April 16, 2013
Insurance for property managers is a premium
Insurance is an important issue for everyone, property managers included. And it’s not one of those things that you can deal with after the event. There’s no such as a post-factum insurance policy. Fact is, if you are a commercial property manager in charge of malls, residential dwellings or office buildings, you will need to be insured.
The US, in particular, is a highly litigious society with the number of lawsuits filed against property management companies increasing all the time. Different types of property have particular risks and you will need to be covered for all eventualities.
Damage through natural disasters (earthquakes, floods, tornadoes, hurricanes) criminal activity or simple negligence (not necessarily resulting from the carelessness or inattention of the property managers) are all misfortunes that could, nevertheless, prove costly to property managers. But we start with an issue that is proving increasingly contentious:
Allegations of discrimination are a major potential minefield for property managers and an exposure sometimes excluded from general liability policies. If you are wise, you will adopt tenant discrimination insurance. This means that you are covered if tenants allege that they are the victims of discrimination. Take a case of the foreign tenants who allege – perhaps based on a legitimate suspicion or perhaps, equally, totally without foundation – that they have been evicted from their property because of their neighbors’ xenophobia. Fellow residents may have signed a petition complaining about the noise made by the tenants in question. The tenants may claim that they were no louder than other residents. If the evicted tenants bring a case against you, alleging discrimination, you will have to be covered for any damages they are awarded.
In addition, not following the proper eviction process can lead to court claims. Professional liability insurance protects you even if you haven’t made a mistake.
Coverage for alleged negligence
Even the most professional property managers may be accused of negligence if an unexpected accident occurs in a building. For example, what happens if a resident or a visitor sustains a serious injury in a property you are responsible for? General liability insurance protects you from third party claims for injury and medical costs. Property managers should also buy coverage for builders’ risk insurance on their behalf. Insuring commercial properties requires loss prevention expertise appropriate for the business renting your property. For example, if you rent premises out to a restaurant, then additional regulations regarding fire protection may be required. Insurers should be able to advise you on these issues.
When other things go wrong
A great product offered by Property Vista, one that enables property managers to keep in touch with tenants’ needs, is its mobile software whereby tenants are able to report on maintenance issues instantly.
Inevitably, however, things can go wrong. You must always be aware of risks presented by operations on client premises for which you are responsible. Even clean-up sessions pose dangers. The simplest mopping-up procedure can trigger a fall on a slippery floor or leave surfaces scratched. Or perhaps the cleaning leads to breakages or the leakage of potentially toxic substances. Powerful mechanical equipment can inflict injury to people in close proximity.
Outside areas, gardens especially, present other risks. Chemicals used for weed or pest control can trigger potential injury or undermine the environment. You should establish whether your insurance coverage includes all these eventualities as well as extensions/exclusions that could prove pivotal to your financial state should certain claims arise.
As well as risks presented by physical operations, property managers may be accused of not applying sufficiently rigorous screening methods. For example, they may have failed to undertake due diligence with respect to the tenants themselves, the tenants’ neighbors or even the management company’s own employees. You can minimize operational risks by making staff appointments with the utmost care. You should also take time to make on-site inspections as regularly as possible. If you employ casual labor, you should be aware that these staff present certain risks. If they commit irresponsible acts, you, as their employer, could ultimately be held accountable.
Make sure your liability limits (and those of your clients and all independent contractors) are sufficient to protect you from the most likely claim scenarios you have identified. As a property manager you will need to have a contingency plan to deal with potential claims. You may decide that certain risks can be covered by funds at your disposal without insurance cover. But you should always be aware, as John Lennon once said, that “life is what happens when you are busy making other plans”.