Boards and associations, just like individuals, carry insurance coverage to protect them from liability, loss and other financial and legal problems, although the issues may be a little different than the typical auto or single-family homeowners’ insurance. However, when, and if, to file a claim versus paying out of pocket is always not easy to determine.
Whether it’s for property damage or an injury on the premises, paying a claim can be very expensive. However, a history of claims, frivolous or otherwise, can cause a building or association to pay higher premiums and, in extreme cases, to be dropped from its insurance policy entirely.
What are the main criteria and a co-op, condo or HOA development should consider when deciding whether or not to submit an insurance claim?
Weighing the Claims
“Claims in a multi-unit property are complex, to say the least,” says Sharon Robles, president of the Sharon Robles Agency in Chicago, “and this is where your insurance adviser comes in handy. Always consult him or her prior to filing a claim. Before filing a property damage claim, the association should carefully consider their deductible in relationship to the damage. If you are not sure as to the extent of the damage, get an estimate. If the damage is less than the deductible, you may not want to file a claim.”
Sherry Branson, marketing project manager for Kevin Davis Insurance, a national firm that serves Illinois, says “Community associations are liable for insurance claims in many areas: board elections, contracts with vendors, association finances, and employment issues, are just of the few areas where they can be sued.”
When something regrettable does happen, boards can find themselves with a difficult decision on what immediate steps to take, such as whether to contact their insurance company. “When an association breaks a contract with a vendor or receives any type of complaint from a unit owner, or a board member, then notice should be given to their broker that a potential claim is on the horizon,” says Branson.
In addition to filing a claim or not filing a claim and filing for the damages, is there a third option that could be considered?
In some cases, the board may be able to assess the owners, since a typical homeowner’s policy for an owner in a co-op, condo or homeowner’s association has a coverage called “loss assessment’ that provides coverage for reimbursement of an assessment that resulted from a covered cause of loss.
Pros and Cons
Let’s talk a little more about the pros and cons of filing an insurance claim. The pros are, of course, knowing that the board or association will be reimbursed for unexpected damages and putting your unit owners or shareholders at ease. Also, the insurance adjuster will usually provide a detailed estimate of the damage, and the building can use this amount when looking to hire a contractor to fix the problem for which the claim was filed in the first place.
The cons are that the association might be building up too much of a record of filing claims with the insurance company. “Insurance companies have a bigger problem with frequency than severity,” said Barry Frost, vice president of New York City-based Gotham Brokerage Inc. “Submit three $5,000 claims, and the insurance company might take some action against the co-op or condo development. Submit one claim for $50,000, and nothing negative is going to happen. I get clients who want to submit a claim for $200. I can’t stop you from doing it, but I can advise you not to do it.”
Even after a board has made the decision to follow through with an insurance claim, it can be confusing as to who the liability falls on. “Bylaws often stipulate what the association is responsible for and what each unit owner is responsible for,” Robles says. “When in doubt, it is best to file a claim, and let the insurance company sort it out. This is particularly true when there is damage to multiple units and fault cannot be readily identified.”
Remember, any and all claims go on an association’s record, regardless of whether there is a payout or not, says Robles. “If someone is claiming injury, it is usually best to file the claim right away and let the insurance company get out in front of it. Delays of claims of this kind can be costly both to the association and the insurance company. If reported in a timely manner, the insurance company will want to speak to claimant right away to find out what happened and take the necessary steps to mitigate further losses.”
Robles suggests that someone should always document what happened, take photos where applicable, and discuss the subsequent steps with one’s agent or claims adjuster. “Always follow up with email,” she adds,” so there’s a paper trail to protect you.”
Too Many Claims
As we mentioned above, there are consequences when a building or HOA has a lengthy history of insurance claims. Just a few of these consequences might be getting dropped by the insurer, having a tough time getting reinsured, and paying higher premiums. If a building or association loses its insurance and goes shopping for new insurance, that building’s track record follows it into the insurance marketplace.
“Our philosophy on property insurance here at the Crissie Insurance Group is that it’s best utilized for large catastrophes and not every minor expense,” says Robert G. Bachmann, vice president at Crissie Insurance Group in Des Plaines. “This will keep your future insurance costs down. Every insured party will need to determine what is large to them and may set their deductible to this level for additional premium savings based on their comfort level.”
With liability claims, when it comes to property damage, you can determine the cost to repair the damage and make a business decision to report the claim, or pay it yourself. “In most cases,” Bachmann says, “you will know quickly what you are dealing with. However, for bodily injury liability or workers’ compensation claims, we recommend reporting them as soon as possible, even the small ones that you may be tempted to not report to the insurance carrier and pay.”
Of course insurance does not just provide for accidents. The aftermath and finger-pointing can be very contentious and damaging, especially for board members. “Officers and directors of associations can be particularly vulnerable in certain types of losses,” Robles says. “Your association should have a directors and officers policy. If it has meetings, make sure the secretary takes detailed minutes so that decisions made by the board officers will hold up against the scrutiny of any questions or doubts arising out of a claim.”
What happens to a building or HOA that is “between insurers” if it suffers some kind of a loss—for example, a fire in the laundry room or an accident in the stairway? Who would end up being responsible for the damages?
This situation is relatively rare. Usually, the burden on the claim will fall on the association or board, not a unit owner, even if the damage happens within a particular unit. If there isn’t enough money in the co-op or condo’s reserve funds, the board could try to levy an assessment on the owners but the owners wouldn’t exactly like the idea.
To show the complexity of the claims process in general, here are some examples culled from the experiences of insurance professionals.
A building’s package policy was not renewed by the insurance carrier due to negative loss history resulting from a fire in a residential unit that also damaged other units, the elevator and the common areas—with a price tag exceeding $200,000. The building also had a slip-and-fall accident in excess of $20,000.
The renewal policy was broken into monoline insurance policies (policies that provide only one type of insurance), including excess line placement, which is protection against a catastrophic claim or series of claims.
In a second instance, a commercial unit owner subdivided his space and leased it to a pharmacy without getting the proper certificate of insurance. The commercial unit owner then signed off on a permit for electrical work by a contractor hired by the tenant pharmacy, again without requiring a certificate of insurance from the tenant and contractor naming all parties as additional insureds.
File Timely Claims
“The problem is it may be a small claim today, but later complications could develop and the injured party could seek additional medical treatment which will drive the claims cost up and could increase the likelihood of litigation,” says Bachmann. “It’s important to keep in mind that insurance carriers can decline a claim for late reporting.”
Robles reinforces, again, the importance of timely filing of a claim, if a claim must be filed: “Ultimately,” says Robles, “you, as a representative of the association, are insured, and your board’s policy protects it in the event of a claim, so carefully review your policy, as there are usually time limits in reporting a claim.”
Board members are also responsible for taking action, after a claim has been made, to prevent further damage to the managed property, and to mitigate future liability losses. “An example of this,” says Robles, “might be to tarp a leaky roof until the necessary repairs can be arranged. Save your receipts as they can often be applied toward your deductible. Know your rights! If you aren’t satisfied with the way your claim has been handled, then you can request mediation or further review of the findings. If that doesn’t work, consider filing a complaint with the insurance regulatory department in your state.”
Because claims can be tricky business, it’s important to keep your policy up to date, to have a good relationship with your insurer, to understand your policy—and above all, to ask your insurer for advice. And remember, report any damages or accidents that could result in a claim, whether you intend to file or not.
Raanan Geberer is a freelance writer and a frequent contributor to The Chicagoland Cooperator.