Risk Management PDF

15 Risk Management Learning Objectives After completing this lesson, students should be able to… Explain negligent hiring and negligent retention and the best way to reduce the risk from both Discuss the employee handbook and the...

15 Risk Management Learning Objectives After completing this lesson, students should be able to… Explain negligent hiring and negligent retention and the best way to reduce the risk from both Discuss the employee handbook and the types of issues it should address Discuss the role of inspections and repairs in reducing risk from the property Compare an emergency plan with an emergency procedures manual List crimes of particular concern to property managers and how to address them Compare general hazard insurance with special form insurance List the different types of homeowner insurance policies Contrast bonding and E&O insurance Suggested Lesson Plan 1. Give students Exercise 15.1 to review the previous chapter, “Complying with Federal, State, and Local Laws.” 2. Provide a brief overview of Chapter 15, “Risk Management,” and review the learning objectives for the chapter. © 2021 Rockwell Publishing  Property Management Instructor Materials 3. Present lesson content: Reducing Risk from Employees and Contractors – Negligent hiring – Negligent retention – Contractors – Training – Supervision EXERCISE 15.2 Negligent hiring and retention Reducing Risk from the Property – Inspections – Repairs Emergency Preparedness – Emergency plan – Emergency procedures manual – Training – Maintenance and inspections EXERCISE 15.3 Emergency preparedness Security Issues – Door and lock requirements – Security personnel and equipment – Crimes of particular concern Insurance – Coverage and deductibles – Types of insurance – Insurance claims EXERCISE 15.4 Insurance coverage and deductibles 4. End lesson with Chapter 15 Quiz. Chapter 15 Outline: Risk Management I. Reducing Risk from Employees and Contractors A. Risk management: the actions taken by a landlord to minimize the risk (and extent) of financial losses from natural disasters, accidents, and wrongdoing 2  Chapter 15: Risk Management B. Negligent hiring: a situation where an employer may be liable to someone injured by an employee if the employer knew or should have known that the employee posed a risk to others 1. To prove negligent hiring, the injured party must show that the manager knew (or should have known) that the employee was dangerous to em- ployees, tenants, or others; the danger was known (or should have been known) when the employee was hired; the employee injured a coworker, tenant, or third party; the reason the employee was dangerous was related to the injury caused; and the circumstances of the injury were in some way connected to the employment 2. The best way to avoid negligent hiring is to screen job applicants thor- oughly C. Negligent retention: when the manager fails to terminate an employee after learning the employee is dangerous, and the employee then goes on to harm someone D. Liability for negligent hiring and retention also applies to contractors 1. The manager should make sure that all contractors are insured by re- questing a certificate of insurance: a document issued by an insurance company stating the type of coverage the policyholder has, its effective dates, and the amount of coverage E. In addition to careful hiring, a manager must also properly train employees 1. Training should include a thorough review of the employee handbook 2. The employee handbook should include clear, objective descriptions of unacceptable behavior toward other staff as well as tenants 3. The handbook should also describe the procedures for receiving and re- sponding to claims of sexual harassment and discrimination a. Sexual harassment is any sort of unwelcome sexual advance or other sexual conduct that makes the workplace intimidating or hostile; the handbook should provide clear examples of inappropriate behavior b. Managers should make sure that the employee training program care- fully goes over all state and federal fair housing laws, including how to avoid discrimination when selecting and evicting tenants, and han- dling tenant complaints and maintenance requests F. Supervision of employees involves regular staff meetings, employee reviews, and regular contact with the employee 1. Proper supervision includes consistently following the disciplinary proce- dures described in the employee handbook 2. The manager should always document the problem and the manage- ment’s response (additional training, probation, or termination) EXERCISE 15.2 Negligent hiring and retention 3  Property Management Instructor Materials II. Reducing Risk from the Property A. The manager should personally inspect the property for safety issues and other prob- lems as soon as she takes over management responsibilities, and then again on a regular basis 1. Professionals should be hired to inspect specialized equipment (such as elevators) 2. The date of the inspection should be recorded, along with any repairs or services needed B. The manager should address needed repairs in a timely manner, although safety is- sues require immediate attention to reduce the risk of negligence claims 1. The manager shouldn’t try to repair problems that require a specialist, because improper repairs could increase the risk of injuries or death 2. Some repairs require a licensed professional (boilers, elevators, pipes, and wir- ing) 3. A maintenance work log should describe the problem, the date the problem was fixed, and who performed the repair; these records can also help disprove accusa- tions of illegal discrimination in how requests were handled 4. It’s also a good practice to keep a record of precautions taken to warn tenants and visitors of any danger, both before and during the repair III. Emergency Preparedness A. An emergency plan, contained in the emergency procedures manual, addresses the actions that staff and tenants should take during various kinds of emergencies 1. The manager should communicate relevant aspects of the plan to tenants through meetings and emergency drills, information in the tenant handbook, and website material 2. Local ordinances may require the owner to have an emergency plan tailored to the property B. An emergency procedures manual helps tenants and staff safely react to an emergen- cy, and may help defend against negligence claims by showing that the manager was prepared and took reasonable precautions to protect tenants, employees, and property 1. The manager and staff should know the location of utility shutoff valves and switches and how to use them; the emergency procedures manual should contain a map of the valve locations and where to find the tools needed to operate the shutoffs 2. The procedures manual includes diagrams of evacuation routes, and instructions on how to exit the building a. The manager should hold annual evacuation drills to evaluate the plan b. Elderly or disabled tenants may need extra help 3. The manual should address security issues both during and after a disaster to secure the building 4  Chapter 15: Risk Management 4. The manual should address communications during a disaster, and include the contact information for management personnel and the owner, utilities, police, fire, and other emergency services C. Key staff members should receive training in the contents of the emergency proce- dures manual 1. The manual should list the names and cell phone numbers of any staff members trained in first aid, and should include a map showing the location of all first aid kits 2. OSHA requires first aid kits in workplaces D. Emergency