Seven Steps For Insurance Protection
A CHECKLIST FOR BOARDS TO FOLLOW
1. Check your governing documents: what is required for the Association under your Declaration, Articles of Incorporation and Bylaws?
A. Also, what optional coverage are you authorized (by the documents) to consider?
B. What insurance coverage must the Owner have?
2. Check your present policy and each competing policy: what does each insurance policy actually cover?
A. ALL POLICIES ARE NOT ALIKE!
B. Read all endorsements to the policy, and the insurance declarations page, as well as the policy. If you don't have the necessary expertise, hire an insurance expert.
3. Look for "gaps" in coverage between the Association's policy and what is insured under most of the Owners' policies: is any property apt to be uninsured?
A. What do the Association's documents require the Owners to insure?
B. What do most Owners' policies actually cover? It is not unusual for homeowner policies to not cover some losses that Boards expect them to cover! Remember: Owners' policies also differ, so get a cross-sampling of what is actually insured by several insurance companies under their homeowner policies.
4. Do you send an insurance explanation to Owners at least annually, telling them clearly and precisely what they must insure?
A. Have you read it to be sure it is accurate and clear?
B. Avoid a meaningless, boilerplate "policy summary" prepared by some insurance agents.
5. Do you expect Owners to absorb the deductible portion if insurance pays for work on their unit?
A. Do your documents give you the authority to pass the deductible on to the Owners?
6. Do you expect Owners to pay (either directly or through their own insurance policies) if they are in any way responsible for the losses?
A. Example: a water pipe leading to a third floor sink bursts, and water floods the units below. Since the third floor plumbing "caused" the problem, should the Owner of the unit pay for the losses?
7. What can the Board do to reduce insurance premiums through risk management?
A. First, identify those areas where the Association risks potential loss, such as:
(1) Risk of embezzlement;
(2) Risk of someone (including Owners) being injured while working on Association property;
(3) Risk of a slip and fall due to the Association's "failure to exercise reasonable care"; and
(4) Risk of a burglary or attack, due in part to a failure to provide reasonable security.
B. Next, evaluate risk as to both probability and severity.
C. Then, DECIDE whether to:
(1) ASSUME the risk (if the probability of loss is low); and
(2) TRANSFER the risk to someone else (such as to pool users or a contractor); or
(3) REDUCE the risk (e.g. build a fence around a pond, or add safeguards to prevent embezzlement).