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Claims Confusion Clarified

06/01/2022 12:09 PM | Anonymous member (Administrator)

By Tressa Bishop, MBA, CIC, CIRMS, USI Insurance Services LLC

A manager or Board member’s role within the community association requires many, many hats be worn at various times. One of the more stressful parts of working within a common interest community is assisting in times of crisis, whether it be involving one owner/member or the entire community association. If you’ve managed or volunteered within a community for any length of time, chances are you’ve encountered a situation where the insurance carrier has had to be notified of a claim or a situation that may give rise to a claim. Here, we’ll discuss the best way to handle various claims situations with the goal being the most positive outcome possible for the association.

Property claims, such as when a fire or large water loss occurs, are the most common type of claim and, for the most part, are more ‘cut and dried’ as far as when to notify the carrier. If the loss originates within a unit, that owner should immediately notify their personal insurance carrier of the loss and begin the mitigation process (cleaning up the damage and preventing additional damage from occurring). Unless there is a specific property form stating otherwise, most commercial property policies follow the governing documents in place at the time of loss as far as coverage on the interior of the units. Many Board members assume that the association’s policy does not cover interior unit damage which leads to confusion and unnecessary delays following a property loss. Occasionally, this can ultimately lead to a liability claim as the owner assumes the association is trying to skirt their responsibility, yet the Board truly doesn’t think the association has any responsibility for the interior of the unit following a loss. Any time there is a loss, we recommend reaching out to the insurance broker immediately for assistance and to clarify the responsibilities of all parties.

As soon as it is known that the property loss, including mitigation and estimated repairs to get the property to pre-loss condition, will exceed the policy deductible but before the repairs are made, the property carrier should be notified. The association’s insurance adjuster and the owner’s insurance adjuster will work together to ensure each policy is covering the appropriate parts of the claim. Both parties have a right to inspect the damage before repairs are made, so it’s important to allow this to occur before any repairs are made. Typically, the association’s adjuster will issue an Actual Cash Value (ACV) payment early in the claim process (this is calculated as the agreed upon claim amount/scope, less the policy deductible and less the holdback depreciation amount for the damaged property – don’t’ worry, they will pay this amount once proof of all repairs is provided). The unit owner’s carrier, if required by the governing documents, will pay the association’s policy deductible (less the owner’s personal policy deductible) and for any part of the damaged real property that is required by the governing documents. Once all repairs are made by the owner’s contractors and final invoices are received, the association’s adjuster will release the holdback depreciation amount and the claim should be paid in full. The unit owner will expect that the association forward both the initial ACV payment amount and the holdback depreciation payment amount so they can pay their contractor(s) for the agreed upon claim amount/scope. 

Liability claims can be a bit more confusing and have increased significantly over the past few years within common interest communities. General liability (GL) claims occur when there is bodily injury or third-party property damage (property not owned by the association). The most common type of claim we see filed under the GL policy is due to a slip and fall or trip and fall. When the manager or Board is notified that someone has been injured on association property, there is a possibility of a GL claim forthcoming. Sometimes, the injured person simply reaches out to notify the association so they can correct a problem and ensure that no one else is injured but they aren’t actually making a claim (not asking for medical bills to be covered nor monetary damages from their injury). Even in this situation when a claim is not being made, we recommend an injury report be taken with as many specific details as possible (exact location, weather conditions, witness information, and other pertinent details). If a claim is made at a later time, all of this information will be needed. We recommend notifying your insurance broker when you first become aware of the accident even if a claim is not immediately being filed. 

There are times when an injured party sends a small medical bill for payment. As tempting as it may be to simply pay the bill to get it to ‘go away’ and avoid a claim being filed on the association’s GL policy, please do not do this. The association’s GL policy has certain reporting requirements and, while you believe that it is just a small amount and will quickly go away, if the association makes the payment they may be jeopardizing coverage altogether should a larger claim or lawsuit rear its ugly head down the road. Reach out to your insurance broker or agent right away so the carrier can be notified.

Occasionally, a letter of representation is received and the manager or Board has no idea who the person is nor were they previously notified of the accident being reported. Again, reach out to your insurance broker or agent right away so the carrier can be notified and respond on the association’s behalf. The policy which was in place at the time of the accident/occurrence will be the one to respond.

For allegations of wrongful acts by the Board, manager, committee members or other volunteers, the professional liability policy carrier (also referred to as Directors & Officers liability policy) will need to be notified right away. Since most professional liability policies are written on a ‘claims made’ policy form, the carrier that is in place at the time the claim is made or that there is reason to believe that a situation may give rise to a claim must be notified to ensure defense and coverage (if applicable based on the policy exclusions and limitations). Reach out to your insurance broker or agent right away so the carrier can be notified. Unlike the property and GL carriers, unless a claim is being made by the party alleging the wrongful act, professional liability adjusters will generally note their file and follow up with the insured to see if a claim develops over the coming weeks. 

There is no getting around the fact that insurance claims are tricky, policies respond differently depending upon coverages, exclusions and limitations, and no two claims are exactly alike. Even if one association’s claim appears to be similar to another’s on the surface, they may be handled very differently by the two different carriers depending upon the policy’s insuring agreements and the facts at hand. One thing is for certain, do not go it alone. Work closely with your insurance broker or agent right away to ensure the association doesn’t inadvertently jeopardize coverage by assuming anything. 

Tressa Bishop is an Executive Vice President with USI Insurance Services LLC and specializes in assisting community associations with their insurance needs. She holds the Community Insurance Risk Management Specialist (CIRMS) designation through CAI, demonstrating her commitment and expertise in this insurance niche. Tressa is the immediate past President of the Southern Colorado chapter of CAI, is the current Chair of the Activities committee and is a member of the Programs & Education committee for the Rocky Mountain chapter. 

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