The significant increase in foreclosures has led to an increase in Bank Owned Properties. Banks are typically not in the real estate business and hire professionals to manage and maintain (preserve) these properties, often called REO (Real Estate Owned) properties. Banks hire companys and individuals to preserve these properties. In the E&O world this service is called Property Preservation and presents some unique risks that are to be addressed in a Professional Liability Insurance policy. The risk is typically both a general liability and professional liability risk. The E&O insurance correct E&O policy for a property preservationist depends on the type of service provided. The distinction between professional and general liability is the difference between management and the actual preservation work. Summarized below are the major distinctions.
Property Management
A property manager is a person/company that oversees a property. This service is typically performed by a licensed real estate professional. Although in some states that is not required. The property manger makes sure that the property is well maintained including physical inspection, hiring and overseeing contractors, maintenance personnel etc. However, they do not actually do any of the maintenance work. This type of service requires an E&O or Professional Liability insurance policy.
General Contracting
A general contractor is a person the makes the repairs to the property. Often the contractor will perform minor repairs such as fixing a leaking faucet, repairing a screen door or a step. They may be sufficiently licensed to perform major work such as roof or driveway repair or replacement, but typically they handle only minor repairs. This type of risk is covered under a general liability policy. The G/L policy will typically cover risks such as slips and falls, completed operations as well as damage caused in the performance of the services such as a rock thrown from a lawn mower. These risks are not covered by an errors and omissions insurance policy.
Both Property Management and General Contracting
Often a bank hires one company to perform both the property management and the general contracting services. The bank will typically refer to this combined service as property preservation. Someone performing this service will need both a G/L and E&O insurance policy. This coverage is typically offered by two separate insurance companies.
Cost of an E&O policy
E&O insurance costs are based primarily on the annual revenues, number of individuals and loss history of the insured. In general, one could expect to pay around $3000.00 for an E&O insurance policy if the annual revenues are less than about $200,000. This cost would not include the cost of the general liability policy.