J & N REALTY, INC.

Insurance Information for Homeowners Associations  

STEP 1  

Gather the declaration sheets from your insurance agent for all association general liability, directors and officers liability, and earthquake and flood policies.  In addition, pose the following questions to your insurance professional for each type of insurance policy, asking for a written response.  

1. What are the policy limits/coverages? 

2. What are your [agent's] qualifications?  Ask agent to provide a resume or summary of their background relating to insurance and, specifically, common interest development insurance training/ experience. 

3. What is your recommendation and basis for recommendation on the amount of liability insurance that should be carried by the association? 

4. Does the coverage extend into the separate interests of the individual owners? 

5. What deductible, if any, is there on each policy? 

STEP 2  

Try to determine who generally pays the deductible for each policy (if any), the homeowner or the association.  Check the governing documents and analyze past practices of the association in assessing deductibles.  If there is no guidance in the documents or past experience in assessing deductibles, then note those factors for the attorney's review. 

STEP 3  

Provide the written responses from your insurance agent and copies of all declaration sheets to the association attorney, if you desire the attorney to do the drafting of your disclosure (which would be a good idea).  Also, provide the governing documents for the association to the attorney so that those might be reviewed, give the attorney any policies the association has adopted in regard to handling of insurance claims, payments, or deductibles, and share with the attorney the Board's thoughts and opinions, if any, on handling of insurance claims, and allocation of deductibles or desired allocation.  (Note: If you prefer to draft your own disclosure, at the very least, it should be reviewed by the association's attorney for compliance with the new laws.) 

Special notes relating to assessment of responsibility for payment of the deductibles 

All associations should have some policy in place related to payment of deductibles on insurance claims.  While the statute calls for disclosure of "who pays the deductible", this is not always possible because every scenario cannot be addressed or analyzed at the outset.  The association board should, however, consider various "scenarios" before settling upon a policy relating to payment of deductibles.  Where documents do not give specific guidance, deeper analysis of the association experiences is helpful to establish a policy that will be accepted by the owners.  Any change related to payment of deductibles from the association to others may require a document amendment.  Consult your attorney on this.  

"Good faith" compliance with the new disclosure statute equates to a reasonable attempt by the Board to let the homeowners know what the association coverage's are, when they might be responsible for the deductibles, and when they are not.  They need enough information to take to their own insurance agents so that their representatives can help them "fill the gaps" and get coverage that will protect them.  If you are having trouble establishing who pays the deductible in different scenarios, ask the association's attorney for assistance in drafting a policy for the association.  

The attorney will want to know generally the same information mentioned above relating to association practices, experiences, and the opinions and interpretation of the board on who they think should pay the deductible for insurance claims.  Circulation of an association policy for handling claims and deductibles in place of stating specifically who pays the deductibles should constitute a "good faith" attempt to satisfy the statute.  

There is certainly no test case to indicate otherwise.  If payment of the deductible is based on responsibility for the event, then that could be stated in the policy and/or on the disclosure for the association.  However, be careful not to conflict with mandatory CC&R of Bylaw provisions in assessing negligence.  

While compliance with the statute may be problematic, it is not impossible to make a good faith attempt to comply.  There is no "punishment" written into the statute, so the neither the remedy nor the standard for noncompliance are clear or definable at this point.  An association does get extra legal protection, however, for consulting the appropriate insurance and legal professionals in drafting the disclosures.  

How often must this information be provided? 

The disclosure for all continuing policies (regarding the association's general liability, earthquake and flood, and directors and officers liability insurance cover-age) should go out as soon as possible after the first of the year to "set the stage".  After that, any 

time the association renews a policy, pertinent information to satisfy the disclosure requirement should go to the homeowners in the next general mailing, or as soon as is reasonably possible after replacement of the policy.  

What form of notice is required? 

Any notification to the homeowners can be in the form of letters, personal delivery, newsletters, attachments with billing statements, or any general mailings to all of the owners. 

If the association cancels a policy without the intent to renew, or a policy lapses and the policy is not to be replaced, the association needs to notify the owners of this factor as soon as is reasonably possible after the decision is made or the lapse occurs.  The purpose of this legal requirement is to let homeowners know where they stand so they might protect themselves in the event there are "gaps" in coverage or a lack of coverage.