preparedness calls for periodic inspections that focus on safety and emer- gency equipment 1. Smoke detectors and carbon monoxide detectors should be inspected regularly, and the manager should remind tenants to change batteries at least once a year 2. The building’s alarm system should be checked during the evacuation drill and fixed immediately if faulty 3. Many state and local governments impose detailed fire equipment requirements for certain types of properties, such as emergency lighting and fire extinguishers 4. State and local governments may require emergency lighting in residential apart- ment buildings, and even in some commercial buildings 5. In earthquake-prone areas, managers of older buildings should have the building evaluated for the risk of damage or collapse in a serious quake a. Retrofitting: updating an existing building by adding bracing and other im- provements that make the structure less susceptible to an earthquake EXERCISE 15.3 Emergency preparedness IV. Security Issues A. Managers must comply with door and lock requirements 1. Most state and local governments require residential units to have deadbolts on exterior doors, and locks may have to be a certain type or quality 2. Lockable windows are usually required, and some states require locks for sliding glass doors 3. Front doors may have to be steel or solid wood, and may have to have chains or peepholes 4. Some states require the landlord to change the lock between tenants, and when requested by the victim of domestic violence B. Managers may be able to prevent criminal activity by employing security personnel, using surveillance cameras and alarms, and installing exterior lighting 1. Security guards can note suspicious activity, control access to the building, and possibly intervene when crimes occur 5  Property Management Instructor Materials a. Retail properties may hire their own guards, or the manager may contract out for security services b. Security personnel should be given guidelines on how to perform their jobs, such as when or if they can stop shoplifters 2. Generally, the law permits surveillance cameras except in areas where people have a reasonable expectation of privacy, such as bathrooms and dressing rooms. 3. Whether management or the tenant provides the alarm system for a property depends on the type of property; when a residential alarm is provided by manage- ment, there is additional liability, so the manager should take measures to ensure the tenant knows how to operate the system 4. The manager should inspect the building and grounds with an eye toward elimi- nating dimly lit areas and overgrown landscaping C. Crimes of particular concern to property managers and owners include vandalism and graffiti, drug manufacture and sales, and computer crime and identity theft 1. The manager should clean up any graffiti and repair vandalism promptly to pre- vent the appearance that the property is poorly guarded, inviting more crime a. The landlord’s insurance policies and mortgage financing agreement may require him to promptly remove graffiti and repair vandalism 2. The manager should not tolerate drug activity a. If the offender is a tenant, enforce the lease provisions and evict the tenant; if the lawbreakers are loiterers, take measures to address the problems, such as calling the police, adding lighting, and installing security cameras b. Failure to address the problem may result in forfeiture (extreme cases) or the property being declared a public nuisance: any activity that threatens the pub- lic’s health, safety, morals, or general welfare c. Residential space used as a meth lab cannot be occupied again until it’s been thoroughly cleaned by professionals trained in removing hazardous materials; in some states, landlords must disclose to prospective tenants that the prop- erty was used for meth production 3. To reduce the risk of identity theft and computer crime, the manager should use the latest computer security software, encrypt private information, keep paper files under lock and key, and shred sensitive paper documents when they are no longer needed V. Insurance A. Insurance reduces the financial impact of personal injuries and property damage 1. The insured party (policyholder) enters into a contract (the policy) with the insur- ance company; and in exchange for a fee (the premium) paid by the insured, the insurance company agrees to compensate the policyholder up to the amount of the policy for any loss covered by the policy (less any deductible) 6  Chapter 15: Risk Management 2. A person can only purchase insurance if she has an insurable interest: an owner- ship interest or some other right in the property being insured 3. In most property management situations, the policyholder must be the owner B. To determine the proper coverage, the manager should assess the potential risk and likelihood of various types of risk, since it’s too expensive to insure against every possible risk 1. Insurance policies commonly contain two coverage limits: one limit on the amount the insurance company will pay per incident, and another limit on the total amount the insurance company will pay per year 2. Insurance that covers the physical premises reimburses the owner either for the property’s replacement value or for its actual cash value a. Actual cash value is the value of the property before the damage or loss; also called depreciated value 3. Insurance usually requires the policyholder to pay a deductible (either a flat amount, or a certain percentage of the claim) on any claim; the insurance com- pany then pays the claim amount over the deductible, up to the policy limit C. There are many different types of insurance policies, and the manager should consult an insurance broker to determine the appropriate coverage 1. Hazard insurance: insurance that protects against the cost of damage to the prop- erty from hazards such as fires, storms, and vandalism; also known as property insurance a. Broad form coverage may also protect against problems like falling objects, water damage from faucets and plumbing, and damage or collapse due to the weight of ice or snow b. Special form insurance: a type of hazard insurance that protects against all types of risks except those specifically excluded from coverage c. Types of homeowner policies include basic, broad form, and special form 2. General hazard insurance policies don’t cover earthquake or flood damage; an owner who wants such coverage must purchase an additional policy or endorse- ment: a written attachment to an insurance policy contract, in which the insurance company agrees to additional coverage in exchange for an additional fee 3. Business interruption coverage: insurance that protects against lost income after a fire or other disaster destroys a business; also known as a loss of rents policy 4. Machinery and equipment insurance: covers damage to a boiler or other heavy production machinery and equipment 5. Workers’ compensation insurance: insurance that protects both employees and employers from the financial impact of work-related injuries; also known as in- dustrial insurance a. Workers’ compensation is mandatory for any company that has even one employee; in some states, businesses must also pay workers’ compensation for contractors 7  Property Management Instructor Materials 6. Liability insurance: insurance that protects the landlord against claims by tenants, guests, and visitors for property damage or bodily injury caused by the landlord’s negligence a. Liability insurance also covers the cost of defending a lawsuit b. The amount of coverage needed varies based on the type of property, but isn’t