CAUTION: Insurance Ahead

"That's what insurance is for."   Uttered by a Board member after several 300-pound marble blocks plummeted from the sides of his condominium tower. 

What sounds like a punch line for a joke will punch a hole in your financials with this attitude.   A visit by the Association's attorney and insurance broker is vital so Boards can see how coverage is stripped away in these situations.  Insurance is not a 'Get out of Jail' card when you turn a blind eye to dangerous situations. 

Such coverage is provided with the understanding that you take steps to avoid having to use it.  A review recent lessons learned shows what happens if we’re not careful:

Confirm that you are only using top-rate insurance providers. Mountainside Holdings v. American Dynasty Surplus Lines   In this situation, the umbrella insurer (the one providing additional money beyond the limits of the regular liability insurance) did not have to pay when the primary insurance went bankrupt.  The additional coverage would only have kicked in if the underlying coverage had actually been paid out.   

Check your policy for 'consent-to-settle' restrictions.  Piedmont Office Realty Trust, Inc. v. XL Specialty Ins. Co   In Georgia, proceed carefully when settling claims against where policies include consent-to-settle and no-action provisions.  In this case, the umbrella carrier for the D&O (Directors & Officers) coverage refused to cover for the full settlement amount, since it had previously already agreed to only contribute $1 million.  The client settled a suit for $4.9 million, and then tried to claim this amount against the umbrella policy, saying the carrier unfairly withheld consent.  The appeals court said that settling without first obtaining consent means you forfeit coverage and are barred from suing. 

The clock doesn't stop if years pass between 'same claims'.  W.C. and A.N. Miller Dev. Co. v. Continental Cas. Co   An adversarial proceeding held years ago had enough similarities to a lawsuit brought years later to effectively be the same claim. A claim doesn't need to be covered in your insurance for it to be classified as an “Interrelated Wrongful Act” and be treated as a single claim.

Always notify your insurer the first time round.  Hamman-Miller-Beauchamp-Deeble, Inc. v. Liberty Mutual Agency Corp   A broker received letters from an attorney claiming that a client suffered damages due to the broker's negligence. The broker waited until he was served with an actual lawsuit almost two years later before notifying his insurer.  The broker argued that the attorney letters didn't constitute a claim triggering reporting requirements. The court disagreed, since the letters said the broker was “legally responsible for...damages” making this a demand for damages.  

Don't take any action outside of your Board duties when dealing with the Association.   The Langdale Company v. National Union    This Georgia case reemphasizes the need to clearly operate only within your Board capacity.   Not having a clear delineation allowed the insurance carrier to claim a Director was operating in an uncovered capacity.  Because of this, the insurance could not be tapped by the corporation or other Board members to cover expenses.

Insurance companies are in the business of making money, so review the insurer terms with an expert to make sure you understand when you can and cannot rely on such coverage.