Most CC&Rs make unit owners an insured under the association's commercial general liability (CGL) policy, which means they can file a claim against the association's policy. If a unit owner contacts the association's agent/broker, the representative is obligated to inform the carrier.
Upon receiving notice of claim, every licensee or claims agent shall immediately transmit notice of claim to the insurer. (CA Code of Regulations, Title 10, Chapter 5, Subchapter 7.5(d).)
The carrier then makes a determination if the loss is covered and, if so, appoints an adjuster to set an appropriate value for the loss.
Association Withdraws the Claim. Because the board of directors is the "insurance trustee," it has the option of withdrawing a claim submitted by an owner. If the loss is small and the deductible large, the board can exercise its business judgment to handle the matter internally. Doing so preserves the association's loss history, which helps keep premiums down.
A Claim Is not Submitted. If a manager or board member calls the association's insurance broker about a loss and asks about coverage and how the claim would affect premiums if it were filed, is the broker obligated to notify the carrier of the loss even though the board is not submitting a claim? No.
"Notice of claim" means any written or oral notification to an insurer or its agent that reasonably apprises the insurer that the claimant wishes to make a claim against a policy... For purposes of these regulations, the term "notice of claim" shall not include any written or oral communication provided by an insured or principal solely for informational or incident reporting purposes. (Code of Regs., Subchapter 7.5(n).)
As noted above, the board of directors can manage claims made against the policy. If it has a $10,000 deductible and a unit owner suffers a $3,000 loss, submitting a claim to the carrier offers no benefit to the unit owner and creates a record of a loss. If numerous small claims are filed over the policy period, the carrier could raise premiums or not renew the policy even if no monies are paid out by the carrier.
Later Submission. If the initial $3,000 loss slowly expands into a much larger claim, the board could submit a late claim. There are two potential problems. The first is that any litigation expenses incurred by the association prior to their submission of the claim will not be covered. The second is a potential denial of the claim because notice was not timely given to the carrier.
Tendering Claims: For more information, see "Tendering Claims."
Recommendation: Boards should coordinate loss claims with legal counsel and their insurance broker. Putting their agent on notice of a potential claim while they investigate small losses makes sense but, at some point, the board must timely make a decision to either settle the claim internally or give notice to the carrier. If the association is experiencing numerous small water loss claims, it may indicate a larger maintenance issue that needs to be addressed. Deferring maintenance is not a solution. Boards should immediately address the problem before small losses turn into large ones.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.