CRECI Property Risk Management Questions and Answers 1 — Questions and Answers
Question 1: A property manager is negotiating a lease with a new retail tenant. To protect the landlord from liability claims arising from the tenant's operations or customer incidents within the leased space, which lease provision is most critical for risk transference?
- A clause specifying the annual Common Area Maintenance (CAM) reconciliation process.
- An exclusive use clause preventing competitors from leasing space in the center.
- A requirement for the tenant to carry adequate Commercial General Liability insurance and name the landlord as an additional insured. (Correct answer)
- A subordination, non-disturbance, and attornment (SNDA) agreement.
Correct answer: A requirement for the tenant to carry adequate Commercial General Liability insurance and name the landlord as an additional insured.
Naming the landlord as an 'additional insured' on the tenant's Commercial General Liability (CGL) policy is a primary method of risk transference. [22] It allows the landlord to be covered under the tenant's policy for claims arising from the tenant's operations, effectively transferring the financial risk of such claims from the landlord to the tenant's insurance company.
Question 2: A property owner decides against purchasing earthquake insurance for a building in a region with very low seismic activity. Instead, the owner allocates funds to a contingency reserve to cover potential minor repairs. This strategy is an example of which risk management technique?
- Risk Avoidance
- Risk Retention (Correct answer)
- Risk Mitigation
- Risk Transference
Correct answer: Risk Retention
Risk retention, also known as acceptance, is a strategy where a party decides to assume the financial responsibility for a particular risk. [24] In this case, by forgoing insurance and budgeting for potential damage, the owner is consciously retaining the risk of earthquake-related losses.
Question 3: Which of the following is the BEST example of a risk mitigation strategy for a commercial property's physical assets?
- Requiring all tenants to provide a large security deposit.
- Implementing a comprehensive preventative maintenance program for the HVAC and roofing systems. (Correct answer)
- Purchasing property insurance with a low deductible.
- Evicting a tenant who consistently pays rent late.
Correct answer: Implementing a comprehensive preventative maintenance program for the HVAC and roofing systems.
Risk mitigation (or reduction) involves taking active steps to decrease the likelihood or impact of a potential loss. [23, 11] A preventative maintenance program directly addresses the physical risks to a building's critical systems by identifying and fixing potential issues before they lead to major failures or damage.
Question 4: When reviewing a Certificate of Insurance (COI) from a contractor hired for a major renovation, a property manager must verify several key details. Which of the following is typically NOT found on or verified through the COI itself?
- The policy includes a 'Waiver of Subrogation' in favor of the property owner.
- The property owner is named as an 'Additional Insured'.
- The contractor's insurance premium has been paid in full for the policy term. (Correct answer)
- The policy limits meet the minimums required in the service contract.
Correct answer: The contractor's insurance premium has been paid in full for the policy term.
A Certificate of Insurance (COI) is a document that provides evidence of coverage at a specific point in time. [18] It details policy limits, effective dates, and endorsements like 'Additional Insured' status. However, it does not provide information about the insured's premium payment status, and a policy can be cancelled for non-payment after a COI is issued. [20]
Question 5: In the context of property risk management, what is the primary purpose of an Emergency Action Plan (EAP)?
- To secure lower annual insurance premiums from carriers.
- To outline procedures for employees and occupants to follow for life safety during an emergency. [1, 2, 8] (Correct answer)
- To detail the long-term business recovery strategy after a catastrophic event.
- To document all preventative maintenance schedules for life safety systems.
Correct answer: To outline procedures for employees and occupants to follow for life safety during an emergency. [1, 2, 8]
An Emergency Action Plan (EAP) is a written document designed to facilitate and organize actions during workplace emergencies. [1] Its primary purpose is to ensure life safety by providing clear procedures for evacuation, shelter-in-place protocols, and accounting for all personnel during an emergency. [4]
Question 6: A visitor slips and falls on a wet floor just inside the entrance of an office building on a rainy day. No 'wet floor' signs were displayed. In a subsequent liability claim, the building owner's legal exposure would most likely stem from an accusation of:
- Breach of Contract
- Strict Liability
- Vicarious Liability
- Negligence (Correct answer)
Correct answer: Negligence
Negligence is the failure to exercise a reasonable duty of care. [12] Property owners have a duty to maintain their premises in a reasonably safe condition for visitors. Failing to warn of a known hazard, such as a wet floor, is a classic example of a breach of this duty, which can form the basis of a negligence claim. [6, 14]
CRECI Property Risk Management Questions and Answers 1
A property manager is negotiating a lease with a new retail tenant.
To protect the landlord from liability claims arising from the tenant's operations or customer incidents within the leased space, which lease provision is most critical for risk transference?