Bringing a third-party vendor onto your property can be a valuable solution for maintaining and improving your organization’s units and grounds. Whether it’s painting, construction, lawn care, or snow removal, vendors provide essential services that can help keep properties in top condition.
However, vendors also bring risks. If misused, their tools, heavy equipment, or work processes can lead to accidents, property damage, or injuries. As such, it is critical to hire reputable vendors who can provide proof of insurance so you can protect your agency from potentially costly claims.
We spoke with members of HAI Group’s Account Services, Claims, and Risk Control and Consulting teams to explore best practices for vendor management and highlight real-world claims that shine a light on the financial risks of working with vendors.
When do I need to use a vendor?
Multifamily housing agencies often hire vendors for:
- Painting
- Plumbing
- Pesticide applications and management
- Elevator repairs and maintenance
- Cell tower maintenance
- Landscaping
- Snow removal
- Tree removal
- Roofing
How do I hire a vendor?
The hiring process depends on whether you are a public or affordable housing authority, but typically, agencies issue a request for proposal (RFP) to solicit applications from qualified vendors.
Michael Pepe, property claims manager at HAI Group, noted that HUD’s requirements may vary depending on the type of housing your agency provides.
“It can be helpful to put your insurance requirements within the RFP so that the vendor understands not only the scope of work but also the protections they should have before setting foot on your property,” said Beth Owens, director of risk control and consulting at HAI Group.
“If you are working with someone who doesn’t have insurance, you could be opening yourself up to potential financial risks,” Owens continued.
In addition, you may want to consider establishing a policy that all vendors must comply with before beginning work. This policy should include, among other things, minimum coverage requirements based on potential risks associated with their services.
“You need to think about what their worst day looks like,” Owens said. “What will they have access to, and how significant can any potential damage be?”
What insurance should a vendor have?
Before allowing a vendor to do any work on your property, ensure they have proof of insurance. According to Angel Fear, assistant director of account services at HAI Group, coverage may include:
- General liability
- Workers’ compensation
- Abuse and misconduct coverage
- Errors and omissions (E&O) insurance
- Auto
- Umbrella
- Cybersecurity (e.g. your agency uses an online billing and payment system)
“The type of recommended coverage depends on the type of work that they are doing on your property,” Fear said. “Remember: no two vendors or situations are the same.”
Real-world vendor claim situations
Even with precautions, vendor-related incidents can still occur. The key is preparing your agency to handle situations and claims effectively.
Alkis Liopiros, property claims manager at HAI Group, emphasized the importance of hiring insured vendors.
“It’s important to make sure the contractors you hire have insurance,” Liopiros said. “That adds protection in case the vendor causes an issue and we need to pursue subrogation.”
Here are a few examples of vendor-related claims handled by HAI Group in which vendors covered damages:
- Bed bugs: A housing agency hired a vendor to address a bed bug infestation. The vendor used heaters that raised the temperature to 140 degrees, unintentionally triggering the building’s sprinkler system.
- Cell tower maintenance: A contractor working on a cell tower on top of a housing agency’s building accidentally caused a fire, resulting in extensive structural damage.
- Frozen pipes: A vendor conducting major rehabilitation work on a vacant building failed to lock a door, allowing an unauthorized individual to enter and open a window during the winter. This led to frozen pipes and water damage.
How to reduce vendor-related risks
Follow these best practices to minimize the risk of vendor-related claims occurring:
- Adhere to HUD’s vendor hiring requirements.
- Carefully review vendor contracts and verify certificates of insurance.
- Request references before hiring a vendor.
- Only work with licensed contractors.
You may also want to request additional insured status on the vendor's liability insurance policy. You should never add vendors as additional insureds on your own insurance policy. In addition, have legal counsel review and advise your agency on appropriate contract language, especially regarding insurance requirements and indemnification, to ensure your agency is appropriately protected from any issues that may arise from vendor services.
Bottom line
Hiring third-party vendors can be beneficial, but it also comes with risks. Without proper vetting and proof of insurance, your agency could face costly damages, legal issues, and liability claims. You may be able to safeguard your organization from financial losses by requiring vendors to meet insurance and licensing standards, thoroughly reviewing contracts, and following HUD guidelines. Taking these proactive steps can ensure that both your property and residents remain protected.
HAI Group policyholders: Are you looking to hire a vendor to work on your property? If so, contact your account services representative to ensure you have the right protections in place.
This article is for general information only. HAI Group® makes no representation or warranty about the accuracy or applicability of this information for any particular use or circumstance. Your use of this information is at your own discretion and risk. HAI Group® and any author or contributor identified herein assume no responsibility for your use of this information. You should consult with your attorney or subject matter advisor before adopting any risk management strategy or policy.
HAI Group® is a marketing name used to refer to insurers, a producer, and related service providers affiliated through a common mission, management, and governance. Property-casualty insurance and related services are written or provided by Housing Authority Property Insurance, A Mutual Company; Housing Enterprise Insurance Company, Inc.; Housing Specialty Insurance Company, Inc.; Housing Investment Group, Inc.; and Housing Insurance Services (DBA Housing Insurance Agency Services in NY and MI).