A recent federal appellate decision serves as a stark reminder for property managers about the importance of properly structuring insurance coverage for their property owner clients. In Sky Harbor Atlanta Northeast, LLC v. Affiliated FM Insurance Company, the court’s ruling highlighted a critical oversight that left the property owner without standing to sue the insurance company directly for millions in damages. 1
The case centered around the Atlanta Hilton Northeast Hotel, where Sky Harbor was the property owner and Crestline Hotels & Resorts served as the property manager. When extensive water and mold damage was discovered during a 2015 renovation, both Sky Harbor and Crestline sought coverage under an all-risk insurance policy with Affiliated FM Insurance Company (“AFM”).
However, the court found that Sky Harbor lacked standing to sue for breach of contract because it didn’t qualify as an insured under the policy. The policy specifically defined “Insured” as Crestline and “its wholly or majority owned subsidiaries and any interest which may now exist or hereinafter be created or acquired which are owned, controlled or operated by” Crestline.
Since Sky Harbor was merely the property owner who had hired Crestline as a management company – rather than being owned, controlled, or operated by Crestline – it didn’t meet the policy’s definition of an insured party. This meant Sky Harbor couldn’t pursue direct claims against AFM despite being the owner of the damaged property.
This oversight creates several potential issues. First, property owners may find themselves unable to directly pursue insurance claims for damage to their own property. Second, property managers could face claims from owners for failing to properly structure insurance coverage, potentially breaching their management agreements or facing negligence claims.
To avoid these pitfalls, property managers should:
- Review policy language carefully to ensure property owners are properly covered
- Add property owners as additional named insureds on policies
- Document all insurance placement decisions and communications with owners and insurance agents
- Include specific provisions in management agreements regarding insurance placement obligations
- Maintain clear communication with owners about insurance coverage structures
Property owners should also take proactive steps by:
- Reviewing all insurance policies obtained by their property managers
- Confirming their status as named insureds or additional insureds
- Understanding their rights and limitations under the policy
- Maintaining documentation of all insurance-related communications
- Including specific insurance requirements in management agreements requiring that they be named insureds and that the coverages also comply with all mortgage and lending agreements
The Sky Harbor case demonstrates that simply having insurance coverage isn’t enough – the coverage must be properly structured to protect all parties’ interests. Property managers who fail to ensure their owner clients are properly listed on policies may find themselves facing serious liability issues if coverage disputes arise.
While Crestline could pursue claims against AFM as a named insured, Sky Harbor’s inability to bring direct claims likely complicated the litigation and recovery process. This situation could have been avoided by simply adding Sky Harbor as an additional named insured on the policy.
As insurance coverage disputes become increasingly complex, property managers must exercise due diligence in structuring coverage for their clients. The minimal effort required to add an owner as an additional named insured pales in comparison to the potential complications and liability issues that could arise from failing to do so.
Remember, when it comes to insurance coverage, the details matter. Don’t let simple oversights result in no coverage for the property owner. This rule applies to property managers, insurance agents, and property owners.
Thought For The Day
It’s the little details that are vital. Little things make big things happen.
—John Wooden
1 Sky Harbor Atlanta Northeast v. Affiliated FM Ins. Co., No 21-11329 (11th Cir. Oct. 2, 2024).
