Importance of Liability Insurance Often Overlooked
Byline: Jordan Shifrin
The largest exposure a condominium or homeowners' association will ever face is in the area of personal liability or property damage. In light of this fact, it is then puzzling why many association boards treat the purchase of liability and property damage insurance so casually. In fact, some seem to adopt the thought "that only happens to others."
Property Damage, Liability and Directors/Officers insurance coverage can look like a covered chafing dish of leftovers if not properly reviewed. If, for example, a board is sued for breach of fiduciary duty, is there adequate coverage? It is important that the board understands the scope of coverage. If that coverage proves to be inadequate for any reason, the board must be prepared to expand coverage. The issue, however, is not just adequate financial coverage, but also that actual events and circumstances are covered.
Recently, a situation arose where a board of directors was sued collectively and individually for a mandatory injunction to force the board to refrain from enacting certain policies and procedures. No monetary damages were sought. The association's insurance carrier denied coverage of the claim and refused to hire counsel to defend the case.
At first glance, the natural reaction in this case was to attack the insurance carrier. However, after a careful reading and analysis of the policy, it appeared the insurance company was correct in denying coverage. The board was not aware of this deficiency. It had either assumed it had purchased adequate coverage or misunderstood the scope and limitations of the policy.
Because the board had not been sued for monetary damages or loss, but rather the plaintiff sought an injunction, there was no coverage. The policy specifically excluded all cases not seeking monetary damages. Thus, the association had to fund 100 percent of the legal defense. Considering that the bulk of the costs incurred in suits against an association board relate to legal defense, this has enormous consequences. …