While much of the risk management for tenant-owner associations coincides with common sense – make sure exterior surfaces and vegetation are well maintained, use guidelines for the use of barbecues or fireplaces, and use procedures to ensure the association's funds are not easily stolen – there are others considerations that may not always jump out to the board members. Some of these are insurance-specific while others fall into the legal category.
Below are some suggestions that the apartment association's boards should consider as part of their overall risk management strategy to reduce their financial exposure.
- Ordinance or law coverage: Often overlooked as part of an association's insurance program, this specific type of coverage addresses losses related to the enforcement of ordinances or laws governing the construction, repair and / or demolition of damaged buildings. Regulation or legal coverage contains three components: coverage for loss of the undamaged part of a building, coverage for demolition of an undamaged part of a building and coverage for the increased building costs to comply with applicable codes. While some insurance companies include some of this coverage as an improvement in their property protection, what is built into it may not be enough for your association.
- Directors and Officials Responsibility: Cooperatives can be sued for a variety of reasons, including failure to maintain common areas, challenges for assessments or accusations against the association for breach of supplier agreements. Situations such as these arising from management decisions (or lack thereof) made by the association's board are not covered by general liability insurance; Rather, these types of claims are handled by board members and officer liability insurance.
- Working method Liability: This type of insurance, often called EPL, is easily rejected by associations in cases where they have no employees. Board members can, however, be sued by association residents as well as third parties for "incorrect documents" as defined in an EPL policy. This includes discrimination, sexual harassment, bullying or harassment of a non-sexual nature or improper retaliation. Again, your general liability policy will not cover these types of claims, so it is important that you have EPL coverage in place to deal with this ever-growing exposure.
- Clear Statutes / Declarations of Residence: As an agent who writes coverage for associations as well as individual unit owners, this situation can be one of the most frustrating for all parties involved. The association's legal documents can turn the process of determining how much property protection is needed into a complete nightmare. In addition, as you can imagine, can lead to headaches when a claim affects both association-owned properties and privately owned properties.
This fourth point is critical, as I have seen situations where there is an overlap between what the association documents state that it is necessary to cover from an insurance point of view (usually in the form of "improvements and improvements") versus what unit holders must cover. The clearer the language can be, the better.
For example, I have previously come across a set of statutes that I felt did a good job of spelling out what the association is responsible for:
“Association responsibility: The association is responsible for the maintenance of both Common Areas and some limited Common Areas. In addition, the association is responsible for insuring the common property and the buildings. "
The same set of statutes did an outstanding job of specifying what the unit owners are responsible for:
" Owner responsibility: Owners are responsible for everything in their unit from the walls in. This includes, but is not limited to, floors, ceilings, plaster, windows and all materials covering such structures (eg paint, wallpaper, curtains / blinds, tiles, carpets) as well as appliances and personal content (furniture, clothing, etc.). Owners should insure against liability for events that occur in their homes or on their driveways or walks, as well as for losses with respect to personal property and furnishings and improvements they have installed. The recommended insurance is a homeowner 6, which is a co-operative policy.
This type of language eliminates ambiguity and makes my job as an insurance agent so much easier because I know exactly what my client – about the association or a unit holder – must be covered from an insurance point of view.
It will also make a claim adjuster's life easier at the time of loss, as shareholder policies and shareholder policies do not become specific as to what they cover from a building / improvement and improvement point of view – the adjuster will refer to the association documents when a claim occurs see who is legal on the hook to repair or replace damaged property.
For more ways to minimize the financial risk your apartment association faces, talk to a local independent insurance agent who has experience writing coverage for these types of associations as well as a lawyer who has expertise in homeowners / cooperatives. As the old saying goes, an ounce of prevention is worth a pound of cure!
The information above is of a general nature and your policy and coverage provided may differ from the examples. Read your insurance policy in its entirety to determine your actual coverage.
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