Condo Media - February 2013 - 38

COVER STORY

communities that lost millions in a
devastating embezzlement scheme
reported in the December issue of
Condo Media didn’t have enough
fidelity coverage (and some had none
at all) to replace the funds they lost.
At a minimum, Holton says, communities should have coverage that meets
new secondary market requirements:
three months of monthly fees plus the
average balance in their reserve
accounts. Boards should also make
sure their policies cover association
directors, officers, employees and
property managers, and they should
require their management company to
have its own fidelity policy, covering
the company’s directors, officers and
employees.
The crime component of the fidelity
and crime endorsement covers crimes
committed by third parties who aren’t
association employees, but it may
exclude high-tech crimes — for example, a theft by someone who gains

computer access to the association’s
bank accounts. Depending on how
their policies are written, some associations may need a separate computer
fraud endorsement.
Although many master policies
include some liability coverage for
directors and officers, that coverage is
often limited, both in amount and
scope — covering current trustees
only, but not past board members,
and excluding coverage for committee
members or the spouses of trustees,
who might also be named individually
in any action filed against the board.
Imbedded endorsements also often
provide coverage only for liability
judgments won against the board but
not for the legal costs incurred in
defending those claims and they typically exclude non-monetary claims
(for board election challenges, rules
enforcement and the like), which represent the majority of the D&O
claims associations are likely to file.

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“This is not an area where boards
want to cut corners,” Meskin advises.
He recommends stand-alone or
mono-line D&O policies, which are
more expensive, but provide the
broader coverage boards need.

Making Informed Decisions
Meskin also strongly advises boards to
consult industry experts to help them
navigate the insurance maze. “Board
members aren’t required to make perfect decisions,” he notes, “but they are
required to make informed decisions.”
There are two ways boards can
obtain the professional advice they
need to make informed decisions. One
is to “put yourself in the hands of a
really good agent,” David Abel,
CMCA, senior manager at First Realty
Management in Boston, suggests. But
it is important, he emphasizes, to deal
with agents who specialize in working
with condominium communities. One
of his association clients had been relying for many years on an agent known
to and recommended by a board
member. When questions arose, a staff
member suggested involving another
agent, “who seemed knowledgeable.”
Thanks to that agent’s review, Abel
says, “we found out some horrible
things about the coverage. It was a
real eye-opener.”
For most of his clients, Abel says, “We
make sure we’re working with really
good, experienced agents we know and
trust.” But for larger communities, with
more complex insurance issues, he
brings in a third-party risk-management
consultant to assess the community’s
risks and its insurance coverage. “We
pay them to review everything,” Abel
says. This review (typically billed by the
hour) can be expensive, he acknowledges, “but expensive is a relative term.
It’s a lot more expensive to find out
you have $20 million less coverage than
you need.” CM
Nena Groskind is president of
eContentplus, providing editorial
content for websites, print and
electronic newsletters and magazines.
Condo Media - February 2013

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