1. Chapter 8 Liability and Risk Management

2. I. Liability Owners of property are liable for their own wrongful and negligent actions A. STRICT LIABILITY California law now holds that proof of a landlord’s negligence is required for a landlord to be liable for damages or injury. Other states generally follow similar reasoning.

3. I. Liability (cont.) B. INJURY AND PROPERTY DAMAGE C. Without an injury there can be NO recovery C. LIABILITY FOR EMPLOYEES AND AGENTS 1. Within the Scope of Employment 2. Slander and Libel Because of the danger of slanderous or libelous statements, some property management firms inform resident managers that they are never to discuss tenants and former tenants with anyone other than their supervisor.

4. I. Liability (cont.) D. LIABILITY AS TO INDEPENDENT CONTRACTORS E. LIABILITY FOR ACTIONS OF OTHER TENANTS F. LIABILITY OFF THE PREMISES G. CRIMINAL ACTIVITY H. DRAM (LIQUOR) SHOP LIABILITY I. HAZARDOUS WASTE Cost of cleanup can be substantial. In many cases, the cost can exceed the value of the property.

5. I. Liability (Case Example)

6. II. Risk Management The term “risk management” does NOT mean living with risk, it means reducing risk to an acceptable level

7. II. Risk Management (cont.) A. SELF-INSRED Some of our nation’s largest corporations do NOT insure their properties B. IDENTIFYING AND ADMINISTERING RISKS Risk management is a function of management. C. BINDERS If you find that you do NOT have required coverage, you should seek a binder protecting the property and property owner until a policy can be issued.

8. II. Risk Management (cont.) D. TYPES OF OWNER INSURANCE POLICIES To insure, you must have an “insurable interest.” 1. Fire Insurance The Standard Policy HOMEOWNER POLICIES You want to make certain that casualty policies cover “replacement costs,” NOT just “cash value”. 2. Earthquake and Floor Coverage Normal casualty insurance policies exclude earthquake and flood damage. 3. Boiler Insurance 4. Elevator Insurance

9. II. Risk Management (cont.) 5. Liability Insurance Liability insurance does NOT automatically pay a person who was injured or whose property was damaged. 6. Medical Pay Coverage 7. Inland Marine Insurance 8. Rental Interruption Insurance 9. Fidelity Bonds 10. Worker’s Compensation Insurance 11. Additional Insurance Coverage

10. II. Risk Management (cont.) E. TYPES OF TENANT INSURANCE POLICIES 1. Fire and Extended Coverage 2. Liability Coverage 3. Medical Pay Coverage 4. Inland Marine Coverage 5. Fidelity Bonds 6. Business Interruption Insurance 7. Extra Expense Coverage 8. Leasehold Insurance 9. Residential Tenant Coverage  Property managers who have insurance licenses have found that selling tenant’s insurance can be a significant profit center for their business.

11. II. Risk Management (cont.) F. PROPERTY MANAGEMENT INSURANCE Property managers must manage risk management for themselves as well as their clients. 1. Errors and Omissions 2. Records Insurance 3. Automobile Coverage 4. Key Man Insurance 5. Partnership Insurance If your property management business is a partnership, the death of one partner could be catastrophic to the business 6. Surety Bonds

12. II. Risk Management (cont.) G. HOW MUCH INSURANCE? 1. Deductibles Deductibles simply make risk more manageable and should be considered in applicable situations. 2. Lender Requirements 3. 80% Coinsurance Proper risk management requires a property manager to review all insurance coverage as to adequacy, but special attention must be paid to 80% coinsurance situations.

13. Chapter Summary Liability Strict Liability Injury and Property Damage Liability for employee and agents Independent contractors Actions of Tenants Criminal activity DRAM Hazardous waste Risk Management Self-Insured ID risks Binders Owner Insurance Policies Tenant Insurance Policies Property Management Insurance How Much Insurance Costs?