Idaho is often criticized (or lauded) as being the "Wild Wild West." We have fewer laws and requirements than most states. With fewer barriers to business, such as property management, we see greater competition. Greater competition puts an emphasis on quality and price. Those who do a good job get referrals and grow, while those who do a bad job eventually fail.
Disclaimer: I am not an insurance agent nor an attorney and I encourage you to discuss these matters with an insurance agent or attorney. Within this blog, I am re-iterating my understanding after talking to several insurance agents, the Idaho Industrial Commission, the State Insurance Fund and an attorney.
Landlord Policy
Owners of rental property should inform their insurance agent that the property is a non-owner-occupied property and is a rental and specifically request the additional coverage that a Landlord Policy provides, such as lost rent caused by a water loss. Also, almost all property managers will request, if not require, the property owner to list the property manager as an additional insured. Some insurance companies charge more to do so, while others do not. Those that do charge agree to add the property manager as an additional interest, which does not provide the protection the property owner or the property manager wants. I use the trampoline story told to me by an attorney over a decade ago for understanding of the benefit.
The property manager's lease states "no trampolines." The tenants install a trampoline without permission. The neighbor's son comes over to play with tenants on the trampoline and his double back flip with a twist ends up with a broken arm. The neighbors sue the tenants, the property owner and the property manager.
Because of the indemnification clause in almost all property management agreements, the property owner and/or their insurance company would be responsible to reimburse the property manager their legal fees to defend themselves. Whereas if the property manager was listed as an additional insured, the property owner's insurance company likely would cover both the property manager and the property owner together. Hence saving the property owner and/or their insurance company money.
Liability Insurance
The property owner is going to want their Landlord to have liability insurance. I encourage the property owners to talk to their own insurance agents as to the dollar amount of coverage they suggest the property manager to have. Why? For one, it is the law and I explain that a little later. For two, the property owner's own insurance provider may require it. And finally, you as the property owner need to protect yourself.
For example, I sit on the board of an HOA and the Association recently changed insurance companies for liability coverage. Part of the application was for the Association to certify that all contractors and property managers working on-site and accessing the common area have liability insurance. I agreed to collect the information from the property managers and while I was at it, I also requested copies of workers' compensation insurance. The first to respond was Lizz with First Rate Property Management, who manages nearly half the buildings within the Association. Next was First Service Group. Maybe there is something in having "First" in the company name? But after that, no other property managers produced these documents. One stated that the homeowner had listed them as an additional insured and that covered their liability insurance and the others all stated they were exempt. Some flat out ignored the request altogether. As a result, the Association's insurance company could drop them or increase the premiums due to the added risk and non-compliance.
Property Managers and Contractors
First Rate Property Management is a registered contractor to comply with Idaho Statute 54-5204. Within this statute it says anyone undertaking a project considered casual, minor, or inconsequential and the aggregate contract price for labor and materials is more than $2,000, must be a registered contractor. A turnover that includes replacing carpet and paint can exceed that amount and therefore property managers are required to become registered contractors.
The law further requires contractors to maintain general liability insurance, of not less than $300,000 single limit. If the contractor has employees, they must carry the appropriate workers' compensation insurance. Although the law allows sole proprietors to be exempt from having workers' compensation insurance, the State Insurance Fund requires companies like First Rate Property Management not only to have our own workers' comp, but also anyone we sub work out to to have it, regardless if they are a sole proprietor or not.
Workers' Compensation Insurance
A property owner is going to want their property manager to have workers' compensation insurance for one reason: to protect themselves. We know that property managers have all kinds of sub-contractors, to perform cleaning, yard care and general maintenance. So even a property manager who is a sole proprietor, and exempt from having workers' comp, is still hiring sub-contractors. If the property manager has workers' comp and they get hurt, or one of their subs gets hurt, or if one of the sub's subs gets hurt, the property owner is more protected.
The State Insurance Fund recommends "best practices" and they require companies with employees to require all sub-contractors, regardless if they are sole proprietors, to carry workers' compensation insurance. A sole proprietor would purchase a workers' compensation policy called a "what if" or "if any" policy that costs between $150 to $300 per year. I am sure most would agree -- that is a small price to pay for the added protection.
Workarounds
Some property managers have their own maintenance company and claim that the work being organized is through the maintenance company, not the property management company. Although I would agree that the maintenance division needs its own liability insurance and workers' compensation insurance, but so does the property management company. And when it costs so little to comply, why not?