After you buy a property management company, start with two policies. Errors and omissions should cover the services you provide and the seller's past work. Crime coverage should protect the rent and deposits you hold in trust. Then check how tenant discrimination claims are handled, whether you are protected under each owner's insurance and how tenant data is secured. This checklist is for searchers, Small Business Administration (SBA) loan buyers and holding companies that just closed on a residential or commercial property management firm.
The short answer
- Property managers errors and omissions insurance covers financial harm from management mistakes. It is usually claims-made, so the retroactive date decides whether the seller's past work is covered.
- Trust accounts hold other people's money. Check that the crime policy covers client funds and how it treats wire fraud and fake vendor invoices.
- Fair housing claims from applicants and tenants often fall outside general liability, and errors and omissions policies may exclude or sublimit them.
- Each owner's liability policy may protect your company as its property manager, but only if the policy uses standard wording and stays in force. Collect proof for every property.
- Rental applications hold Social Security numbers and bank records, so cyber coverage and data controls matter.
What if a management mistake costs an owner money? (Errors and omissions)
Errors and omissions (E&O) insurance, also called professional liability, covers claims that your management work caused someone a financial loss. General liability covers bodily injury and property damage, which is a different kind of claim. The table shows how common claims tend to sort out; your policy wording controls.
| Scenario | Policy that usually responds | What to check |
|---|---|---|
| You let an owner's property insurance lapse and a fire follows | Errors and omissions | Whether failure to maintain insurance is excluded |
| An accounting error shorts an owner's distributions | Errors and omissions | Exclusions for return of fees or commingled funds |
| A missed repair leads to a tenant injury | Owner's general liability, then yours | Real estate manager wording, your own general liability |
| A rejected applicant alleges discrimination | Errors and omissions, if fair housing is included | Discrimination exclusion or sublimit |
| A bookkeeper steals from the trust account | Crime policy | Client funds coverage; errors and omissions usually excludes theft |
| A hacker steals tenant files | Cyber | Notification costs, extortion, regulatory coverage |
Most errors and omissions policies are claims-made: they respond to claims first made while the policy is in force, about work after the retroactive date (the earliest date of work the policy covers). In a stock purchase the firm's policy may continue, but check its change in control terms. In an asset purchase your new policy may start its retroactive date at closing, so claims about the seller's management need the seller's tail coverage or a policy of yours that keeps the earlier date and covers the predecessor firm. The seller's tail protects the seller. If owners might sue you over the seller's work, ask your carrier whether your policy can cover claims about the predecessor firm. See prior acts and tail coverage and the professional liability review.
How exposed are the trust accounts?
Very, because the money is not yours. Rents, security deposits and reserves usually sit in trust accounts, and many states regulate them through real estate licensing rules. Owners will look to you if the money disappears. In many states, managing property for others requires a real estate broker license, and the trust account is held under the designated broker's license. If the seller was that broker, confirm who holds the license now with the state real estate commission and deal counsel, and tell your errors and omissions carrier. Check three things:
- Employee theft. A crime policy covers theft by employees. ISO crime forms generally treat money you hold for others as covered property, but carrier forms differ, so confirm the trust and deposit accounts are covered.
- Payment fraud. Fake vendor invoices and emails that change a contractor's bank details are common in property management. Many crime policies cover these social engineering losses only under a separate insuring agreement, often with a low sublimit, and some exclude them.
- Controls. Monthly three-way reconciliation (matching the bank statement, the trust ledger and each owner's and tenant's balances), dual approval for vendor payments over a set amount, and call-back verification of any vendor bank change using a number already on file. These controls reduce losses and may be required by the policy or the state regulator.
A hypothetical example. Three months after closing, an accounts payable clerk receives an email that appears to come from a regular roofing contractor, with new bank details. The clerk sends $80,000 from an owner's operating account. The crime policy covers social engineering only to a $25,000 sublimit. The owner looks to the firm for the other $55,000, and depending on the management agreement, the firm may have to pay it from its own cash. A call-back to a known phone number would likely have stopped it. The numbers are illustrative.
See funds transfer fraud for new owners and the crime insurance review.
Are tenant discrimination claims covered?
Sometimes, and rarely by general liability alone. The federal Fair Housing Act prohibits housing discrimination based on race, color, national origin, religion, sex, familial status and disability, and many state and local laws add more protected groups. Property managers face claims over screening criteria, advertising, reasonable accommodation requests such as assistance animals, and evictions.
General liability usually covers bodily injury, property damage and a short list of personal injury offenses. The standard form's list includes wrongful eviction and wrongful entry, which may pick up part of some claims, but discrimination is not one of the listed offenses, and many carriers add an endorsement that excludes it. Many property manager errors and omissions policies include fair housing coverage, sometimes defense only or with a sublimit; others exclude it. Employment practices liability insurance (EPLI) covers claims by your own employees and sometimes, by endorsement, by third parties, but it may not extend to housing claims. Check each policy and ask for the coverage in writing. See the employment practices liability review.
