TL;DR
Situation
A third-party manager occupies an awkward position in the insurance structure. It makes the operational decisions that produce liability, it frequently employs the people who deliver the care, and it usually does not own the asset the program is built around.
The result is a set of arrangements that work smoothly until they are tested. The manager is an additional insured on the owner program, the management agreement contains reciprocal indemnities, and everyone assumes the arrangement is complete. It is complete for as long as the manager and the owner want the same outcome.
Last updated
01
Being named. Plaintiff counsel name the operator, the manager, the owner and the licensee, because at the pleading stage there is no reason not to. The manager is in the caption whether or not the manager is ultimately liable, and being in the caption means needing a defense.
Divergence. Additional insured status on the owner policy works while the manager and the owner have the same interest. When the owner position becomes that the manager failed to manage, the same policy is now defending parties whose interests conflict, and the manager discovers what it means not to have its own program.
The employment exposure. If the community staff are employed by the manager, the manager carries the workers compensation and employment practices exposure for them regardless of who reimburses the payroll. This is the misalignment that costs the most and is noticed the least, because reimbursement arrangements make the economics look like the owner is carrying it.
Management errors and omissions. A claim that the manager mismanaged, produced a budget variance, failed to maintain licensure, or failed to fill the census is a professional services claim against the management business itself, and the resident care liability program does not respond to it.
The indemnity in the management agreement, which runs in both directions and is frequently broader than either party program will cover.
02
Relying entirely on additional insured status. It costs nothing and it is worth having, and it is not a substitute for your own tower. A manager operating multiple communities for multiple owners on nothing but additional insured status has no coverage of its own for a claim where the owner is adverse.
Not aligning the management agreement with the insurance. The agreement allocates risk and the policies allocate coverage, and nobody checks that the two match. The most common gap is an indemnity the manager gives that no policy will fund.
Leaving the employment relationship undocumented. Whether the manager is the employer, a co-employer, or an agent of the owner changes the workers compensation, the employment practices, and the wage and hour exposure. That question should be answered deliberately in the agreement rather than left to be characterized after a claim.
Assuming the owner will maintain the program. A manager whose only protection is the owner policy is exposed the moment the owner allows it to lapse, reduces it, or moves to a structure that no longer names the manager. Manager agreements should require evidence of coverage at each renewal, and managers should actually collect it.
Not carrying wage and hour coverage where it is available. In this industry the wage and hour exposure across a managed portfolio is substantial, it lands on the employer, and the general employment practices policy frequently sublimits or excludes it.
03
Its own general and professional liability tower, sized against the portfolio it manages rather than against its own revenue. Revenue understates a manager exposure badly, because the management fee is small relative to the claims arising from the operations the manager controls.
Management errors and omissions, covering the professional services the management business provides to owners, which is a different grant from the liability arising from resident care.
Employment practices liability with wage and hour coverage, sized against the employed headcount rather than the corporate headcount.
Workers compensation aligned to the actual employment structure, with the classification codes and the locations correct across every state in the portfolio.
Directors and officers for the management entity, since disputes with owners are business disputes and land there.
Additional insured status on every owner program, with primary and noncontributory wording, collected as endorsements rather than as certificates, and refreshed at each owner renewal rather than at signing.
04
Take every management agreement and put the indemnity next to the policy that would fund it. Where nothing funds it, that is either a negotiation with the owner or a known retained exposure, and it should be a decision rather than a discovery.
Document the employment relationship explicitly in each agreement. Who employs, who directs, who disciplines, who pays and who reimburses. Then check that the workers compensation and employment practices programs match the answer.
Build a renewal calendar covering every owner program you rely on, and collect the additional insured endorsement at each one. A manager relying on twelve owner programs is relying on twelve renewals it does not control.
Price your own tower against the managed portfolio. If a serious claim arises at a managed community and the owner program is exhausted or adverse, your own limit is the one that matters, and it needs to be sized for the beds you operate rather than the fees you collect.
Review whether management errors and omissions is in place and what it actually covers. Many managers discover during an owner dispute that they have liability coverage for resident harm and nothing at all for the claim they are actually facing.
Follow-up questions
It is useful and it is not sufficient. Additional insured status works while your interests and the owner interests align. The scenario that puts a manager at risk is the one where the owner position is that you failed to manage, and at that point you are relying on a policy bought by the party adverse to you. Carry your own tower.
Generally the employer, and reimbursement does not change that. If your entity is the employer of record, the workers compensation and employment practices exposure is yours, whatever the economics look like. This is worth confirming with counsel for each agreement, because arrangements described the same way can be structured differently.
It covers claims that the management services themselves were performed negligently: budget failures, licensure lapses, reporting failures, mismanagement of the operation. It is a separate grant from the liability arising from resident care, and it is the coverage that responds when the claim comes from the owner rather than from a resident family.
Against the operations you control, not the fees you earn. A manager operating a portfolio of communities faces the same severity distribution as the owner of those communities, because the claim arises from care your people delivered. Sizing to revenue produces a tower that is an order of magnitude too small for the exposure.
Go deeper
Other situations
A first acquisition, where the coverage decisions made before closing set the exposure for years and several of them cannot be corrected afterward.
A non-renewal notice has arrived and the renewal date is fixed. What the decision was really about and what can still be influenced in the time remaining.
An operator leasing from a REIT or institutional landlord, where the lease insurance exhibit sets requirements the market may not match and non-compliance is a default.
A director or trustee of a nonprofit provider, where personal exposure runs through directors and officers and fiduciary coverage rather than through the liability program.
An operator facing an active abuse or assault allegation, where regulatory, criminal and civil processes run simultaneously and the insurance response is only one of them.
Free coverage review
Send the declarations page and whatever documents the situation has produced. A specialist reads the structure against the position you are actually in, within one business day.