COMMUNITY MANAGER ERRORS & OMISSIONS EXPOSURE: MINIMIZE YOUR RISK
By Joel W. Meskin, Esq., CIRMS
Copyright © 2006
Community Managers serve an integral and significant role in the community association industry. Today, Community Managers are required to be professionals with a broad and often complex job description. Managers often must be versed and trained in multiple areas including finances, budgeting, insurance, real estate, life safety, landscaping, legal, organizational, human resources as well as psychology and mediation. With this wide scope of responsibilities, it is often a daunting task to make sure the community manager is properly protected for claims, lawsuits and allegations of acts, errors and omissions arising out of their services that may cause damages to their clients and third parties.
There are two high probabilities for community managers. First, no matter how well educated, trained, experienced and careful they are, one day, if it has not already happened, they will be sued whether it is frivolous, false or fraudulent. Second, there is no way to insulate themselves from all exposures. However, if the manager methodically approaches his or her risk management program, protection can be maximized and personal exposure minimized.
For reasons I will leave to community managers to debate amongst themselves, I continue to find the “Teflon Myth” to be prevalent in the community manager industry, especially among some of the smaller community management companies and/or individual property managers working for themselves. In brief, many managers have been lulled into a false sense of security that they have adequately shifted all their risk to clients. The “Teflon Myth” is generally often first revealed when I ask a community manager if he or she has errors and omissions coverage. The answer that I am most often given is that “errors and omission coverage is not necessary. They claim that errors and omissions (professional liability coverage) is not necessary for three basic reasons:
- First, the manager’s management agreement with the client provides the manager with a hold harmless provision or an indemnity agreement.
- Second the client’s general liability policy provides coverage for incidents at the managed property; and,
- Third, if the client is a community association, the community association’s directors’ & officers’ liability policy will provide coverage.
Managers should definitely make sure that these three forms of protection are in place. However, these items in and of themselves are not adequate to maximize coverage and to minimize risk. The manager must add to its arsenal of protection the best available error’s and omission’s coverage. In addition, manager’s must also make sure that the association’s general liability and director’s and officer’s liability policies have the state of the art coverage. Being an additional insured on a weak product defeats the purpose in the first place. Moreover, just like not all insurance coverage is created equal, not all hold harmless or indemnity agreement are created equal.
To put the potential risk management for community managers into context, it is necessary to understand what the potential exposures are and what the most common exposures are.
The Most Common Community Manager Claims
Now that we have an idea of various types of claim’s scenarios, it would be useful to have an idea of what we see as the most common claims that we see in the community and property manager insurance industry.
- Diminished property value – due to improper maintenance of managed property.
- Loss of Income – Reduction of Rents due to poor upkeep of managed properties.
- Discrimination – Related to leasing of property.
- Discrimination – Related to implementation of rules or CC&Rs of an Association managed by a community manager
- Wrongful Termination of community manager’s employee(s)
- Wrongful Termination of Property Owner’s employee(s) under community manager’s supervision
- Claim’s Arising out of or related to the Sale of Real Estate
- Administrative and Licensing Actions against the manager.