CPM Legal and Risk Management 2 — Questions and Answers
Question 1: What is 'general liability insurance' designed to protect against in property management?
- Damage to the property itself
- Claims for bodily injury or property damage caused to third parties on the premises (Correct answer)
- Loss of rental income due to vacancy
- Employee dishonesty and theft
Correct answer: Claims for bodily injury or property damage caused to third parties on the premises
General liability insurance covers third-party claims for bodily injury or property damage occurring on or related to the managed property.
Question 2: What is 'errors and omissions' (E&O) insurance for property managers?
- Coverage for physical damage to managed buildings
- Professional liability coverage for claims arising from mistakes or negligence in professional services (Correct answer)
- Workers' compensation for maintenance staff
- Coverage for tenant property damage
Correct answer: Professional liability coverage for claims arising from mistakes or negligence in professional services
E&O (professional liability) insurance protects property managers from claims that their professional advice or actions caused a client financial harm.
Question 3: Under most US state laws, how must a landlord handle a tenant's security deposit?
- Keep it in the owner's general operating account
- Hold it in a separate trust or escrow account (Correct answer)
- Invest it in securities on the tenant's behalf
- Deposit it into the property's reserve fund
Correct answer: Hold it in a separate trust or escrow account
Most states require security deposits to be held in a separate trust or escrow account, segregated from the landlord's personal or operating funds.
Question 4: What is 'subrogation' in insurance?
- Adding additional insureds to a policy
- The insurer's right to recover from a negligent third party after paying a claim (Correct answer)
- Cancellation of an insurance policy mid-term
- Increasing coverage limits after a loss
Correct answer: The insurer's right to recover from a negligent third party after paying a claim
Subrogation allows an insurer who has paid a claim to step into the insured's shoes and pursue recovery from the responsible third party.
Question 5: What is the legal purpose of an 'unlawful detainer' action?
- To negotiate a lease renewal
- To formally evict a tenant who refuses to vacate after proper notice (Correct answer)
- To enforce a property lien
- To dispute a security deposit deduction
Correct answer: To formally evict a tenant who refuses to vacate after proper notice
An unlawful detainer (eviction) lawsuit is the formal court process to remove a tenant who remains in possession without legal right after proper notice.
Question 6: Which federal law governs the disposal of hazardous waste and can impose liability on property owners for contamination cleanup?
- The Clean Water Act
- CERCLA (Superfund) (Correct answer)
- OSHA
- The Resource Conservation and Recovery Act (RCRA) only
Correct answer: CERCLA (Superfund)
CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act) can impose strict, joint and several liability on property owners for hazardous waste cleanup.
CPM Legal and Risk Management 2
What is 'general liability insurance' designed to protect against in property management?