Maintenance and repairs are a routine part of property management, but they can create significant insurance coverage gaps. A property manager may be responsible for arranging repairs, hiring contractors, responding to maintenance requests, or performing minor repairs directly.
Whether these activities are covered under Errors & Omissions (E&O) insurance depends on the policy's definition of professional services, maintenance and construction exclusions, and any exceptions that restore coverage.
Even when maintenance-related professional services are covered, a separate bodily injury or property damage exclusion may restrict coverage for the resulting claim.
Does Property Management E&O Cover Arranging Repairs?
Many property management E&O policies include arranging repairs within their definition of covered professional services.
For example, policy language may include:
“Arranging for repair, renovation or maintenance by others of buildings or grounds.”
This wording generally addresses the property manager's role in coordinating work performed by outside contractors.
Consider a property manager who receives a tenant's report of a leaking pipe but fails to arrange a plumber. The delay causes significant water damage to the property. The owner subsequently alleges that the property manager negligently handled the maintenance request.
Because the allegation involves arranging maintenance, the activity may fall within the definition of covered professional services.
However, this does not automatically mean the resulting property damage is covered. A separate bodily injury or property damage exclusion may still apply.
Does E&O Cover Repairs Performed by the Property Manager?
Arranging repairs and physically performing repairs are not necessarily treated the same way under an E&O policy.
A policy that covers arranging maintenance by others may not extend that definition to repairs performed by the property manager's employees.
For example, a property management employee attempts to repair a leaking toilet. The repair fails, resulting in water damage to multiple units.
If the E&O policy only recognizes arranging repairs by others as a professional service, the employee's actual repair work may fall outside that definition.
How PBI Group's E&O Policy Addresses Minor Repairs
PBI Group's exclusive E&O program with Palomar includes an endorsement expanding the definition of Property Manager.
The endorsement specifically includes:
“the Insured making repairs which do not require a license or permit and are under $1,500 in cost of materials.”
This language is important for property management companies that perform minor maintenance themselves rather than hiring an outside contractor for every repair.
Under this provision, qualifying repairs performed by the insured can fall within the definition of covered property management services.
The exception has two important restrictions:
- The repair must not require a license or permit.
- The cost of materials must be under $1,500.
This does not provide unrestricted coverage for maintenance operations. Repairs exceeding these parameters may fall outside the provision, and other policy exclusions, including bodily injury and property damage restrictions, still apply. The policy also excludes services performed as a Construction Manager, so this provision should not be interpreted as extending coverage to construction management activities.
How Do Maintenance and Construction Exclusions Affect E&O Coverage?
Some property management E&O policies contain exclusions for maintenance, construction, renovation, or contracting activities.
These exclusions can restrict coverage even when the policy otherwise includes property management services.
One important distinction is between managing routine repairs and acting as a construction manager.
For example, arranging for a contractor to replace a broken handrail is different from managing the reconstruction of an apartment building.
In the Palomar policy, Construction Manager includes services involving the management of construction, reconstruction, or renovation plans; development and management of construction contracts and subcontracts; and related loss control and risk management plans.
The policy separately states:
“Property Manager does not include a Construction Manager.”
Its definition of Real Estate Professional Services also excludes services as a Construction Manager.
Consequently, a property manager who assumes responsibilities associated with construction management may encounter coverage restrictions that would not apply to ordinary maintenance coordination.
Are Maintenance-Related Bodily Injury and Property Damage Claims Covered?
Many of the most serious maintenance claims involve bodily injury (BI) or property damage (PD).
Examples include:
- A tenant falls because a reported loose handrail was never repaired.
- A ceiling collapses after repeated maintenance requests were ignored.
- A plumbing repair causes water damage to neighboring apartments.
- A tenant suffers injuries after a contractor improperly completes a repair.
Most real estate E&O policies contain broad bodily injury and property damage exclusions. Some provide exceptions for specific activities or contingent BI/PD claims, but those exceptions may carry substantial sublimits.
This creates an important distinction: a policy may cover the professional error of failing to arrange a repair while excluding the injury or property damage resulting from that error.
How PBI Group's E&O Policy Handles BI/PD Claims
The standard Palomar E&O form excludes bodily injury and property damage, subject to certain exceptions. PBI Group's endorsement replaces that exclusion with a provision allowing qualifying contingent BI/PD claims arising from covered professional services.
For the full E&O policy limit to be available under this provision, the insured must maintain General Liability insurance throughout the policy period with:
- At least $1 million per claim or occurrence.
