Property Management Fees a Part of Covered Loss

Q

I am a public adjuster and many of my clients are represented by property management firms that manage apartments and commercial properties for a percentage fee based on rental income. Frequently, the management agreements call for the management firms to be paid a fee for construction management services following a property loss. I think that this fee should be collectible as part of the property owner's claim for a property loss.

However, many insurers lately have begun to refuse to allow this fee to be covered by the insurance policy. Their reason is based on the idea that the management of the construction after a loss is the responsibility of the owner/insured. If the insured does not want to perform this function on his own, he is free to contract it to the management company; but, the fee for transferring the supervisory responsibility to the management company is outside the terms of the insurance contract and the insurer is not required to pay such a fee.

I would like to have your opinion on this issue.

Michigan Subscriber

A

We believe that the insurer should be paying this cost. If the insured suffers a covered loss, then part of the coverage has to be labor costs and construction supervisory costs expended in order to put the insured back in the position he was before the loss. If the construction management fees are for coordinating the selection of a contractor and supervising the work, that has to be considered part of the total repair cost.

You noted that the insurers consider supervision of repair work as the responsibility of the insured. That is questionable, but even if that were so, the insured should still get coverage for his expenses to repair a covered loss. Whether the insured supervises the repair work himself or pays a fee for that work, that is still an expense that is part of the costs to put the insured back in the position he was prior to the loss.

Also, see Business Income—Status of Management Fees. This is Q&A 1159.

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