based on the value of the property 7. Commercial general liability insurance: insurance that covers the owner or man- ager who is sued for slander or libel, invasion of privacy, retaliatory or unlawful eviction, or discriminatory rental practices 8. Automobile insurance: vehicles used for business purposes should have com- mercial automobile liability insurance coverage; if an employee will use her own vehicle for company business, she should add the management business and the owner to her personal policy as additional insured parties 9. Renter’s insurance: a policy that covers a tenant’s personal property (such as clothes or furniture), since those items are not covered under a property’s hazard insurance policy 10. Errors and omissions (E&O) insurance: a type of liability insurance that helps protect a service provider (the property manager) against a claim of negligence by the client (the property owner) a. The property manager’s E&O coverage should equal about 10% of the total funds she handles each year b. E&O insurance is required by some states 11. Fidelity bond: a bond (similar to insurance) that covers losses caused by employ- ees who commit criminal acts such as fraud or embezzlement D. It’s usually the property manager’s job to file an insurance claim if the managed property suffers damage, and to perform any mitigating steps the insurance company requires 1. A property manager should keep files for each insurance policy and for each claim filed, with information that includes: copies of the policies and contact information, copies of any claims, receipts for claim-related items or services purchased, and copies of all correspondence EXERCISE 15.4 Insurance coverage and deductibles 8  Chapter 15: Risk Management Exercises EXERCISE 15.1 Review exercise To review Chapter 14, “Complying with Federal, State, and Local Laws,” have students decide if the following statements are true or false. 1. A small property management firm with ten employees hires an employee to mow lawns for the firm-managed properties. Statement: Since the firm only has ten employees, it doesn’t have to pay the lawnmower minimum wage. 2. An old two-story office building has no elevator. A physical therapist who is wheelchair-bound tells the property manager that she wants a second floor of- fice because of the view. Statement: The accommodation requirement of the ADA requires that the landlord install the elevator. 3. Statement: A light industrial zone located between a residential zone and a heavy industrial zone would be classified as a buffer zone. 4. Felix owns a triangular lot in a warehouse district. The lot has been empty since a fire burned down the old warehouse. The old warehouse was something of a landmark because of its triangular shape. Felix would like to build a replacement building, but current zoning setback requirements mean that he can’t replicate the footprint of the old building. Statement: A zoning variance is too temporary a solution to be of any real use to Felix. 5. Mary completes an addition to her office building. The last building inspection takes place and the inspector tells Mary that the work is satisfactory. Statement: Tenants may now move into the addition. 6. Statement: Only projects that involve some level of federal funding or involvement (such as a subsidy) require environmental impact reports. 7. The liability referred to in the Comprehensive Environmental Response, Com- pensation, and Liability Act (CERCLA) is strict liability. Statement: Strict liability in this situation means that parties other than the actual polluter may be liable for cleanup. Answers: 1. FALSE. There are few exemptions to the federal minimum wage law. Certain agricultural workers are not protected, but that would not include someone who mows lawns. 2. FALSE. The ADA requires reasonable accommodations. The expense of adding an elevator to a small, old building almost certainly imposes too much hardship on the owner to be considered a reasonable accommodation. 9  Property Management Instructor Materials 3. FALSE. Zoning helps prevent lighter uses being located next to heavier uses. How- ever, this is not referred to as buffering. Generally, buffers are open areas between zones. A strip of conservation land between an office park and a residential de- velopment is an example. 4. FALSE. Some variances are temporary but most are not. 5. FALSE. Mary must wait until the building department issues a certificate of occu- pancy (or its equivalent). 6. FALSE. States also have impact report requirements and these requirements apply to almost any project deemed to have a significant impact on the environment. 7. TRUE. Under CERCLA, a person who buys a polluted property may find himself liable for some or all of the cleanup. EXERCISE 15.2 Negligent hiring and retention Discussion prompt: Greg is the resident manager for a large apartment building. He employs Jerry, a part-time maintenance worker, who helps paint units and handle repairs. After an argument, Jerry throws down his keys and quits in a huff. Greg needs a new maintenance worker. He has a friend from his book club, a man in his early twenties named Sam. Sam has worked for Greg as an indepen- dent contractor handling a few skilled carpentry jobs. Sam wants the part-time maintenance worker job. Greg calls Sam’s current employer who gives a gener- ally positive review. Greg also checks Sam against the SDN list as required by the Patriot Act. He also pays for a criminal background check which comes up clean. Greg hires Sam. A month later, two tenants complain to Sam about the theft of some valuable items from their apartments. There is no sign of forced entry. Sam passes the com- plaints on to Greg. Greg suspects that Jerry must’ve copied his master key before turning it in and has come around the apartment building creating an unofficial “severance package” for himself. A little over two years later, three more apartment unit thefts occur. Greg finds it hard to believe that Jerry is still coming around. He runs another criminal back- ground check on Sam. This time, Sam’s name pops up. In the past two years, Sam has turned criminal. A year and a half ago, he pled guilty to theft of services at a gas station (filling a truck tank with almost $100 of gas and then driving off). Sam spent three days in jail and paid a large fine and restitution. And three months ago he was convicted of check fraud. He is free pending an appeal. Greg fires Sam and explains the situation to his tenants. 10  Chapter 15: Risk Management Questions: 1. The two tenants who suffered the thefts right after Sam was hired want to sue Greg (and the property management firm he works for) to recover their losses. They think negligent hiring might apply. Do you think they are right? 2. The three tenants who recently suffered thefts also want to sue Greg and the property management firm he works for. They think negligent hiring might apply. Do you think they are right? What about negligent retention? Answers: 1. Greg ran what sounds like an adequate background check. At any rate, Sam hadn’t had a criminal record yet, so nothing could have shown up no matter how thorough the search. Therefore, Greg isn’t liable for negligent hiring. 2. As noted in the first answer, Greg isn’t liable for negligent hiring. Negligent reten- tion is a possibility, although it will be hard to prove. Running a background check right after the thefts wouldn’t have turned up anything on Sam. So, Greg couldn’t be held liable for failing to run this check. However, a court might consider Greg’s belief that Jerry had committed the thefts. Did Greg’s unfounded conclusion prevent him from investigating further? If it is reasonable to think that such an investigation might have pointed to Sam, not Jerry, then Greg was negligent for not looking into it further. But there isn’t enough information in the facts to determine if Greg was in fact negligent. EXERCISE 15.3 Emergency preparedness Have your students answer whether the following statements are true or false. 