Imagine if you will, you are about to sign up with a new property management company. You have done your research and asked all the right questions to find a manager who is the best fit for you. You feel good about your decision until you review the agreement and see that they want you to name the management company as additional insured on your insurance policy. Of course, you have insurance, but why should you put the management company on your insurance? They need to have their insurance, and you don’t want them on yours! Is there anything wrong with this? I’ll explain.
Why Have the Property Management Company Named as Additional Insured?
This is a good question, and it is easy to see why people could get confused. The short answer is, having the property manager named as additional insured helps protect the rental property owner.
Here we look more closely at why and what is involved.
Who Should Carry the Insurance When a Property Is Rented?
The property owner, management company, and tenant all need to have insurance. Property managers accept a certain amount of risk just being in the business. They incrementally take on extra risk with each client they add, so they must be extra careful.
Some property owners may understandably think that a property manager is asking to be named as additional insured because they don’t have their insurance. This is not the case. Every reputable property management company will at least have general liability, errors & omissions, and workers’ compensation insurance.
You should not have someone manage your property who does not have general liability, errors & omissions, and workers’ compensation insurance.
If the Management Company Already Has Insurance, Why List Them as Additionally Insured?
Your property management company will have errors & omissions insurance in case they make a mistake leasing and managing your property. Your property manager and any vendors working on your property should have workers’ compensation insurance in case they get hurt working on your property. Your property management company will also have general liability insurance to cover risk from day-to-day business activities.
The problem is that there could be a gap in coverage for the management company if something happens that is attributed to the property and not the management company. The management company’s insurance could deny the claim on the basis that it was a matter connected to the property, like a fire, leak, or landslide.
If your management company is named as an additional insured, it increases the chances that something is covered. Think of it like having a seatbelt and an airbag in your car. Do you ever not put on your seatbelt because you have an airbag? Of course not. You want them both just in case.
Why Should the Property Owner Care if the Manager Is Fully Covered?
If your property management company takes a financial hit working for you, they will likely seek reimbursement. Indemnification clauses are included in all management agreements. If your insurance company does not list your management company as additional insured, you could find yourself covering the loss. Plus, having your management company as an additional insured may be what keeps you from ending up in a lawsuit with your management company. Nobody wants that.
In other words, having your property management company listed as additional insured helps protect the rental property owner from having to make up losses that a management company may incur on the property owner’s behalf. Every rental property owner should want that protection.
Is There Any Other Benefit of Naming Your Property Manager as an Additional Insured?
Having your property management company named as additional insured helps keep the property owner and manager on the same team. You should already look at your relationship with your management company as a kind of partnership. This relationship is more important than ever, should a problem arise.
If you have your manager listed as additional insured, your insurance company may end up covering you and your manager. You may even end up having the same attorney with a united defense and potentially be listed as co-defendants. This will help prevent your insurance companies from suing each other and help keep costs down. It will also help preserve your relationship with your management company.
Do Most Property Management Companies Require Being Named as Additional Insured?
Yes, most property management companies require the Property Owner to name the Property Manager as additional insured. Any well-written management agreement includes this requirement, and any sophisticated management company will ask for it.
Naming the management company as additional insured is even pre-printed in the California Association of Realtors® Property Management Agreement. This is not an optional box that can be checked, but a fixed part of the agreement. This is not just a California thing. Naming the property management company as additional insured is common practice across the country.
How Do You Add Your Management Company as Additional Insured and What Does It Cost?
In most cases, all you must do is call your insurance provider with the name of your management company to have them added as additional insured. It usually doesn’t cost anything except for maybe a small administration fee.
Occasionally, the insurer will want to see the management agreement to show that the management company is “explicitly listed in a contractual agreement”. Occasionally, the insurance company will try to list the management company as an additional interest instead of an additional insured.
What Is the Difference Between Additional Interest and Additional Insured?
It is important that you have the management company listed as additional insured and not just an additional interest. All that the additional interest accomplishes is that the insurance company will let the management company know if the policy is canceled. This is common with renter’s insurance, but it will not be due for the management company. This won’t provide the full protection you are looking for.
What if Your Insurance Company Will Not Add Your Manager as an Additional Insured?
I would start looking for a new insurance company. This is not a big ask. If your insurance company is giving you a hard time about something as basic as naming your manager additional insured, it makes you wonder what they will be like during a claim. Insurance can be tricky, especially these days, so you should shop around to find the best coverage for your needs.
Bottom Line
A rental property owner should have the property manager named as an additional insured. The property owner, management company, and tenant all need to have their insurance. The property manager should have errors & omissions, workers’ comp, and general liability insurance. However, they still need to be named as additional insured to make sure a claim is not denied because something happened on the property.
The property owner should care about this because they don’t want to have to indemnify the manager for losses taken on behalf of the property owner. This extra level of protection helps both landlord and manager. It also keeps both parties on the same side and working together as a team. This is a common practice nationwide and is included in every professional management agreement.
Most major insurance companies offer this, and it is usually at no extra charge. Don’t get additional interest confused with additional insured. Additional interest only notifies the management company of a cancellation and does not provide any coverage. Additional interest is common with renters’ insurance, and when they list management companies.
If your insurance provider does not offer this, you should shop around for one that does.
Thank You
Thank you, and we hope that you found this helpful and informative. Remember, we are not attorneys, so we don’t give legal advice. Laws are always changing and vary depending on the specific municipality in which the property is located. For legal advice, please consult a real estate attorney familiar with the laws in your area.
For Real Estate Advice
If you are looking for a reliable property management company to help you handle a rental property or a real estate broker to guide you through the sales process in Long Beach, Los Angeles, or Orange County, California, or if you are just considering it and have a few questions about real estate, contact the Mike Dunfee Group today! We are happy to help.
Dunfee Real Estate Services, Inc. DRE # 02026232
