Condo Media - December 2015 - 28

AN OUNCE OF PREVENTION:

INSURANCE PLANNING AND RISK MANAGEMENT
Aside from the data security and
technology issues noted in the main
article, there isn't much new under
the insurance sun for community
associations. But there should be a
heightened awareness of the need to
recognize and insure properly against
the risks they face.
Climate risk is a good place to begin
that discussion, says Gregory Pierce,
LIA, CPA, of NorthStar Insurance
Services Inc. The increased frequency
and intensity of weather-related events
highlights the importance of shopping
carefully for master policy coverage
and making sure owners understand
where the master policy ends and the
need for their own coverage through
HO-6 policies begins.
"Boards and managers need to communicate that owners have to take an
interest in these issues," Pierce urges.
"The last thing you want to hear after
a major loss is, 'I thought that was
covered.'"
Joel Meskin, of McGowan & Company Inc., also emphasizes the importance for owners and boards of understanding clearly what their insurance
covers and excludes.
UNINTENDED AND
UNWELCOME LIABILITIES
Meskin says that many of the directors
and officers liability claims he reviews
are triggered because well-intended
board members undertook tasks that
fell outside the scope of their responsibilities and beyond the boundaries of
their insurance coverage.
"Board members have to be careful
not to turn the job into something it is
not," he explains. "You don't want to assume liabilities you wouldn't otherwise
have to assume."
An example is the community emergency response teams (CERTs) some

CONDOMEDIA

associations have created to oversee
the management of disasters that
many fear will become more
frequent as a result of climate
change. While the CERT
concept seems reasonable
and even admirable on its
face, Meskin acknowledges, it exposes the
association to potential
liability if the team
makes mistakes or if
owners are unhappy
with its actions.
That doesn't mean
boards shouldn't establish
disaster management teams
and policies, he says. Associations are as likely to be sued for
what they don't do as for any actions they take. But boards should mitigate their liability risks by transferring
them as much as possible to others-in
this case, by making sure the emergency response team works closely with local disaster officials. Boards should also
check with their insurer to determine to
what extent liabilities they're assuming
are covered, Meskin says.
Pierce also emphasizes the importance of using appropriate risk transfer strategies. At the top of his list:
requiring contractors to designate the
association as an "additional insured"
on the contractor's insurance policy. A
certificate of insurance, which boards
should also require, simply verifies
the contractor's insurance coverage. It
doesn't ensure the contractor's insurance will cover the association in a suit
resulting from the contractor's actions.
To confirm that coverage, boards have
to include a contract provision specifically requiring the contractor to name
the association as an additional insured. "An ounce of prevention is worth
a pound of cure," he says.

That adage applies broadly to the
whole area of insurance planning and
risk management, he says. The new
or expanded risks created by climate
change, new technologies, and other
challenges should lead boards at a minimum to reassess their insurance needs.
They may decide to limit coverage in
some areas and exclude it in others, and
those are legitimate decisions, Pierce
says. "But it's important for them to understand the risks they're incurring and
the exposures they're accepting."
Effective risk management and attention to property maintenance are also
important. That has always been true,
but it's a reminder that some boards
need. "Insurers know the associations
that control losses and [make maintenance a priority] are less likely to file
claims," Pierce says. "Communities
proactive in those areas will be more
attractive insurance risks, and that will
pay off for them in more insurance options and lower premiums over time."

Condo Media - December 2015

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