I own a vacation rental and have a Property Manager. The renters one weekend got out of control and shot 2 windows with a BB gun of the house across the street. My property manager will not take anything from their deposit to replace those windows saying they can only take the money if the damage was to my property. Turns out there were several under age kids staying at my place and the owners across the street don't know which one did the shooting. The police were called in so there is a police report and the parent the reserved the house will not co-operate. Now who is responsible in small claims court to pay for the damage if the owners of the broken windows wish to go to court?

Now who is responsible in small claims court to pay for the damage if the owners of the broken windows wish to go to court?

You are probably not responsible unless it can be proven that the damage to the neighbor's property was due to your negligence. Not likely.

Notify your insurance carrier if you are sued. They probably have the duty to defend you.

Very unlikely that you will be held liable. But also, I would make it clear to the property manager, that they work for you, and if you instruct them to withhold money for damages, if they don't, there will be a new property management company.

Sorry but even if "wrong" they are merely your employee handling YOUR money, not their money, so they are required to do as they are told.