Do You Need Professional Liability Insurance?
Feeney, John, Journal of Property Management
Until recently, the liability concerns of property managers were focused primarily on injuries at the property. Professional liability concerns were relatively minor, with only a few disgruntled tenants or dissatisfied owners to contend with. But for several reasons, this environment has begun to change:
* Commercial property securitization and more sophisticated property investors.
* The ever-increasing technical knowledge needed to manage complex building systems.
* Expanding tenant needs and expectations.
* An increase in the number of nontraditional property management duties.
For example, the securitization of commercial properties has resulted in much closer scrutiny of industry practices and an expansion in the number of lawsuits challenging traditional business practices. These legal challenges are based upon attempts to establish strict standards of conduct for day-to-day business operations that were not previously in force. Such developments have made professional liability insurance, also known as errors and omissions (E&O), an important tool to address the potentially catastrophic effects of this litigation.
Professional liability insurance is designed to protect property managers against litigation that challenges the quality of professional services that plaintiffs allege they were entitled to receive. Professional liability insurance covers property managers against allegations citing negligent acts, misleading statements, or representations committed in the course of their business. It also protects against failure to act in similar circumstances, as "failure to act" can often create significant liability damage exposure. These exposures are often overlooked because property managers mistakenly believe their general liability policies will respond to claims.
While there may be significant differences between E&O policies (principally exclusion and definition related), the intent of coverage is to protect against wrongful act allegations, which are generally defined as a negligent act, error, or omission. A well-designed policy will cover the defense costs and liability judgments in excess of a predetermined deductible level.
Professional liability policies are designed to insure the parent company and directly related subsidiary operations along with their employees, directors, and officers (while functioning in an employee capacity). In addition, independent contractors may be covered when under the direction of an insured company's management. Under certain circumstances, affiliated entities, joint ventures, and partnerships may be insured under the same policy.
When Does Coverage Begin?
Professional liability policies traditionally cover litigation arising from a wrongful act committed by an insured party after the policy period begins (or back to the date a comparable policy was originally purchased). The amount of time covered by a policy increases through subsequent policy renewal periods. For example, in the second year of coverage, a policy will protect against wrongful act litigation committed from the point in time that the initial policy began onward. …