E&O: Errors & Omissions

Property Management

Opportunities

A property manager is a professional organization which manages real property for a fee. The types of properties managed and the specific services performed can vary greatly. Most property managers specialize in a geographic area, type of property or type of service. For example, a property manager might specialize in commercial office buildings while another might handle only residential properties in a specific real estate development.

A property management firm typically contracts with the owner or owners of a residential or commercial property to manage the property for a fee. The contract may transfer most or all of the responsibilities for management to the management company. The property manager's exposure will depend in large part on the scope of the contract.

The property managers professional liability segment can be a significant opportunity for new sales because the market is large and fragmented, and many organizations do not buy professional liability coverage. In addition, the property managers are a source of general property and casualty insurance on the managed property.

Exposure

The services provided by a property manager are spelled out in a contract. The services provided can vary greatly and impact the exposures facing the property management firm. Professional liability claims typically arise from allegations by the property owners of failure to adequately manage the property, leading to some alleged financial loss.

Examples of allegations arising from the owners could include mismanagement of the rental of the property and failure to adequately promote the property. Another example is the failure to pay taxes on a common property on time (where the manager is responsible for paying the taxes). This might result in interest and penalties over and above the taxes. All of these exposures are financial in nature and are usually covered by a professional liability policy.

Other types of claims can result from the managers specialization in a particular area or type of property. For example, a property manager may focus on resort properties which are heavily rented. This type of manager will have a responsibility to perform rental services adequately on behalf of the property owners.

Less common but equally important are exposures from parties other than the property owners, such as the property's tenants. And, as with any professional exposure, it is not uncommon for the professional liability insurer (or the property manager if they are uninsured) to incur substantial defense expenses in situations where there is no clear liability.

The increase in construction defect and related claims in the contractor and developer area is starting to impact property managers' exposure. As the trend of construction defect claims grows, property managers face increasing exposure to claims involving construction defect, mold and other real property issues.

Mold is a significant issue beginning to impact property managers' duties. Property managers are beginning to see increasing numbers of mold situations, particularly in multi-unit residential properties, and are having to learn how to deal with these situations to minimize exposure for the property owners and themselves.

And when the situation gets bad, lawsuits ensue. Proving or defending allegations of mold, and the resulting damages, are difficult and expensive. And coverage issues on both general liability and professional liability are becoming more complex, particularly as insurers seek to exclude all mold claims.

For example, a suit involving mold on the property might be brought against a range of organizations involved with the property, including the developer, contractors, maintenance providers, materials manufacturer and the property manager. While the property manager may not be directly involved in the circumstances involving the alleged mold, they may be named along with everyone else. These suits are becoming more expensive and are occurring with greater frequency.

Click here to view claim examples.

Professional Liability Insurance

Property Managers professional liability insurance, sometimes called errors and omissions or E&O insurance, is available from a number of specialty lines insurers. Coverage and pricing varies greatly depending upon the type of professional operation, the specific services provided and its size and location.

Specific coverage provisions may be important for certain types of manager. Some professionals require coverage with special provisions to protect themselves from unique claims arising from their specialized services.

More and more developers are seeking to maintain an ongoing role in the properties they have developed, and an increasing number of real estate investment organizations are opting to manage their properties themselves.

This trend creates some difficulty in obtaining professional liability insurance. Most professional liability insurers will decline any property management account with more than a certain percentage of owned property under management. The primary objective for underwriters in this situation is to make sure that an organization cannot sue themselves and recover under the insurance policy.

However, the increase in management of owned property is creating a need for a different approach. A few insurers will consider writing coverage for property mangers with a high percentage of owned property, and will tailor the coverage accordingly. Typically additional information is required to secure professional liability coverage for this type of account.

The property manager will also find some coverage for their services may be provided by their general liability policy. Care should be taken to ensure that the appropriate general liability and professional liability coverage is acquired for the property manager. For example, many professional liability underwriters do not provide coverage for BI/PD claims, believing that these claims are covered in the GL policy. However, some GL policies exclude professional services. The property manager's agent needs to check that the policies are consistent to ensure adequate coverage is provided.

Coverage is typically provided on a claims-made basis. Limits and deductibles vary with the size and type of insured. Standard limits for most small to medium sized organizations start at $1.0 million. Policy forms vary significantly, but typically are claims-made forms with defense costs included within the limit and deductibles.

Mercator Risk Services Inc. ("Mercator" or "Mercator Risk Services") provides coverage for a wide range of real estate related professionals, including property managers, including the following:

Mercator Risk Services writes professional liability, directors and officers and employment practices coverage for all types of real estate related organizations. Mercator provides highly competitive, exclusive products for real estate related organizations including the following:

Please let us know your client's needs and we will provide you with information and assistance with your particular situation or account, and professional liability coverage.

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