A recent fire ravaged an apartment building, causing millions of dollars worth of damage. During the investigation it was determined that this fire was preventable and the building owner and the property manager were liable for the losses due to their lack of care in correcting the issues that led to the fire.
Three insurance policies were available to cover the two entities. One insurance policy covered both the owner and the property manager for $1M. There was an umbrella policy for $9M that covered both the property manager and the owner. Finally, the property manager had policy for $5M that covered his actions. Disputes arose as to which policy should respond since not all three policies covered both entities and the courts did not explicitly break out how much each party had in liability.
There are three lessons a property manager should take from this scenario:
The property manager was held liable.
While the details of the fire are not known, the court found that the property manager was responsible. The manager had a duty to maintain a safe building. This duty could not be transferred to the owner or to the tenants. Many property managers think that their liability is limited to direct actions while managing a building. This is not the case, as this instance points to.
Millions in insurance coverage might be neccesary.
An apartment building, condo building or mixed use development of any size is worth millions. Many property managers do not consider the fact that their liability may include the entire value of the building they manager. A building manager should consider an umbrella policy to protect against these catastrophic losses that may occur. Umbrella policies are relatively inexpensive, but can save a business from bankruptcy and protect the personal assets of the manager responsible for that building.
Multiple policies may respond.
This case highlights the need for each party of a building management contract to be covered and to understand where their coverage comes from. It is important to have an expert review of the policies and policy wording that covers a particular building. Condo association policies can be worded to protect the manager. Owner’s policies occasionally have clauses to cover the manager – or a joint policy may be purchased.
Contact a broker at BuildingManagerInsurance.com today in order to discuss the implications of inadequate risk transfer and to learn how to better protect your firm.