1. The manager communicates the property’s emergency procedures to her staff by giving them a copy of the management plan. 2. Training staff in emergency procedures may reduce the risk of liability if someone does get hurt despite the emergency training. 3. Managers should rely on utility companies to shut off utilities during an emergency. 4. Evacuation or fire drills in residential buildings are not recommended because the drills may give rise to ADA claims by disabled tenants who can’t easily participate. 5. Generally, security isn’t much of an issue in emergency planning. 6. OSHA requires a first aid kit in workplaces and in some cases may require that a staff member receive first aid training. 11  Property Management Instructor Materials Answers: 1. FALSE. Generally, a property manager won’t show the management plan to her staff; she would communicate the property’s emergency procedures to her staff by giving them a copy of the emergency procedures manual. 2. TRUE. When someone is injured during an emergency, the fact that the manager adequately trained staff in emergency procedures reduces the likelihood that a court will find that the manager was negligent. 3. FALSE. Managers and staffers should know how to shut off utilities during an emergency, so they don’t have to wait for a utility company to do so. 4. FALSE. Emergency evacuation drills in residential buildings are a good idea. One of the benefits of these drills is that it gives staff a chance to practice dealing with the needs of disabled tenants in an emergency. 5. FALSE. Emergency planning should include procedures for security, since properties are often vulnerable to theft and vandalism in the wake of a serious emergency (such as flooding). 6. TRUE. OSHA requires a first aid kit in workplaces (such as a management office); also, unless outside first aid services can be provided rapidly, OSHA requires that a staff member receive first aid training. EXERCISE 15.4 Insurance coverage and deductibles Match the following terms with the definitions below. Insurable interest Coverage limit Deductible Actual cash value Hazard insurance Workers’ compensation insurance Renter’s insurance Bonding Errors and omissions insurance 1. Insurance that covers personal property located inside the leased premises. 2. Maximum amount the insured can receive even if losses are larger. 3. Something similar to insurance that a manager can buy to cover losses stemming from employee dishonesty. 4. A form of insurance that covers claims by the owner against the manager for negligence. 5. Insurance that helps employees and the manager with the expenses of job-related injuries. 6. Amount the policyholder has to pay towards losses covered by the policy. 7. Insurance that covers fire damage. 12  Chapter 15: Risk Management 8. Someone’s ownership interest or other right in a piece of property that allows that person to buy insurance on the property. 9. A type of coverage that pays the insured the “used” value of property if the property is destroyed. Answers: 1. RENTER’S INSURANCE. Renter’s insurance covers a tenant’s personal property. 2. COVERAGE LIMIT. All policies set limits on how much they will pay out regardless of the extent of actual losses. 3. BONDING. Bonding is similar to insurance and covers losses stemming from the bonded worker’s dishonest acts. 4. ERRORS AND OMISSIONS INSURANCE. Most owners require that the manager purchase E&O insurance. 5. WORKERS’ COMPENSATION INSURANCE. State law requires that most employers buy this insurance to cover the expenses of job-related injuries. 6. DEDUCTIBLE. Making the insured pay a deductible encourages the insured to take care to avoid losses. 7. HAZARD INSURANCE. This kind of insurance protects against losses due to fires, vandalism, leaks, storm damage, and so on. Separate insurance is necessary for earthquakes and floods. 8. INSURABLE INTEREST. No one can purchase insurance on a piece of property unless they have some interest in that property. 9. ACTUAL CASH VALUE. Generally, landlords should obtain replacement value rather than actual cash value on their property. Replacement value costs somewhat more but can make a big financial difference if the covered property is destroyed. 13  Property Management Instructor Materials Chapter 15 Quiz 1. A maintenance worker employed by a manage- 6. Information about how to shut off utilities ment company assaults a tenant. For the tenant should be found in the: to be able to successfully sue the company a) emergency procedures manual under a theory of negligent hiring, the tenant b) employee handbook will need to prove all of the following, except: c) insurance binder a) the danger posed by the employee should d) lease agreement have been known at the time of hiring b) the manager should have known the em- 7. An emergency procedures manual for a prop- ployee was a danger to tenants erty states that whoever finds an emergency c) the reason the employee was dangerous was problem will telephone the maintenance su- related to the injury he caused pervisor, who in turn will call the property d) the tenant did not provoke the employee manager and the skilled maintenance worker. This is known as a: 2. Before hiring an independent contractor to a) delegation schedule perform a task, a manager should request that b) phone schedule the contractor has: c) phone tree a) proof of insurance d) work log b) a policy of errors and omissions insurance c) an employee handbook 8. Occupational Safety and Health Administration d) no criminal history whatsoever regulations may require workplaces to: a) have a first aid kid available 3. An employee handbook should give specific b) have a staff member trained in first aid instructions on how to avoid all of the follow- c) have all staff members trained in first aid ing, except: d) Both A and B a) discriminatory practices b) sexual harassment 9. State or local laws may require all of the fol- c) tax liability on operational profits lowing, except: d) unacceptable behavior toward tenants a) certain number of fire extinguishers per floor 4. All of the following would be regulated by state b) emergency lighting in hallways or federal labor laws, except: c) notifying tenants of location of fire extin- a) number of hours that can be worked guishers b) overtime requirements d) training tenants in firefighting techniques c) remodeling apartment buildings d) workers’ compensation 10. Retrofitting an older building can offer protec- tion against serious damage from: 5. To reduce risk from the property, a manager a) flooding should do all of the following, except: b) an earthquake a) avoid keeping permanent records of mainte- c) dry rot nance problems so as not to create liability d) termites b) inspect the property frequently c) notify tenants of problems that can’t be promptly repaired d) repair problems promptly 14  Chapter 15: Risk Management 11. A shopping center employs several security 15. A property’s hazard insurance policy will pay guards. Concerning techniques for dealing with up to $100,000 per incident, or up to $250,000 suspected shoplifters, the management should per year. The building suffers $25,000 in dam- give specific instructions to the guards about: age to several balconies from a falling tree a) how much