Community Association Tip of the Week – “Directors and Officers Liability Alert”

March 14th, 2013


In a previous tip of the week we covered material regarding “When is a Directors and Officers Claim a Claim”? Recently, we have had two cases that have prompted us to cover this very important topic again. Please make sure all Board members, Property Managers and Association legal counsels familiarize themselves with this issue.

Most of you know General Liability bodily injury/property damage claims are written on an “occurrence” form. This means that a covered bodily injury/property damage claim is the responsibility of the carrier that was the carrier of record at the time the incident “occurred” and they must handle the claim. This applies even if that carrier is no longer writing the insurance for that Association.

Directors and Officers coverage is different because it is written on a “claims made” basis. This means that the Directors and Officers policy in effect when the claim is actually presented or “made” is the carrier of record for that claim.

Here is the problem. A claim is defined as any allegation of a wrongful act made in writing. This could include a threatening e-mail or letter; it does not have to be a summons and complaint. Secondly, when a Directors and Officers policy is non-renewed or cancelled, that policy is gone and cannot retroactively be advised of an incident that was actually made during the policy period. The notice must be received during the time they are writing the policy.

Here is a case in point. An Association receives a rambling letter of complaint about some Association issue. The letter also includes a veiled “threat” that if the Board doesn’t address the complaint, the author of the letter may go to the next step (i.e. legal action). This constitutes a “claim,” however some Associations or their legal counsels will not think to submit at that time, dismissing the communication as a situation the Board and their attorney can handle.

Three months later, the Association changes Directors and Officers carriers and a month later, the author of the original e-mail files a lawsuit. The claim is submitted to the current Directors and Officers carrier who begins to defend but in their due diligence they uncover the previous letter and then remove themselves from the defense as a claim was “made” prior to their term and therefore not covered by them.

Upon submission to the previous carrier, they also decline to defend. Even though the letter was written during the policy period they were the carrier; the letter was not submitted to them. As they are no longer the carrier of record, their policy is null and void.

In order to eliminate the above, any correspondence (i.e. e-mail/letter/note on a cocktail napkin) that includes verbiage that could be interpreted to be an “allegation of a wrongful act” must be sent to the Associations agent with instructions to notify the current Directors and Officers carrier of record immediately.

Once done, if a summons and complaint or other action is received down the road, even if that carrier is no longer on the risk, they must proceed to defend that claim (if it is a covered event) due to it having been reported to them during their policy period.

Please feel free to contact us if you have any questions on the above, even if we aren’t the current agent of record for an Association.

Community Association Tip of the Week – “The Need For Condominium Unit Owners Policies (HO-6)”

October 15th, 2012


One glaring issue we continually see  when reviewing claims for property damage losses to a condominium unit is how few unit owners have  homeowners insurance.  Statistics have shown that as many as 50% do not have a Condo (HO-6) policy.   Some say to us they thought the Association Master policy would cover their personal property and the liability exposure.  Due to this we wanted to take a moment and review the importance of this coverage and recommend Board of Directors provide this information to each and every unit owner.

 The Association Master policy covers the buildings (structures) in a condominium owned as tenants in common along with the common area liability.  This property coverage (usually depending on the CC&R’s) is either “bare walls” or “walls in.”  This is important in that the unit owner may be responsible for the “finished interiors” in his/her unit if the master policy is “bare walls” only.  It is important to note that the majority of CC&R’s state “improvements” which is a key word for finished interiors are to be covered.   

