Many of our clients have property management firms who manage their apartment buildings and commercial properties for a percentage fee based on rental income. Frequently, the management agreements call for the firms to be paid an additional fee for any construction management services performed following a property loss.

In our opinion, both these fees should be covered as part of the property owner's business income loss following a covered property loss. However, following a recent covered loss to a large commercial complex containing many leased offices, the adjuster refused to allow either the continuing management fee or the additional fee, stating that both of these were "agreements outside the policy" and therefore not covered.

Specifically, the adjuster pointed to exclusion 4.c.(2) of the CP 10 30 06 95, which eliminates coverage for certain contractual liability assumed by the insured. Not only did he disallow coverage for the additional fee, but for the on-going management fee as well.