force they can use early in the year, and then later that year, it suf- b) how they can detain persons fers $275,000 in damage to several units from c) under what conditions they can detain a fire. How much will the insurance company persons pay toward the second claim? d) All of the above a) $25,000 b) $100,000 c) $225,000 12. To make sure a building is secure, a property d) $250,000 manager should do all of the following, except: a) avoid safety inspections offered by local police to avoid creating liability 16. An older building’s depreciated value is b) eliminate overgrowing landscaping near the $280,000. It would cost $450,000 to build a building new building with the same size and use, how- c) have the tenant sign a form stating that she ever. It sits on a lot that is valued at $100,000. has been shown how to set the alarm system If the building is destroyed by fire, and it is d) test the alarm system before a new tenancy insured under a policy that pays replacement begins value, how much will the owner receive from the insurance company? (Ignore any deduct- ible.) 13. An apartment building’s manager has cast a a) $280,000 blind eye to drug activity on a property for b) $380,000 years, and now the property has been declared c) $450,000 a public nuisance. This can lead to all of the d) $550,000 following, except: a) criminal charges b) fines 17. A basic homeowner insurance policy, without c) forfeiture of the property any endorsements, will cover which of the fol- d) punitive damages lowing perils? a) Earthquake b) Flood 14. Which of the following individuals would have c) Water damage from broken plumbing an insurable interest, in regard to a hazard insur- d) Windstorm ance policy for an apartment building? a) Owner b) Property manager 18. An apartment building suffers a fire, and the c) Tenant tenants must move out while the building is d) Tenant’s guest being repaired. The owner misses out on any rental payments during those several months. What type of insurance would counteract this risk for the owner? a) Basic liability insurance b) Business interruption insurance c) Errors and omission insurance d) Hazard insurance 15  Property Management Instructor Materials 19. Who would benefit from an errors and omis- sions insurance policy? a) Owner, to protect against liability to injured guests b) Owner, to protect against repair costs to outdoor fixtures c) Property manager, to protect against claims of negligence by the property’s owner d) Tenant, to protect her own possessions 20. The purpose of a fidelity bond is to cover losses due to: a) automobile accidents for which an em- ployee is responsible b) embezzlement or fraud by an employee c) injuries to tenant by malfunctioning equip- ment d) physical violence committed by an em- ployee upon a tenant 16  Chapter 15: Risk Management Answer Key 1. d) To prove negligent hiring, the manager 8. d) OSHA regulations require workplaces should have known the employee was to have first aid kits; also, in many a danger, the danger should have been workplaces, at least one person must known at the time the employee was be trained in first aid. However, not ev- hired, the employee injured a cowork- ery person needs to be trained in first er, tenant, or third party, and the injury aid. was related to the reason that the em- ployee was dangerous. 9. d) A tenant should not be trained how to fight a fire, but should be informed of 2. a) A manager hiring an independent con- where smoke detectors and fire extin- tractor should request a certificate of guishers are. insurance, as proof that the contractor has adequate insurance coverage. 10. b) Remodeling a building to strengthen it to increase its odds of surviving an 3. c) An employee handbook for property earthquake is known as retrofitting. management employees should cover discrimination, sexual harassment, and 11. d) Different managers (depending on unacceptable behavior. what their insurers and/or lawyers tell them) may give security staff different 4. c) Regulation of remodeling activities is instructions on how and when to detain through building codes. The other op- suspected shoplifters, and how much tions are all regulated through labor force to use. laws. 12. a) A safety inspection, offered by a police 5. a) Keeping track of repair requests and agency or an insurance company, may repairs made will help protect a land- help a property manager spot and fix lord from claims that he didn’t respond problems. If an inspection reveals a in a timely fashion to safety problems. problem that the manager doesn’t seek to correct, that is what might create li- 6. a) The emergency procedures manual ability. is prepared to help tenants and staff respond to an emergency; among the 13. d) Declaration of a public nuisance can most important items it covers is how lead to fines, criminal charges, or in to shut off utilities. extreme cases, forfeiture of the prop- erty. 7. c) A phone tree is a way of spreading word in event of an emergency so that 14. a) An insurable interest requires an own- one person isn’t tied up making phone ership interest or some other right in calls; each person will have the duty of the property being insured. The owner contacting several more persons. of an apartment building would have the insurable interest, concerning the building itself. 17  Property Management Instructor Materials 15. b) Insurance policies usually have a coverage limit per incident, and also a coverage limit per year. In this case, the second incident would be subject to the $100,000 per incident limit, even though more money would be available under the per year limit. 16. c) If an insurance policy pays replace- ment value, and the building is destroyed, the owner will receive the amount it would cost to build a re- placement building (one with the same utility), in this case $450,000. The in- surer will not pay the value of the land. 17. d) Windstorm damage is covered under a basic homeowner’s policy. Plumbing- related water damage is covered under a broad form policy, while earthquake and flood damage require special en- dorsements. 18. b) If a building is off the market for a while because of a disaster, business interruption insurance will cover the building’s lost rental payments. 19. c) An errors and omissions insurance policy protects a professional service provider, such as a property manager, against claims of negligence by a cli- ent. In this way, it’s similar to the malpractice insurance carried by doc- tors or lawyers. 20. b) A fidelity bond is similar to insurance; it offers protection of an owner’s funds or a manager’s funds, up to a certain dollar amount, against losses caused by embezzlement, fraud, or another criminal act by an employee or con- tractor. 