair leaks from the HVAC system accumulated water intrusion which caused the mold. Failure to also remediate the resulting mold lead to the tenant’s demand letter. The tenant is seeking treatment for respiratory illnesses which may be permanent and includes allergy shots costing a total of $25,000.

Two Mistakes-One Big Problem

The property manager’s general liability policy does not include pollution (mold) coverage. The owner’s policy does not have coverage for mold claims.

Things Go Bad Quickly

The owner finds little option but to settle with the tenant.  If they would have had the proper endorsement for mold claims the owner would have received indemnity and defense.

The property manager also has no coverage and must pay the cost to defend the subsequent civil actions filed by the tenant. They too end up settling.

Owner and property manager have a very fractured relationship and decide to part ways.

How This Could Have Been Prevented

This exposure could have been avoided in two ways. First and foremost, property owners and property managers should make sure their general liability policies include bodily injury, mold, and pollution coverages. Second, the Owner should be willing to provide additional insured endorsements (with bodily injury, mold, and pollution coverages) under their policy.  In this way, all efforts are coordinated with one insurance carrier and both parties have indemnity from the liability.

Preventing a claim in the first place is part of a comprehensive risk management strategy.  The owner of the property has direct liability which can be insured.  Providing their property manager an Additional Insured endorsement coordinates all interests against these claims.

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Some property damage may be better not claimed on the owner's insurance.  

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