Risk and Insurance Issues for Property Managers
Edward E. Davis, FSA, Sr. Account Executive
Richard E. Davis, CIC, Account Executive
The operational and contractual risks faced by property managers vary widely.
Some manage the overall maintenance and care of their clients’ properties but contract out the actual services, while others maintain their own staff for such work. Services may include cleaning, maintenance, collection of rents, payment of bills, screening and recruiting tenants, security, evaluating and purchasing insurance, and so on. Clients range from owners of large commercial and retail properties to owners of individual rental dwellings, and each operation will present its own unique risk exposures.
In evaluating risks, we recommend a four-step process in your consideration:
1) First, try to imagine everything that might happen to cause financial loss.
2) Second, make your best estimate of the probable maximum loss you would face in each case and assign it to one of three categories:
- Something you could reasonably absorb in your day-to-day operations.
- Something you could survive, but not without financial difficulty.
- Something that could cause your financial failure.
3) Assess the risks you rate in categories b and c. See if you can eliminate the risks, reduce the likelihood, and/or minimize the probable maximum loss.
4) Finally, consider options for financing the risks that remain, usually through insurance, but for larger accounts other risk-financing options are available.
The first question to consider is whether you are responsible for insuring only your own risks, or also obtain insurance as a service for your clients. Since client exposures vary greatly from one client to another, we’ll deal with them later in separate articles. For now let’s consider your own operations and the loss exposures they may present:
Property
You may own a building or buildings, but more likely operate from a leased space that contains office furniture, equipment, client files and records, and so on. You may also have a storage space for supplies. If so, make sure that flammables such as cleaning chemicals, fuel for lawn maintenance equipment, etc., are properly labeled, separated, and stored in approved containers. If you have equipment and supplies stored at multiple locations, make sure your risk and insurance review addresses all the locations. Also make sure you address any significant exposure to loss while property is being transported from one location to another. Consider self-insuring locations or transportation risks you evaluate as category a.
Property of Others
You have a bailee’s exposure if you are responsible for clients’ property in your care, custody, and control. Make sure your risk and insurance review addresses any large-value items (carpet, drapes, art work, etc.), because even a small spill or damage could result in a significant financial loss.
Liability
Your own office premises present minimal exposure to liability for injury or damage to others or their property. Of greater concern are the risks presented by operations for which you are responsible on client properties. Cleaning operations commonly result in spills, marring and scratching, dropping of breakables, et cetera, so be aware of insurance exclusions and/or coverage extensions that might apply to such claims. Slippery floors also present slip and fall hazards, so consider non-slip surfaces wherever feasible.
Lawn mowers and other power equipment can throw stones or other debris, potentially resulting in injury to nearby individuals. And overspray, spill, or improper application of chemicals used for weed or pest control can present potential injury, damage, and environmental issues. Be aware how your insurance will or will not respond.
In addition to the risks presented by physical operations, property managers may also face claims alleging failure to provide adequate security for tenants, obtain appropriate background checks for employees, other tenants, etc.
These operational and other risks can be controlled and minimized with proper selection and training of employees, as well as periodic on-site inspections by the manager or supervisor. Casual labor presents a particular challenge of training and supervision. Make sure you have well-documented controls and procedures in place to demonstrate that you have acted prudently.
In addition, commercial property policies maintained by your clients commonly include coverage for property managers against liability claims arising from the covered property. Your client agreements should require that their coverage include you to the greatest extent possible. Make sure your liability limits (and those of your clients and all independent contractors) are high enough to protect you from the most likely claim scenarios you have identified.
Automobiles
Make sure you have adequate liability limits on all vehicles used in your operations. Coverage should not only include your owned autos, but also claims which may arise from employees or others when using their own autos in connection with your business. Make sure all drivers have acceptable driving records. For those who use their own autos, make sure they understand that your insurance is only intended to protect you, not to protect them or their own vehicle. They should also be required to maintain adequate insurance limits on their own policies.
Workers Compensation
Make sure you carry workers compensation insurance on all employees. The rates will vary depending on the actual work handled by your own staff.
Independent Contractors
Make sure you have written agreements with all independent contractors that include the following:
- They will maintain all licenses required for the work they perform.
- The will indemnify and hold you harmless from claims arising out of their work.
- They will maintain reasonable liability insurance coverage and limits, will include you as an additional insured party with respect to claims arising from their work, and will furnish evidence acceptable to you that required coverage is in effect.
- They will maintain reasonable auto insurance coverage and limits on all owned, non-owned, and hired autos used in their operations.
- They will maintain workers compensation insurance on all employees. For those who have no employees, as a minimum they should be required to sign a “Declaration of Independent Contractor Status” as part of their agreement.
Minimum Recommended Coverage
- Business Personal Property
- Accounts Receivable
- Employee Dishonesty
- General Liability/Umbrella Liability
- Non-owned and Hired Automobile Liability
- Workers Compensation
Other Coverage to Consider
- Building
- Business Income with Extra Expense
- Electronic Data Processing Equipment
- Employment Practices Liability
- Automobile Liability and Physical Damage for Owned Autos
Most insurance agents focus their presentation on the first and fourth steps presented at the beginning of this article. They are quick to help you imagine the bad things that can happen and then offer to sell you insurance to protect you from those concerns.
The professionals at Maps Insurance can help you through the entire process of identifying, evaluating, controlling, and financing the risks you face. Where insurance is the best solution, as independent agents, we will present your well-controlled operation to several top insurers and help you choose the best alternative to implement your custom-designed insurance and risk management plan.