18  Chapter 15: Risk Management PowerPoint Thumbnails Use the following thumbnails of our PowerPoint presentation to make your lecture notes. Property Management Lesson 15: Risk Management © 2021 Rockwell Publishing 1 Risk Management This lesson covers: ⚫ reducing risk from employees and contractors ⚫ reducing risk from the property ⚫ emergency preparedness ⚫ security issues ⚫ insurance © 2021 Rockwell Publishing 2 Risk Management Risk management: Actions taken to reduce the size and frequency of legal claims against the property owner and/or manager by tenants, employees, and others. © 2021 Rockwell Publishing 3 19  Property Management Instructor Materials Reducing Risk from Employees Topics related to risk from employees: ⚫ negligent hiring ⚫ negligent retention ⚫ contractors ⚫ training ⚫ supervision © 2021 Rockwell Publishing 4 Reducing Risk from Employees Negligent hiring Negligent hiring: An employer may be liable to someone injured by employee if the employer knew or should have known that employee posed risk to others. © 2021 Rockwell Publishing 5 Reducing Risk from Employees Negligent hiring Best way to avoid negligent hiring: ⚫ criminal background check ⚫ also check applicant’s: ⚫ references ⚫ credentials ⚫ prior work history © 2021 Rockwell Publishing 6 20  Chapter 15: Risk Management Reducing Risk from Employees Negligent retention Negligent retention: Employer may be liable if he fails to terminate employee after learning employee is dangerous, and employee then harms someone. ⚫ Best protection is thorough applicant screening. © 2021 Rockwell Publishing 7 Reducing Risk from Employees Contractors Negligent hiring and retention also applies to independent contractors. Manager should: ⚫ screen contractors ⚫ require contractors to run background checks on employees ⚫ ensure all contractors insured/bonded © 2021 Rockwell Publishing 8 Reducing Risk from Employees Contractors Manager should verify adequate insurance by requesting a certificate of insurance. Certificate of insurance: Document issued by insurance company stating type and amount of coverage held by insured party. © 2021 Rockwell Publishing 9 21  Property Management Instructor Materials Reducing Risk from Employees Training In addition to careful hiring, manager must ensure that employees receive proper training. Training should emphasize how to avoid: ⚫ sexual harassment ⚫ discrimination © 2021 Rockwell Publishing 10 Training Employee handbook Employee handbook is important training and risk mitigation tool. ⚫ Should be complete and up-to-date. ⚫ Should contain clear rules of conduct: ⚫ clear descriptions of unacceptable behavior ⚫ procedures for receiving, responding to claims of harassment/discrimination Well-written handbook may reduce liability. © 2021 Rockwell Publishing 11 Training Sexual harassment Sexual harassment: Any sort of unwelcome sexual advance or other sexual conduct that makes workplace intimidating or hostile. Sometimes hard to define when behavior crosses the line. ⚫ Handbook should provide clear, relevant examples of harassing behavior, inappropriate conduct. © 2021 Rockwell Publishing 12 22  Chapter 15: Risk Management Training Housing discrimination Training should carefully review state and federal housing laws. To reduce risk, handbook should focus on avoiding discriminatory behavior in: ⚫ selecting and evicting tenants ⚫ handling complaints/maintenance requests © 2021 Rockwell Publishing 13 Reducing Risk from Employees Supervision Careful hiring and proper training won’t matter much if employee goes unsupervised. Ongoing supervision needed, including: ⚫ regular staff meetings ⚫ employee reviews ⚫ presence of attentive manager ⚫ regular contact with employees © 2021 Rockwell Publishing 14 Reducing Risk from Employees Supervision Proper supervision includes following disciplinary procedures in employee handbook. Ways to address misconduct: ⚫ offer employee additional training ⚫ put employee on probation ⚫ terminate employee Always document problem and management’s response. © 2021 Rockwell Publishing 15 23  Property Management Instructor Materials Summary Reducing Risk from Employees – Negligent hiring – Negligent retention – Certificate of insurance – Training – Employee handbook – Sexual harassment – Supervision © 2021 Rockwell Publishing 16 Risk from Property To reduce risk from safety hazards on property: ⚫ inspections ⚫ repairs © 2021 Rockwell Publishing 17 Risk from Property Inspections Manager should: ⚫ inspect property immediately when taking over management ⚫ inspect property periodically thereafter ⚫ hire professionals to inspect specialized equipment or complicated elements ⚫ use checklist to note safety issues: ⚫ date of inspection ⚫ repairs or service required © 2021 Rockwell Publishing 18 24  Chapter 15: Risk Management Risk from Property Repairs Manager should make repairs in timely manner; safety issues require immediate attention. ⚫ Examples: loose tile in hallway, burned out light bulb in stairway. ⚫ Use specialists where necessary to reduce risk of negligence claim. ⚫ Warn tenants, staff, guests of hazard if repair can’t be made immediately. © 2021 Rockwell Publishing 19 Risk from Property Repairs Manager should keep maintenance work log and note: ⚫ date problem discovered ⚫ nature of problem ⚫ date problem fixed ⚫ who performed repair ⚫ methods used to warn of danger before and during repair Helps prove adequate steps taken. © 2021 Rockwell Publishing 20 Summary Risk from Property – Safety hazards – Inspections – Inspection checklist – Repairs – Maintenance work log © 2021 Rockwell Publishing 21 25  Property Management Instructor Materials Emergency Preparedness Having emergency procedures in place can limit costly property damage and injuries from: ⚫ fire ⚫ earthquake ⚫ flooding ⚫ individual events ⚫ injured employee ⚫ medical emergency © 2021 Rockwell Publishing 22 Emergency Preparedness Comprehensive preparedness includes: ⚫ emergency plan ⚫ emergency procedures manual ⚫ training ⚫ maintenance and inspections © 2021 Rockwell Publishing 23 Emergency Preparedness Plan Emergency plan describes actions staff and tenants should take during various kinds of emergencies. ⚫ Manager communicates plan to staff through: ⚫ emergency procedures manual ⚫ training © 2021 Rockwell Publishing 24 26  Chapter 15: Risk Management Emergency Preparedness Plan Should also communicate relevant aspects of plan to tenants through: ⚫ meetings ⚫ emergency drills ⚫ tenant handbook ⚫ website Local ordinances may have requirements for emergency plan. © 2021 Rockwell Publishing 25 Emergency Preparedness Emergency procedures manual Emergency procedures manual: ⚫ helps staff, tenants respond safely ⚫ helps defend against negligence claims ⚫ shows manager prepared for emergencies, took reasonable precautions ⚫ should be kept in central, easily accessible location, with copies placed in additional locations as necessary © 2021 Rockwell Publishing 26 Emergency Preparedness Emergency procedures manual Emergency procedures manual should address: ⚫ utilities shutoff ⚫ evacuation plan ⚫ security ⚫ communications © 2021 Rockwell Publishing 27 27  Property Management Instructor Materials Emergency Procedures Manual Utility shutoffs Some emergencies require shutting off gas, water, and electricity. ⚫ Staff and/or tenants should know where shutoffs are and how to operate them. ⚫ Larger properties should have map of shutoff locations, containing: ⚫ directions for operation ⚫ location of tools needed, if any © 2021 Rockwell Publishing 28 Emergency Procedures Manual Evacuation plan During emergency planning, manager determines evacuation routes for getting staff and tenants out of building. ⚫ Manager may consult with experts to develop route. ⚫ Procedures manual should include: ⚫ diagrams of evacuation routes ⚫ instructions for safe, orderly exit © 2021 Rockwell Publishing 29 Emergency Procedures Manual Evacuation plan Good idea to: ⚫ post evacuation diagrams in hallways ⚫ often required by local laws ⚫ hold annual evacuation drills to test plan’s effectiveness ⚫ account for elderly, disabled tenants in evacuation plan © 2021 Rockwell Publishing 30 28  Chapter 15: Risk Management Emergency Procedures Manual Security Emergency procedures manual should address security issues both during and after disaster. ⚫ Plan should designate specific person responsible for securing property against intruders, theft. © 2021 Rockwell Publishing 31 Emergency Procedures Manual Communications Emergency procedures manual should: ⚫ address communications during disaster ⚫ large properties may use phone