Individuals, associations and other entities carry insurance coverage to protect them from liability, loss, and other financial and legal threats—that's pretty basic. What isn't always so basic is deciding when to file a claim versus paying out of pocket for a loss or damage. Paying—whether for property damage because of something like an unaddressed leak, or an injury sustained on-premises—can be very expensive, and arguably defeats the purpose of paying insurance premiums for coverage. On the other hand, a history of claims can cause a building or association to pay ever-higher premiums, or even be dropped from its insurance entirely…or so conventional wisdom tells us. Let’s in vestigate further.
Name That Claim
When deciding whether or not to claim a loss on an insurance policy, the first criterion is to determine what sort of claim it would be.
“The single largest factor to consider is legal responsibility, beyond the moral and ethical duties of the board of directors,” says Ron Sirotzki, who is with Condo Risk Specialists in Huntley. “Your association will have a declaration and bylaws which must be considered, and of course most states—including Illinois—have a Condominium Property Act. The documents spell out, usually not in plain English, who is responsible for what when these issues occur. For example, the unit owner on the second floor has a bathroom leak causing damage to the unit owner’s bathroom below. Too many times I hear the property manager or board manager say that this is a unit owner-to-owner problem. The Illinois Condominium Property Act states that the association’s insurance is ‘always’ primary when covering the unit. This means the board does not necessarily have to file a claim with their carrier but they must take the lead in remedying the situation.”
In our litigious society, this is a hard rule when it comes to injuries. Remember the case of the woman who sued McDonald’s because she got scalded by hot coffee? Anything can happen beyond the realm of insurance protection.
“In an injury situation, I advise the client to always report it to the carrier,” says Mike Bostley, senior vice president of claims for DeWitt Stern, which has offices in New York City and Chicago, even if there seems to be no harm done. "Because if you don’t, and it turns out to be a tricky case where what initially appeared to be a minor injury turns out even a year later to be something where the person needs surgery, or even if it just develops into a very high-profile case… at that point you’re jeopardizing your coverage with the insurance carrier for late notice. And to investigate it under a reservation of rights to a possible declination.”