A prospective tenant alleges that a property manager improperly denied an assistance-animal request. Another applicant claims the firm applied different screening standards to families with children. A Fair Housing tester files a claim alleging discriminatory treatment during a rental inquiry.
Their Professional Liability policy declarations show $1 million per claim, and the policy mentions Fair Housing. But how much protection is actually available?
Some policies provide a lower Fair Housing sublimit. Others include defense costs within that amount, restrict the proceedings covered, or exclude certain injuries alleged in the complaint. Coverage can also differ between real estate sales and property management operations.
Here are some key provisions we recommend reviewing.
Fair Housing Coverage is Often Carved Back From a Discrimination Exclusion
Many E&O policies broadly exclude claims arising from discrimination, humiliation, harassment or similar misconduct. They then make an exception, often called a carveback, for certain Fair Housing claims.
The definition of that exception matters.
One policy may define Fair Housing claims by reference to Title VIII of the Civil Rights Act of 1968, the Fair Housing Amendments Act of 1988, and similar local, state or federal laws. Another may refer specifically to tenant discrimination. Other forms provide broader third-party discrimination coverage arising from professional services.
For property managers, the coverage must connect to management services. If the Fair Housing definition refers to “Real Estate Professional Services,” check that property management is included within that defined term, whether in the base policy or through an endorsement. For example, in our exclusive policy with Palomar, Real Estate Professional Services is amended to include the definition of “Property Manager.”
Takeaway: Read the Fair Housing definition, discrimination exclusion and covered-services definition together. Confirm that the protection applies to property management.
A $1 Million Policy May Have a Much Lower Fair Housing Limit
Some policies provide $1 million in general E&O coverage but limit Fair Housing or discrimination claims to a smaller amount, like $100,000 or $250,000. Some individual-agent policies, often in mandatory states of E&O, limit discrimination damages to as little as $5,000 per claim!
The smaller amount may apply to each claim and to all qualifying claims combined during the policy period. It is usually part of, rather than additional to, the overall policy aggregate.
For example, a $250,000 each-claim and aggregate sublimit does not provide a fresh $250,000 for every unrelated Fair Housing claim. Payments toward the first claim reduce the amount available for subsequent claims sharing that aggregate.
Some restrictions apply specifically to claims against property or community association managers, so a firm performing both sales and management may have different Fair Housing limits depending on which service is involved.
That endorsement also applies its damages restriction to a management claim alleging Fair Housing discrimination “in whole or in part.” For example, a complaint might allege both discriminatory screening and other negligent management practices. The wording may subject damages from the combined claim to the Fair Housing restriction, rather than limiting only the discrimination portion.
Even “to policy limits” deserves a closer look. One endorsement caps discrimination damages and defense at the lesser of the main each-wrongful-act limit or $1 million. If the main limit were increased to $2 million, discrimination coverage would still be capped at $1 million under that wording.
Defense Costs Can Reduce the Sublimit
Many Fair Housing sublimits combine damages and claim expenses. Attorneys’ fees and other covered defense expenses reduce what remains for a settlement or judgment.
Under a $100,000 combined sublimit, spending $60,000 on covered defense leaves $40,000 for covered damages, before accounting for the deductible and other applicable terms.
A policy may generally provide defense outside its main liability limit while expressly placing Fair Housing defense inside the discrimination sublimit.
Other policies provide defense outside a small discrimination damages sublimit, but the insurer’s defense obligation ends when that applicable sublimit is paid. In the individual-licensee example, defense is outside the $5,000 per-claim discrimination damages sublimit, but payment of the $5,000 ends the defense obligation. So “unlimited defense” when paired with a $5,000 damages limit is nowhere nearly as good as it sounds.
Takeaway: Confirm the actual Fair Housing limit, whether multiple claims share it, whether defense reduces it, and what ends the insurer’s defense obligation.
Coverage May Pay for Defense Without Paying Damages
A provision addressing discrimination does not necessarily cover settlements and judgments.
One base form excludes discrimination damages, but carves back defense costs for qualifying claims. A separate endorsement is required to expand that protection to include both damages and defense costs.
Read the actual policy wording, does it promise “Defense Costs,” or “Damages and Defense Costs”? Then check whether an endorsement replaces that wording.
Takeaway: Confirm that the issued policy covers both qualifying defense expenses and damages. A defense-only provision does not provide both.
The Policy May Restrict Which Proceedings Are Covered
Fair Housing matters can begin with a demand letter, an administrative complaint or a civil lawsuit. Policies do not necessarily treat those stages equally.
Some extensions apply by reason of a civil lawsuit. That raises questions about coverage for responding to a demand or administrative complaint before litigation.
Some forms take a different approach: their Fair Housing definition references the relevant statutes but expressly excludes civil litigation, including class actions, and arbitration proceedings. Unless an endorsement removes that restriction, a Fair Housing lawsuit may fall outside the discrimination carveback.