tree ⚫ contain phone numbers and other contact information for key personnel ⚫ contain information for various utilities, police, fire, and other emergency services © 2021 Rockwell Publishing 32 Emergency Preparedness Training Manager should: ⚫ give key staff members copy of emergency procedures manual ⚫ ensure they get training on contents © 2021 Rockwell Publishing 33 29  Property Management Instructor Materials Training First aid Emergency procedures manual should include: ⚫ names and cell phone numbers of all staff with first aid training ⚫ map showing locations of all first aid kits OSHA may require: ⚫ first aid kits ⚫ at least one staff member trained in first aid/CPR if no clinic or hospital nearby © 2021 Rockwell Publishing 34 Emergency Preparedness Maintenance and inspections Emergency preparedness calls for periodic inspections that focus on safety and emergency equipment. Topics include: ⚫ fire safety equipment ⚫ lights and emergency lighting ⚫ earthquake retrofitting © 2021 Rockwell Publishing 35 Maintenance and inspections Fire safety equipment Smoke detectors and carbon monoxide detectors require regular inspection. ⚫ Remind tenants to test detectors, replace batteries annually. ⚫ Manager should respond quickly to complaints of malfunctioning detectors. © 2021 Rockwell Publishing 36 30  Chapter 15: Risk Management Maintenance and inspections Fire safety equipment Manger should check fire alarm system and address problems immediately. State or local governments may require: ⚫ particular fire equipment for certain types of buildings ⚫ manager to provide information about fire and safety equipment to tenants ⚫ workplaces to have fire extinguishers © 2021 Rockwell Publishing 37 Maintenance and inspections Lights and emergency lighting Proper lighting is crucial during nighttime/smoky emergencies. ⚫ Staff should conduct frequent inspections of escape routes, hallways, and stairwells for burnt out bulbs. ⚫ State and local governments may require emergency lighting in residential and some commercial buildings. © 2021 Rockwell Publishing 38 Maintenance and inspections Earthquake retrofitting Managers of older buildings in earthquake- prone areas should have building evaluated for risk of damage or collapse. Retrofitting may be considered: ⚫ adding bracing to walls ⚫ bolting framing to concrete foundation © 2021 Rockwell Publishing 39 31  Property Management Instructor Materials Summary Emergency Preparedness – Emergency plan – Emergency procedures manual – Utility shutoffs – Evacuation plan – Communications – First aid – Fire and safety equipment – Earthquake retrofitting © 2021 Rockwell Publishing 40 Security Issues Not addressing security issues may lead to: ⚫ lawsuits ⚫ property damage and loss ⚫ government fines ⚫ lack of lease renewals Manager should: ⚫ respond promptly to complaints ⚫ take preventive measures © 2021 Rockwell Publishing 41 Security Issues Door and lock requirements For residential units, state/local governments may require: ⚫ deadbolts on exterior doors ⚫ certain type or quality lock ⚫ lockable windows and sliding glass doors ⚫ front doors that: ⚫ are steel or solid wood ⚫ have peepholes or chains © 2021 Rockwell Publishing 42 32  Chapter 15: Risk Management Security Issues Door and lock requirements State law may require manager to change or rekey locks between tenants. ⚫ At landlord’s expense, within certain number of days of new tenant moving in. ⚫ May also have to do so if victim of domestic violence requests it. Rekeying/new locks good idea for both residential and commercial even when not required by law. © 2021 Rockwell Publishing 43 Security Issues Security personnel and equipment Managers working with commercial or large residential property try to prevent criminal activity by using: ⚫ security personnel ⚫ surveillance cameras ⚫ alarm systems ⚫ exterior lighting © 2021 Rockwell Publishing 44 Security Personnel/Equipment Personnel Security personnel can: ⚫ note suspicious activity ⚫ intervene or call 911 when crimes occur Retail properties may hire own security personnel, or manager may contract service. ⚫ Manager must give guidelines for detaining shoplifters and other actions. Manager should make sure personnel are insured. © 2021 Rockwell Publishing 45 33  Property Management Instructor Materials Security Personnel/Equipment Surveillance cameras Surveillance cameras can: ⚫ provide broad surveillance for large properties ⚫ serve as a deterrent ⚫ be installed in most areas ⚫ law generally permits cameras except where people have a reasonable expectation of privacy © 2021 Rockwell Publishing 46 Security Personnel/Equipment Alarms Commercial buildings often have alarm systems to protect property during non- business hours. ⚫ Single-tenant building: tenant provides alarm. ⚫ Multi-tenant building: ⚫ tenant provides alarm inside unit ⚫ management provides alarm in common areas © 2021 Rockwell Publishing 47 Security Personnel/Equipment Alarms Alarm systems in individual residential units may increase management liability if alarm fails to work at critical time. To reduce liability: ⚫ test/repair alarm before tenant move-in ⚫ show tenant how to use alarm ⚫ use written acknowledgment to show manager informed tenant how to use/set alarm, report malfunctions immediately © 2021 Rockwell Publishing 48 34  Chapter 15: Risk Management Security Personnel/Equipment Lighting and landscaping Make property less inviting to criminals: ⚫ inspect property for dimly lit areas, overgrown landscaping ⚫ increase lighting in isolated or vulnerable areas, keep shrubbery trimmed ⚫ consider security assessment from a professional ⚫ act on professional’s recommendations © 2021 Rockwell Publishing 49 Security Issues Crimes of particular concern Landlord often has to address these crimes: ⚫ graffiti and vandalism ⚫ drug activity ⚫ computer crime, identity theft © 2021 Rockwell Publishing 50 Crimes of Particular Concern Graffiti and vandalism Failure to promptly repair vandalism and clean graffiti: ⚫ suggests property is poorly guarded; invites more serious crimes ⚫ also devalues property: ⚫ fewer tenant applications, renewals ⚫ decreases building value Insurance, mortgage lender may require repairs. © 2021 Rockwell Publishing 51 35  Property Management Instructor Materials Crimes of Particular Concern Drug activity Manager cannot allow drug activity on property. ⚫ If offender is tenant, evict under lease’s provision for illegal activity. ⚫ If offenders are guests or loiterers, discourage activity by calling police, installing extra lighting. © 2021 Rockwell Publishing 52 Crimes of Particular Concern Drug activity Manager who fails to deal with drug activity could have property declared public nuisance, resulting in fines, criminal charges, possible forfeiture. Public nuisance: Any activity that threatens the public’s health, safety, morals, or general welfare. © 2021 Rockwell Publishing 53 Drug Activity Meth labs Illegal manufacture of methamphetamine: ⚫ poses ongoing risk of explosion or fire ⚫ uses chemicals and produces health hazards Property cannot be occupied until it’s been thoroughly cleaned by professionals. Some states require landlords to disclose prior use as meth lab. © 2021 Rockwell Publishing 54 36  Chapter 15: Risk Management Crimes of Particular Concern Computer crimes and ID theft Manager’s files contain personal data of tenants (social security numbers, birth dates, bank accounts). ⚫ Information can be used in identity theft. ⚫ Manager must actively safeguard all sensitive information: ⚫ encrypt on computers ⚫ keep files under lock and key ⚫ shred sensitive files when not needed © 2021 Rockwell Publishing 55 Summary Security