Property managers often include extra fees in their management agreements when having to help an association through an insurance claim and reconstruction. My experience has been these fees have risen significantly from extra hourly costs to as much as ten percent. While some may argue that a property manager is neither trained nor licensed to adjust claims and that property management firms may be practicing law or public adjusting without a license, the issue for recovery of these fees is important.
In Capitol Property Management Corporation v. Nationwide Property & Casualty Insurance Company,1 a federal trial court held that a condominium association’s property insurance did not provide coverage for its manager’s fees for processing insurance claims and managing construction following a fire. There, the Association had a fire and the management company filed a claim with the association’s insurance company. The insurer paid the construction costs except for the property managers extra fees associated with the claim and the construction oversight.
The property management contract provided the property manager with a 10% fee for processing the insurance claims and another 5% for acting as the association’s construction manager. While the property manager argued that the claims fees were similar to an extra expense and that the oversight of the construction was a construction expense related to supervision, the court held that neither fee was a direct result of physical damage.
The total 15% fee seems ridiculously high and may have entered into the court’s view of the matter. After a loss occurs, property managers usually have overtime and extra work duties not a result of normal operations, but specifically work directly caused by the physical damage. Had the bill to the association and the case been presented with overtime charges rather than a percentage, the result may have been different.
Boards should be careful to look at all the costs which property managers place into their contracts. The percentage payment of an insurance recovery to the property manager—agreed to in advance—may not be allowed in the by-laws. Generally, only licensed public adjusters and attorneys at law may negotiate an insurance claim for a policyholder.