Insurance issues always seem to abound for our association clients. As we enter the new year, it is a good time to refresh and revisit issues about insurance and with the claim process.
Waiting for an insurance coverage determination is not a defense to failing to respond to a lawsuit and there is always the possibility that the carrier could deny coverage.
Policies. The Directors and Officers (D&O) insurance policy protects board members for their actions while on the board. The D&O policy will provide coverage for wrongful acts. This could include claims that the board failed to conduct proper elections, improperly enforced the by-laws, or made a wrongful assessment, for instance. The thrust of such claims typically is a challenge to the board’s decision making. The General Liability (GL) insurance policy protects the association from losses that result in personal injury or property damage to third parties. This could include a claim, for example, where someone slips and falls on the common walkways or where a common pipe bursts and damages a unit.
Notify the Carrier. It is important that you timely notify the carrier of any claim (actual claim) or potential claim. You should provide your insurance broker with a copy of the lawsuit to notify all applicable carriers. You should also notify your carrier of potential claims. Potential claims could include a demand letter or letter that threatens legal action. If you have questions about whether a letter constitutes a potential claim, talk to your insurance broker or attorney. If you do not provide timely notice of a claim to your carrier, the carrier could deny the claim, or you may not be able to recover attorney’s fees and costs incurred prior to notifying the carrier of the claim. If the carrier agrees that it is a covered claim or agrees to defend coverage under a reservation of rights, that coverage (or obligation to pay) begins from the date of notice.
Protect your Position. You may not get a response from the carrier right away. If you have been served with a lawsuit it is important to contact association counsel to determine your response deadline to a complaint and make sure that you receive an extension to respond or file a protective answer or pleading as may be required. Waiting for an insurance coverage determination is not a defense to failing to respond to a lawsuit and there is always the possibility that the carrier could deny coverage.
Document the Loss. Now that you know about a claim or potential claim, take steps to document the claim/loss and mitigate damages (as applicable). Are there damages or conditions that need to be addressed? Or evidence such as photos or security footage that you should obtain and secure?
Understand the Coverage Determination. In response to your tender of a claim or potential claim, the carrier will provide a written coverage letter with their position. The carrier could deny the claim, provide coverage under a reservation of rights, or agree to indemnify the association:
Denial. The loss is not covered under the policy terms. Association counsel can review the policy to determine if denial is proper and if it can be appealed or reconsidered through the submission of additional documentation.
Reservation of Rights. The loss is not covered under the policy terms. Association counsel can review the policy to determine if denial is proper and if it can be appealed or reconsidered through the submission of additional documentation.
Full Indemnification. The claims is covered and the carrier will pay the costs of defending the suit and will cover a judgment or settlement up to the policy limit. The carrier will have the right to select and use their own counsel (panel counsel) and control the litigation, including if and when to settle.
Judgment/Damages and Exclusions. Not all damages and relief may be covered by an insurance policy. For example, punitive damages, emotional distress damages, and injunctive relief may not be covered under a D&O policy. This may mean that if an owner obtains injunctive relief relating to the enforcement of an unlawful policy/rule, insurance will not cover any attorney’s fees incurred to draft a new rule/policy. Similarly, in a discrimination case being defended under a D&O policy, if HUD orders anti-discrimination training and emotional distress damages, such training costs and emotional distress damages may not be covered.
Responsibility for Deductibles. If there is a covered claim under the D&O policy, the association remains responsible for the deductible. If the deductible is not timely paid, that could impact the recovery of costs and ability to renew the policy. If there is a covered claim under the GL policy, and it involves unit damages, the association should look to its governing documents for allocation and responsibility for the deductible. Otherwise, the association is typically responsible for the deductible on covered GL claims as well.
As always, if you have questions about your association’s insurance, insurance claims, or insurance provisions in your governing documents, contact us.