Issues – Security personnel – Surveillance cameras – Alarms – Lighting and landscaping – Graffiti and vandalism – Meth labs – Computer crimes – Identity theft © 2021 Rockwell Publishing 56 Insurance Insurance reduces financial impact of personal injuries and property damage. ⚫ Insured party (policyholder) enters contract (policy) with insurance company. ⚫ In exchange for fee (premium), insurance company agrees to compensate policyholder up to amount of policy for losses covered by policy. © 2021 Rockwell Publishing 57 37  Property Management Instructor Materials Insurance Person can only purchase insurance if he has an insurable interest. Insurable interest: An ownership interest or some other right in property being insured. ⚫ Usually means policyholder must be owner, not manager. © 2021 Rockwell Publishing 58 Insurance Coverage and deductibles Too expensive to insure against every possible loss. Manager should: ⚫ weigh cost of coverage against potential size, likelihood of each type of damage ⚫ advise property owner of findings Ultimately owner’s decision, usually made based on insurance broker’s advice. © 2021 Rockwell Publishing 59 Coverage and Deductibles Coverage limits Insurance policies typically limit the amount they will pay: ⚫ per incident ⚫ per year May save money on premiums by insuring less than full value of property. ⚫ Insurers often require property to be insured to at least 80% of value. © 2021 Rockwell Publishing 60 38  Chapter 15: Risk Management Coverage and Deductibles Replacement value vs. cash value Policy that covers physical premises may reimburse loss based on either: ⚫ replacement value ⚫ actual cash value ⚫ market value of property before loss (depreciated value) © 2021 Rockwell Publishing 61 Coverage and Deductibles Deductibles Insured usually has to pay deductible, such as first $500 of any claim. ⚫ Insurer pays amount above deductible, up to policy limit. Commercial policies usually have big deductibles because of large amount of coverage provided. ⚫ Usually aggregate, not per incident. © 2021 Rockwell Publishing 62 Insurance Types of insurance There are many types of insurance. ⚫ Insurance broker should advise property owner on appropriate policies for property. © 2021 Rockwell Publishing 63 39  Property Management Instructor Materials Types of Insurance Hazard Hazard insurance: Policy that protects against cost of damage to property from hazards, such as fires, storms, and vandalism. ⚫ Also known as homeowner’s insurance or property insurance ⚫ Most lenders require as condition for making mortgage. © 2021 Rockwell Publishing 64 Types of Insurance Hazard Broad form coverage insurance also protects against: ⚫ falling objects ⚫ water damage from plumbing ⚫ damage due to weight of ice or snow © 2021 Rockwell Publishing 65 Types of Insurance Earthquake and flood General hazard insurance policies don’t cover earthquake or flood damage. ⚫ Owners must purchase additional policy or endorsement. Endorsement: Written attachment to insurance policy, in which insurance company agrees to added coverage for additional fee. © 2021 Rockwell Publishing 66 40  Chapter 15: Risk Management Types of Insurance Earthquake and flood Earthquake coverage: ⚫ often covers structural damage only, not personal property inside building ⚫ can be quite expensive Flood coverage: ⚫ expensive, but may be worthwhile for property in flood zone ⚫ lender may require it for property in flood zone © 2021 Rockwell Publishing 67 Types of Insurance Business interruption Business interruption coverage: Policy that covers income lost after a fire or other disaster destroys a business. ⚫ Also called loss of rents policy. ⚫ Price for coverage based on rental value of units or space. © 2021 Rockwell Publishing 68 Types of Insurance Machinery and equipment Machinery and equipment insurance covers damage to boilers and other heavy production machinery and equipment, such as: ⚫ refrigeration units ⚫ HVAC systems ⚫ electrical systems ⚫ computer systems ⚫ communications systems © 2021 Rockwell Publishing 69 41  Property Management Instructor Materials Types of Insurance Workers’ compensation Workers’ compensation: Insurance that protects employees and employers from financial impact of work-related injuries. ⚫ Also known as industrial insurance. ⚫ Mandatory for all employers. ⚫ Some states require for contractors, too. Covers injured worker’s: ⚫ medical and rehab care ⚫ lost income (partial) © 2021 Rockwell Publishing 70 Types of Insurance Basic liability Basic liability insurance: Policy that protects landlord against claims by tenants, guests, and visitors for property damage or bodily injury caused by landlord’s negligence. ⚫ Proceeds go to injured party, not to property owner. ⚫ Amount of coverage not based on value of property; based on amount of potential liability. © 2021 Rockwell Publishing 71 Types of Insurance Commercial general liability Tenants, guests, visitors also bring liability claims against owners for things like: ⚫ slander or libel ⚫ invasion of privacy ⚫ retaliatory or unlawful eviction ⚫ discriminatory rental practices Commercial general liability covers all risks except those specifically excluded. © 2021 Rockwell Publishing 72 42  Chapter 15: Risk Management Types of Insurance Automobile Vehicles used for business need commercial auto liability coverage. ⚫ Multiple business vehicles can be insured under same policy. ⚫ Should name all employees who drive company vehicles. ⚫ If employee uses own car for business, should add management business and owner to policy as additional insureds. © 2021 Rockwell Publishing 73 Types of Insurance Renter’s Owner’s hazard insurance policy doesn’t cover damage/loss to tenant’s personal property. ⚫ Manager should advise tenants in writing of need to purchase renter’s insurance. HO-4 policy covers damage to tenant’s: ⚫ furniture ⚫ clothing ⚫ electronics Usually covers liability for tenant’s negligence. © 2021 Rockwell Publishing 74 Types of Insurance Renter’s Retail, office, industrial tenants purchase coverage for: ⚫ equipment ⚫ personal property © 2021 Rockwell Publishing 75 43  Property Management Instructor Materials Types of Insurance Errors and omissions Errors and omissions (E&O) insurance: Policy that protects service provider (property manager) against claims by client (owner). ⚫ Also known as professional liability insurance. ⚫ Coverage should equal about 10% of total funds property manager handles each year. ⚫ Required by some states. © 2021 Rockwell Publishing 76 Types of Insurance Bonding Fidelity bond: Covers losses due to employee’s embezzlement, fraud, or other criminal acts. ⚫ Also known as surety bond. ⚫ Property owner often requires manager to obtain bond. ⚫ Employees handling funds also should be bonded. © 2021 Rockwell Publishing 77 Insurance Claims Usually manager’s job to file insurance claim if property suffers damage. ⚫ Notify insurance company immediately. ⚫ Insurance company may require steps to prevent further damage. ⚫ Good idea to photograph both damage and mitigation steps. © 2021 Rockwell Publishing 78 44  Chapter 15: Risk Management Insurance Recordkeeping Manager should keep files for each policy and claim she files. Files should include: ⚫ copies of policy and contact information ⚫ copies of any claims ⚫ receipts for claim-related purchases ⚫ copies of all correspondence between manager and claims personnel, log of claim-related phone calls © 2021 Rockwell Publishing 79 Summary Insurance – Insurable interest – Coverage, deductibles, limits – Replacement vs. cash value – Business interruption coverage – Renter’s insurance – E&O insurance – Bonding © 2021 Rockwell Publishing 80 45