13. August 2013 16:04
For several years there has been an emerging exposure to managing agents (sometimes referred to as the property manager) brought about by changing views within the insurance market as to where liability lies in respect of public liability claims and damage to property.
The emerging culture is for insurers to hold the managing agent liable for losses, claiming it is their failure to perform their duty and negligence which has brought the claim about. In respect of liability claims (such as trip claims) the insurer may simply repudiate liability and direct the claim towards the managing agent on the basis that liability arose out of their failure to perform the role for which they were contracted. In these cases it is typical that the solicitor acting for the claimant will simply issue proceedings against both the freeholder and the managing agent.
Historically it was commonly accepted that the block buildings insurer would deal with this type of claim under the blocks public liability section. Subrogations (attempts to recover from a responsible party) were rare and normally unsuccessful so it is quite surprising that many insurers are now behaving in this way. If it can be proved that the managing agent is negligent then the claim will be met by their PI policy (Professional Indemnity policy). As a result most large managing agents now have large excesses on their PI policies and are having to defend these claims themselves, something that is adding to their expense base.
Prudent managing agents are now insisting that policies that they facilitate include a subrogation waiver and indemnity to the managing agent. Whilst this is easily achieved in respect of policies they arrange it can be more complicated when they are acting for freehold investors who may claim that by granting this cover it will potentially increase their claims experience and adversely affect flat owners who will pay an increased insurance premium as a result.
Ultimately, if a freehold investor refuses to extend their buildings policies to indemnify the managing agent, then the managing agent has a range of potential options to protect their bottom line such as:
- Obtain top up cover elsewhere and charge this as part of their management fee
- Increase their fees to these clients to cover the liability (effectively self-insuring due to the large excess on their policy)
- Refuse to act for clients who do not provide this extension to their policies
- Engage the services of a specialist solicitor who has a high success rate in defending these claims (effectively pushing the claim back to the freeholder and their insurers, including legal fees)
- Obtain legal advice on their terms and conditions and procedures to ensure that the chance of success in defending such a claim is greatly improved.
In conclusion, it is expected that managing agents will become more effective at ensuring they defend claims of negligence and this will lead to two potential outcomes for the freeholder investors they act for.
- The claim will ultimately be met by the block buildings insurer; however the total cost of settlement will be increased by the legal fees
- The freeholder investor could be faced with legal fees not covered by the block buildings insurer or with the legal costs of proving that they were legally liable (for the block buildings policy to provide indemnity)
Possibly with these emerging threats it is not surprising that many larger freehold investors are recognising these potential exposures and agreeing to add the indemnity to managing agent clause to their policies. Most insurers are either including this at no cost or charging a nominal premium such as 10% of the Public Liability premium.
Our current advice to freehold investor clients is to cascade the indemnity to managing agent clause to all professional managing agents who act for them.
(Technical Note: A subrogation waiver in the Material Damage section will not provide the required indemnity if the Public Liability is written as a separate section. Caution should be exercised when considering this matter.)