A latest federal appellate determination serves as a stark reminder for property managers concerning the significance of correctly structuring insurance coverage protection for his or her property proprietor shoppers. In Sky Harbor Atlanta Northeast, LLC v. Affiliated FM Insurance coverage Firm, the courtroom’s ruling highlighted a crucial oversight that left the property proprietor with out standing to sue the insurance coverage firm straight for tens of millions in damages. 1
The case centered across the Atlanta Hilton Northeast Resort, the place Sky Harbor was the property proprietor and Crestline Lodges & Resorts served because the property supervisor. When in depth water and mildew injury was found throughout a 2015 renovation, each Sky Harbor and Crestline sought protection underneath an all-risk insurance coverage coverage with Affiliated FM Insurance coverage Firm (“AFM”).
Nonetheless, the courtroom discovered that Sky Harbor lacked standing to sue for breach of contract as a result of it didn’t qualify as an insured underneath the coverage. The coverage particularly outlined “Insured” as Crestline and “its wholly or majority owned subsidiaries and any curiosity which can now exist or hereinafter be created or acquired that are owned, managed or operated by” Crestline.
Since Sky Harbor was merely the property proprietor who had employed Crestline as a administration firm – fairly than being owned, managed, or operated by Crestline – it didn’t meet the coverage’s definition of an insured get together. This meant Sky Harbor couldn’t pursue direct claims towards AFM regardless of being the proprietor of the broken property.
This oversight creates a number of potential points. First, property homeowners might discover themselves unable to straight pursue insurance coverage claims for injury to their very own property. Second, property managers may face claims from homeowners for failing to correctly construction insurance coverage protection, probably breaching their administration agreements or going through negligence claims.
To keep away from these pitfalls, property managers ought to:
- Assessment coverage language fastidiously to make sure property homeowners are correctly coated
- Add property homeowners as extra named insureds on insurance policies
- Doc all insurance coverage placement choices and communications with homeowners and insurance coverage brokers
- Embrace particular provisions in administration agreements relating to insurance coverage placement obligations
- Keep clear communication with homeowners about insurance coverage protection buildings
Property homeowners also needs to take proactive steps by:
- Reviewing all insurance coverage insurance policies obtained by their property managers
- Confirming their standing as named insureds or extra insureds
- Understanding their rights and limitations underneath the coverage
- Sustaining documentation of all insurance-related communications
- Together with particular insurance coverage necessities in administration agreements requiring that they be named insureds and that the coverages additionally adjust to all mortgage and lending agreements
The Sky Harbor case demonstrates that merely having insurance coverage protection isn’t sufficient – the protection should be correctly structured to guard all events’ pursuits. Property managers who fail to make sure their proprietor shoppers are correctly listed on insurance policies might discover themselves going through severe legal responsibility points if protection disputes come up.
Whereas Crestline may pursue claims towards AFM as a named insured, Sky Harbor’s incapability to deliver direct claims possible difficult the litigation and restoration course of. This case may have been prevented by merely including Sky Harbor as a further named insured on the coverage.
As insurance coverage protection disputes turn into more and more advanced, property managers should train due diligence in structuring protection for his or her shoppers. The minimal effort required so as to add an proprietor as a further named insured pales compared to the potential issues and legal responsibility points that would come up from failing to take action.
Bear in mind, relating to insurance coverage protection, the small print matter. Don’t let easy oversights end in no protection for the property proprietor. This rule applies to property managers, insurance coverage brokers, and property homeowners.
Thought For The Day
It’s the little particulars which are very important. Little issues make large issues occur.
—John Wood
1 Sky Harbor Atlanta Northeast v. Affiliated FM Ins. Co., No 21-11329 (11th Cir. Oct. 2, 2024).