- Premises/Operations liability coverage.
- Products/Completed Operations coverage.
- Bodily Injury and Property Damage coverage.
Claims potentially covered by the GL policy must also be submitted to that insurer. The E&O protection is specifically excess over the GL policy and does not cover claims that would be covered under a standard GL policy, regardless of whether that GL coverage is actually in force.
What Happens if the GL Policy Does Not Meet Those Requirements?
PBI Group's Palomar sample also includes a separate provision for insureds who carry General Liability insurance that does not include the specified premises/operations and products/completed operations coverages.
Under this provision, qualifying contingent BI/PD claims may receive coverage subject to a $250,000 aggregate sublimit for damages and claim expenses.
This sublimit is part of, not additional to, the overall E&O policy aggregate.
The distinction is significant. A serious tenant injury can generate a claim far exceeding $250,000, making the difference between limited contingent BI/PD coverage and the full E&O policy limit particularly important.
The $250,000 provision should not be interpreted as automatically applying to every GL policy deficiency. Its specific requirements and the remaining policy conditions must be satisfied.
Why Is General Liability Important for Maintenance and Repair Claims?
Property managers should maintain General Liability insurance with at least $1 million per occurrence, including products/completed operations coverage.
GL and E&O address different aspects of maintenance-related liability.
General Liability may respond to covered bodily injury or property damage arising from business operations, while E&O addresses qualifying allegations of negligence in performing professional property management services.
Products/completed operations coverage is particularly relevant when an injury or property damage occurs after repair work has been completed.
For example, a contractor installs a railing incorrectly. Several weeks later, it fails and injures a tenant. The resulting claim may involve completed operations liability.
The property manager may also be accused of negligently selecting the contractor or failing to ensure the repair was completed properly.
Whether the property manager's GL responds depends on its terms, including professional services exclusions and other applicable restrictions.
Requiring contractors to carry their own insurance is important, but it does not guarantee that the property manager will be defended if named in a lawsuit.
Even when a contractor is primarily responsible for the defective work, the property manager may incur substantial legal expenses defending allegations of its own negligence.
This is why PBI Group recommends maintaining appropriate GL coverage alongside E&O, rather than relying solely on contractors' or property owners' insurance.
Does E&O Cover a Separate Maintenance Company or LLC?
Some property management firms operate maintenance services through a separate company, often an affiliated LLC.
A separate maintenance company is not automatically insured under the property management firm's E&O policy simply because the two companies share ownership.
For example, a property management company may contract with an affiliated maintenance LLC to perform plumbing, electrical, or general handyman services.
If the maintenance company performs faulty work, a claim may allege negligence by the maintenance company, the property manager, or both.
The property manager's E&O may address qualifying allegations involving its professional services, but that does not necessarily extend coverage to the affiliated company's physical repair operations.
Separate maintenance entities should be evaluated for their own General Liability coverage, including appropriate classifications and products/completed operations protection.
PBI Group can review your specific maintenance entity with you and consider coverage options for that entity.
What Should Property Managers Look for in Their E&O Policies?
Maintenance and repair coverage should be evaluated by reviewing the following provisions together:
- Definition of Professional Services: Does the policy cover arranging repairs by others, performing repairs directly, or both?
- Maintenance Exclusions: Are there exclusions for repairs, contracting, or maintenance activities?
- Construction Management Exclusions: Does the policy distinguish ordinary maintenance coordination from managing construction or renovation projects?
- Exceptions and Carvebacks: Do any provisions restore coverage for specified maintenance activities?
- Bodily Injury and Property Damage: Are these claims excluded entirely, covered up to a sublimit, or eligible for full policy limits?
- Separate Maintenance Entities: Are affiliated maintenance companies insured, or do they require separate coverage?
- General Liability Requirements: Does the firm's GL policy include adequate limits, premises/operations, and products/completed operations coverage?
A property manager may carry substantial E&O limits and still have significant restrictions for maintenance-related claims.
PBI Group specializes in reviewing property management E&O and General Liability policies to identify these exclusions, sublimits, and coverage gaps. Our exclusive Palomar program includes provisions addressing minor repairs performed by insureds and contingent bodily injury and property damage claims.
Understanding the difference between arranging repairs, performing work, and managing construction is essential to determining what your insurance actually covers.
Coverage descriptions are based on the referenced sample policy and endorsements. Actual coverage is subject to the issued policy's terms, conditions, exclusions, limits, and underwriting requirements.
