Having recently spent almost 3 months working through the myriad of problems associated with the renewal of a combined home owners' association (HOA) and master association entity, I felt it appropriate to continue to return to my December article covering environmental risks associated with these groups.
Initially, one of my first concerns was the fragmented combination of people serving on two different boards with an unusual methodology of whose risks were attendant to contractual exposure and the unusual basis by which funds were distributed between both entities. Two of my primary concerns, exclusive of the lack of coverage, were the potential for cross-liability claims and a current insurance program with four different insurers covering similar risk. The contractual wording was sufficiently loosely worded to enforce a potential lack of coverage from the "other insurance" clause found in standard contracts, not to mention the possibility for exposures from both entities being potentially uninsured.
From an insurable standpoint, both risks were physically in excellent condition, and with the exception of a loss a few years ago, which was not the fault of either association but that of the original builder, there were no incidents. The insurance group handling these risks, while well meaning, did not sufficiently, in my mind, have a total understanding of the combination of risk, nor did it fully investigate the total insured values of the risks or fully consider the potential of loss emanating from other than standard occurrences.
These were two separate yet associated entities whose overall risk was identical with the exception of a limited contractual position as to one element. Unfortunately, the insured values of the clubhouse and its contents were far from reality. It took a considerable amount of work on the part of a number of the members of the community to provide what was ultimately a forensic study of the replacement value of the contents, as well as a discussion with architects about the replacement on a per-square-foot basis of not only the main clubhouse but also other structures.
Looking at Liability
From an overall liability perspective, for a number of risks, coverage was limited, questionable, or simply not covered. These included environmental risks, where pumping stations had the capacity to sustain substantial remediation risks, as well as underground storage of propane, which, although it evaporates in air, is a remedial problem underground. A substantial number of "clubs" were associated with the HOA, whose activities ranged from financial and food and wine to some sports and freshwater and salt fishing. These were not necessarily high risk, yet they involved risks of both circumstances and negligence. There was the question of the difference between "host liquor" and "liquor law" based on whether the cost of an activity included liquor or others supplied the liquor as an outside segment of an overall program.
The question of directors and officers liability limits as well as the necessity for underwriters to fully comprehend the associated elements of both "association" entities needed to addressed. Further, based on the underwriting of the so-called excess coverage, some potential incidents might not have been covered.
Ultimately, with the efforts of a number of folks within the community, including myself, a new agent produced a professionally negotiated program with a sophisticated underwriting group of these risks, whose terms and conditions are "reader friendly" and whose insuring agreements are undoubtedly the broadest in the community of underwriters covering this risk. I have intentionally left out the particulars of who was involved from the insurance side but hopefully provided some thought-provoking issues relating to these risks. As I have suggested on numerous occasions, simply attempting to review the physical data of risk without a full interpretation of the overall contractual obligations leaves the prospective client with a less than factual assessment of risk and potentially uninsured loss.
Conclusion
As usual, I'll leave you with a verse from Rev. Gary Davis's "Hesitation Blues," which basically provides a picture of the problem.
I ain't no bookkeeper, no bookkeeper's son,
I can keep a few books for you 'til the bookkeeper comes,
Tell me how long do I have to wait?
Can I get you now, or do I have to hesitate?
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