Condo Media - January 2022 - 25

CAUTION: CAMS BEWARE!
MANY MANAGEMENT AGREEMENTSexpressly provide that the CAMs assume the task of purchasing and
maintaining the association's insurance program. In other situations, many management companies take on this
role voluntarily and may involve preferred insurance business partners in the process.
This practice in and of itself is not necessarily a problem. However, there are a number of traps for the unwary,
including who is ultimately responsible for any errors in the purchase and maintenance of insurance. The key
individuals that should be most concerned here are management company " owners " and boards.
1
INDEMNIFICATION
Most management agreements
have an indemnity
provision that provides
that if the CAM is sued for something
he or she did for or on behalf of the
association, the insured contractually
agrees to provide the CAM defense
and indemnity.
Accordingly, the managed association
must be able to fund that obligation.
Many CAMs and boards " assume " that
this can be funded by the association's
directors and offi cers (D&O) policy
where the CAM is almost certain
to be added as an additional insured,
or are included in the policy defi nition
of insured. However, if the board
purchased the cheaper insurance and
it had numerous insurance coverage
defi ciencies, and as a result, there is no
coverage in the D&O policy, the funding
of the obligation owed the CAM in
the management agreement is by the
associations assets, special assessments,
dig into reserves, or obtain a loan.
There is no doubt that these latter solutions
will signifi cantly be more expensive
than the $.8 3 per unit per month.
It is also important that the management
company or CAM understand
the indemnity provisions of your state.
Not all states will allow indemnifi cation
for someone's active negligence,
and many if they do allow indemnity
for active negligence, that provision
must be expressly set forth in the
agreement, and in some states, follow
a certain formula. Indemnity agreements
are generally enforceable in
Massachusetts. The indemnitee (here
the CAM) can be indemnifi ed against
its own negligence and courts construe
the provisions fairly (as opposed to
strictly in other jurisdictions).
2
COMMUNITY ASSOCIATION D&O POLICY
Most boards, management companies, and CAMs " assume "
that since the management company was working on behalf
of the association, and since it is an additional insured on the
D&O policy, that the CAM will be covered and that is how the insurance
claim against the CAM for whom the association agreed to provide
defense, and indemnity will be funded.
Unfortunately, virtually every D&O policy on the market " excludes "
coverage for claims by the association against the management
company or CAM. Even worse is that there are some D&O policies
where the management company or CAM is not even covered
under a policy as an additional insured.
3
MANAGEMENT
COMPANY/
CAM PROFESSIONAL
LIABILITY INSURANCE
Virtually all CAM Professional Liability
Insurance " expressly excludes "
any claims arising out of insurance
issues. This should make sense
because a professional liability
policy is intended to cover the
professional from its industry
professional services.
CAMs are not licensed
insurance professionals
in most cases and are not
generally contemplated to
provide those services in
the management company
professional liability policy
(errors and omissions
insurance). The CAM
should check to see if this
is the case on their policy
and if not have your
insurance professional
check and see if the
insurance matters can
be included within
the defi nition for
Management Company
Professional Services.
January 2022 CONDOMEDIA 25

Condo Media - January 2022

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