Administrative complaints require their own review. One tenant-discrimination form includes judicial and administrative proceedings within its Claim definition, but separately excludes claims, suits or proceedings brought by or on behalf of regulatory or administrative agencies. It also excludes class-action suits.
A proceeding can therefore meet the general Claim definition and still be excluded elsewhere.
Takeaway: Check coverage for pre-suit demands, administrative proceedings, lawsuits, arbitration and class actions. Read the applicable exclusions alongside the definitions.
Review Resulting Personal Injury and Other Injury Exclusions
Fair Housing allegations can involve claimed humiliation, emotional distress or other injuries beyond the loss of a rental opportunity.
We have seen Fair Housing testers seek compensation for their own alleged injuries arising from testing interactions. The property manager may dispute those allegations but still need an attorney to respond.
Some Fair Housing definitions expressly include resulting Personal Injury. However, Personal Injury is often a defined insurance term covering specified offenses, such as wrongful eviction, wrongful entry, defamation or invasion of privacy. Emotional distress and mental anguish may be addressed separately, including within the definition of Bodily Injury.
Other wording is considerably more restrictive. One tenant-discrimination form excludes claims arising out of or involving mental anguish, humiliation, emotional distress, wrongful entry or eviction, and several other injuries or offenses. That exclusion applies to both Loss and Defense Costs. It could materially affect a Fair Housing claim alleging those injuries, despite the tenant-discrimination coverage grant.
Takeaway: Follow the injuries alleged in the complaint through the definitions and exclusions. Finding discrimination coverage does not establish coverage for every resulting injury.
Tenant Discrimination May Be a Separate Coverage Part
Some property management packages address tenant discrimination through a separate coverage part that may not have been purchased at all. When included, it may carry a lower limit—often $250,000 in the policies we see—and its own retroactive date shown in the declarations.
A firm could therefore have $1 million in professional liability coverage but only $250,000 for tenant discrimination, or no tenant-discrimination coverage. A different retroactive date can also restrict coverage for earlier acts, even if the firm has maintained E&O continuously (for example, if they opted to purchase tenant discrimination coverage during a later year).
Takeaway: Confirm that tenant-discrimination coverage was purchased, then check its specific limit, retroactive date, deductible, defense treatment and reporting requirements.
The PBI Group Approach
PBI Group’s exclusive E&O program is written with Palomar and includes a PBI Group endorsement together with several related special endorsements. These provisions modify the base policy and work together to provide the program’s coverage.
Full-Limit Fair Housing Coverage
Our program sets the scheduled Fair Housing limit equal to the policy’s main each-claim liability limit.
For a policy with a $1 million each-claim limit, the Fair Housing limit is also $1 million, rather than a lower $100,000 or $250,000 sublimit. It remains within the applicable overall policy aggregate.
Claim Expenses Outside the Damages Limit
The PBI Group endorsement provides a separate claim-expense limit equal to the main each-claim limit shown in the declarations. Covered claim expenses do not reduce the liability limit available to pay damages.
For example, a policy with a $1 million each-claim limit provides a separate $1 million claim-expense limit under this endorsement.
An Expanded Fair Housing Definition That Includes PM Services
A related Third Party Fair Housing Claims Coverage endorsement replaces the base Fair Housing definition and removes its exclusion of civil litigation and arbitration.
The replacement definition addresses claims arising out of Real Estate Professional Services rendered on behalf of and at the direction of the Named Insured, alleging violations of Title VIII of the Civil Rights Act of 1968, the Fair Housing Amendment Act of 1988 or any similar local, state or federal statute or regulation, including any resulting Personal Injury.
The PBI Group endorsement adds property management to the definition of Real Estate Professional Services. This connects covered management activities to the Fair Housing protection.
Additional Protection for Other Discrimination Claims
The PBI Group/Palomar program also provides a broader carveback for qualifying discrimination claims arising from covered professional services that may fall outside the specific Fair Housing definition. That is referring to discrimination based on race, creed, color, age, gender, national origin, religion, disability, marital status, sexual preference or other federally protected classes arising from rendering Real Estate Professional Services. For example, a disability-discrimination allegation involving website accessibility.
That coverage has a $100,000 aggregate for damages and claim expenses combined, within the Fair Housing limit. Its terms differ from the full-limit protection for defined Fair Housing Claims, and it does not add another $100,000 on top of that limit.
If you would like help reviewing your property management E&O policy’s Fair Housing coverage, we are happy to examine the definitions, exclusions, limits, defense provisions and endorsements with you. Please feel free to schedule a policy review with me here.
*Coverage depends on the specific facts, allegations and the issued policy’s complete terms, conditions and endorsements. This article is for general educational purposes.