Does each owner's insurance protect my company too?
Often, but check it property by property. Management agreements usually require the owner to carry property and liability insurance and to protect the manager. The standard Insurance Services Office (ISO) general liability form includes, as an insured, any person or organization while acting as the named insured's real estate manager. That can protect you when a tenant is hurt on the property, but it shares the owner's limits and applies only to your work as manager of that property. It also only helps if the owner's policy uses that wording, carries adequate limits and stays in force.
So for each managed property, collect a certificate and, where the contract calls for it, an additional insured endorsement naming your company, not the seller's. Track renewals; owners let policies lapse. Your own general liability still matters for your office, your staff's work and claims the owner's policy does not reach. See additional insured, how much liability insurance a landlord needs and certificate tracking in your first month.
What about tenant data and cyber risk?
Rental applications, screening reports and tenant portals hold Social Security numbers, income documents and bank details. A breach can trigger notification duties under state data breach laws, which differ by state, plus forensic, legal and credit monitoring costs. Ransomware can also lock the accounting system that runs rent collection.
A cyber policy can cover breach response, extortion, business interruption from a network outage and liability to tenants, depending on its terms. Errors and omissions policies often exclude data breaches, so do not assume they overlap. Insurers usually ask about multi-factor authentication and backups before quoting. If you are moving the seller's files onto your systems, read cyber risk during an IT migration and the cyber review.
What belongs on my first-month checklist?
| Check | Why it matters in property management | Ask for |
|---|---|---|
| Errors and omissions | Core financial loss claims from owners and tenants | Policy, retroactive date, fair housing terms, tail options |
| Crime with client funds and social engineering | Trust account theft and payment fraud | Crime policy, sublimits, bank controls |
| Management agreements | Owner consent may be needed to assign them in an asset purchase; insurance and indemnity terms | All active agreements |
| Owners' policies | Real estate manager status and additional insured requirements | Certificates and endorsements per property |
| Workers' comp | Maintenance and leasing staff; confirm whether you or the owner is the employer | Policy, payroll by class, payroll reimbursement terms |
| Hired and non-owned auto | Staff drive their own cars to properties | Auto or package policy |
| Cyber | Tenant financial data and rent systems | Policy, application, controls |
| Umbrella | Large injury claims | Which policies it sits over (usually not errors and omissions or cyber) |
For the contract side, see checking customer contracts against your policies. A Morrow review can compare your errors and omissions, crime and cyber terms with your management agreements and request quotes where it makes sense.
Keep reading
- New Owner Review: Professional Liability (Errors and Omissions)
- Funds Transfer Fraud: Why New Owners Are a Favorite Target
- Prior Acts and Tail Coverage After an Acquisition: Who Pays?
- New Owner Review: Cyber Insurance
- Just Bought an Insurance Agency? Your Insurance Review Checklist
- All guides for new business owners
Frequently asked questions
Do I need errors and omissions insurance if the owners carry their own insurance?
Usually yes. The owner's general liability may protect you as real estate manager for injury and damage claims, but it does not cover financial losses from your management mistakes, such as accounting errors or a lapsed insurance policy. That is what errors and omissions coverage is for.
Does crime insurance cover money stolen from tenant security deposits?
Often, yes. Standard crime forms generally cover money you hold for others, such as deposits in your trust account, but carrier forms vary. Check the ownership of property wording, the limit and any conditions about reconciliations and controls.
Are fair housing complaints covered by my insurance?
It depends on your policies. General liability usually does not cover discrimination. Many property manager errors and omissions policies include some fair housing coverage, sometimes for defense only or with a sublimit, while others exclude it. Ask for the terms in writing.
Does the seller's errors and omissions policy cover claims about its work before I bought the company?
Only if the policy or its tail is still in place when the claim is made, or the seller reported the circumstances to its carrier before the policy ended. Most errors and omissions policies are claims-made, so ask whether the seller bought an extended reporting period. The seller's tail protects the seller, not your firm. If you bought the assets, ask your carrier for predecessor firm coverage with a retroactive date that reaches back to the seller's, and ask deal counsel whether the purchase agreement requires the seller to keep its tail in place for a set period.
What should I ask owners to send me after closing?
Ask each owner for a current certificate of insurance for every managed property and, where the management agreement requires it, an endorsement naming your company. Confirm the limits match the agreement and set reminders for each renewal date.
References
- U.S. Department of Housing and Urban Development: Housing Discrimination Under the Fair Housing Act
- ISO: Commercial General Liability Coverage Form CG 00 01 12 07 (carrier-hosted copy)
- IRMI: Need To Know: Major Changes to the ISO Commercial Crime Program
- The D&O Diary: Voluntary Parting Exclusion Precludes Coverage for Social Engineering Fraud Loss
- IRMI: Extended reporting period (definition)
Just bought a business? Get your insurance reviewed.
Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.
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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.