A property management firm does one of two things; one, contracts with the owner or owners of a residential or commercial property to manage the property for a fee or two: owns and manages the property. This article focuses on those mangers that contract with property owners to manage specific property. The contracts that are set up 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.

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 manager’s 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 have 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.

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 managers 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 bodily injury or property damage claims, believing that these claims are covered in the general liability policy. However, most general liability policies exclude professional services. The property manager's agent needs to check that the policies are consistent to ensure adequate coverage is provided.

Eric Torkelson Managing Partner
LaPorte & Associates Portland Oregon

Eric is the managing partner of the LaPorte Real-estate Group which specializes in the properly Management & Development industries. Eric has been in the insurance industry for over 20 years. He can be reached at etorkelson@laporte-insurance.com- 503-239-41116- wwwlaporte-insurance.com

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