Condo Media - February 2014 - 38

COVER STORY
COLUMN NAME
That leads to the first item on our
list of the most common and incorrect
assumptions boards make about their
insurance coverage. We were going to
make this a "top 10," but found we
needed a longer list to cover the shaky
ground on which many boards base
their insurance decisions.

claims, sometimes impose time limits
on when they must be reported, and
require other steps to obtain the
coverage promised. For example, most
insurers require boards to notify their
agents "immediately" of property
damage claims, allow the insurer to

Assumption 1: The policy
covers anyone connected
with the association who
might incur a claim.

To suffer a loss board members chose not to
cover is painful; to suffer a loss they assumed
would be covered is doubly so, and it occurs
far more often than it should.

In fact, policies cover only the "named
insureds," so it is essential to know who
they are, Rosen emphasizes. "Is it the
organization itself as an entity, or does
the policy also cover individuals who
serve on the board? Does it cover employees, if the association is large enough
to have them? Does it cover the property manager as an additional insured?"
which, Rosen says, it definitely should.
The definition of insureds should
be broad and specific, Meskin says.
The D&O policy his company writes
covers current directors as well as past
and future directors, officers, volunteers, and committee members, with a
"spousal domestic partner extension"
extending protection to others who
are likely to be swept up in a scattershot liability suit. Some policies are
less comprehensive, covering "only
people whose first name is Phil." Behind the joke is serious advice: Make
sure the policy covers everyone who
might face a liability claim that could
put the association at risk.

Assumption 2: If you have
coverage, payment for a covered claim will be automatic.
Not necessarily. Policies require
insureds to report

38

Condo Media * February 2014

inspect the property or otherwise investigate the claim, and require boards
to take reasonable steps to prevent
further damage. D&O and general
liability policies often require boards
to report potential claims - even if no
suit has actually been filed or threatened. For example, if an owner slips
on ice and falls, boards should report
that a claim is possible, without waiting to see if the owner is going to sue.
What if an owner jumps up during a
meeting and shouts, "I'm going to sue
you!" While boards have to use some
discretion - every owner who objects
to a board decision isn't necessarily going to file a suit because of it - most
industry professionals advise boards to
err on the side of reporting claims that
don't materialize rather than risk failing
to report one that does.
Timely reporting, always advisable,
is crucial when dealing with "claimsmade" policies, Rosen explains.
Property insurance is typically
"occurrence"-based,
which means the

coverage is triggered when the claim
occurs. But D&O policies are written
on a claims-made basis, which means
the coverage depends on the policy in
effect when a claim is reported. Problems arise, Rosen says, when boards
change carriers and report an old claim

that occurred before the new carrier
came on board. The new carrier will reject the claim because its policy wasn't
in effect at the time and the old carrier
will reject it because the claim wasn't
reported during its coverage period.
Rosen says he has a condominium client currently facing $40,000 or more in
uninsured defense costs on a $1 million
liability claim because of the reporting
gap. This may not be a common problem, he acknowledges, "but it probably
occurs more often than it should."

Assumption 3: The insurance
will cover all damages related
to a liability claim.

Again not necessarily the case. Some
polices provide coverage for "monetary"
damages only, Rosen notes. They won't
cover punitive damages or attorneys'
fees if the court awards them to the
prevailing party, and they won't cover
"non-monetary" claims, where a plaintiff is demanding something
other than financial
compensation.
Condo Media - February 2014

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