The Association Master Policy does not provide any coverage for the personal property or personal liability exposure of unit owners.  Accordingly, every unit owner needs a condominium unit owners policy (commonly known as an HO-6 Policy).  These policies are designed to provide the unit owner with coverage for his/her personal property and personal liability.  Below are   examples additional items these policies can provide:  

  1.  If the unit owner is in a condominium where the Association Master policy covers  “bare walls” only, then the unit owner can add dwelling or building coverage to their HO-6.  This will protect the unit owner against insurable losses to the finished interiors not covered by the Master policy. 
  2.  If the Association Master policy covers ‘walls in,” the unit owner needs to check with the policy to determine what the deductible is.  In today’s market, the deductibles for Association property losses are generally $5,000 or $10,000.  Accordingly, if there is a loss to the finished interiors covered by the Master policy but there is a $10,000 deductible, the deductible may be determined to be the responsibility of the unit owner.    Thus, in this case, at least $10,000 of dwelling or building coverage to close this gap.
  3.  Secondly, let’s say the Association Master policy covers a property or liability loss but the limits were not enough to cover the liability or the Association could have purchased insurance but didn’t (i.e., Earthquake) and subsequently has  to special assess all the unit owners equally.    In these examples the unit owner can amend their HO-6 policy to include “Loss Assessment” and even “Earthquake Loss Assessment” to provide coverage against Special Assessments
  4. Lastly, if a unit in the Association needs to be repaired due to a covered loss such as a Fire or Water damage, the inhabitants of that unit are going to need to make arrangements to stay elsewhere while repairs are being done to the unit.  The Associations policy would have no coverage for the expenses occurred during that time. This is where your Condo(HO-6) policy can be beneficial.  That policy can provide up to 24 months of suitable/comparable living arrangements and in some cases, food, clothing, and personal items. This coverage is normally known as “Additional Living Expense.”  We highly recommend this to all unit owners.   

The above are just a few of the compelling reasons why unit owners need to be encouraged to purchase this valuable coverage.  These policies can cost as little as $300.00 annually. 

 A/R/R Personal Lines Expertise

If you have any homeowners that would like to obtain a no obligation quote please have them contact our personal lines expert, Matthew McMullen, at (949) 373-8415 or via email

Community Association Tip of the Week – “Employee or Contracted Vendor”

May 22nd, 2012


Many Associations struggle with the question as to whether an individual is a contracted vendor or an employee of the Association.  This can become even more confusing when dealing with a sole proprietor or a resident of the community who performs services for the Association that would normally be performed by a licensed contractor.  Is that individual a contractor, just because the Association has a “contract” with them and pays them without withholding any payroll taxes, SDI, FICA, etc.?

 It can be very difficult to determine whether one is an employee or contractor and a potential liability for those who make a mistake.  Simply having a contract or stating that one is a contractor may not make them one. 

 For years, California has prohibited employers from incorrectly classifying employees as independent contractors.  The prohibition ensures that employers pay payroll taxes to the State and overtime wages to employees. The law was recently overhauled to dramatically increase the penalties for misclassification and to extend those penalties beyond the employee/employer relationship.  Employers (Associations) can now face civil penalties ranging from $5,000 to $15,000 per misclassified employee!

 Perhaps more importantly, the California Legislature decided to extend its labor code liability beyond the employment context.  California’s new law places joint and severe liability upon anyone who advises an employer to misclassify workers as independent contractors.  This could adversely affect property managers as well.

 Lastly, there is the problem of having an independent contractor actually lawfully declared an employee who is then injured making the Association responsible for workers compensation benefits.  If the Association has no workers compensation policy in force, this could create a financial liability to the Association. Accordingly, we recommend that every Association carry a minimum premium workers compensation policy (currently around $600.00 annually) and that legal counsel be involved in determining whether an individual is truly a contractor or employee.

Please feel free to contact us with any questions or comments. 

 **The information contained in this HOA Tip of the Week is for information purposes only and is not specific legal advice or a substitute for specific legal counsel.   Readers should not act upon this information without seeking professional counsel.    If you do not want us to contact you by email, we will gladly unsubscribe you from our online community by replying to this email with the word “remove” in the subject line**   





Community Association Tip of the Week – “Liability Awareness”

April 19th, 2012


 Insurance companies consider Apartments, Condominiums, hotels and motes as “habitational properties.”  Some of the significant property and liability risks they are vulnerable to are discussed below. These risks can be minimized with effective planning, sound risk management, regular inspections, maintenance and replacement of essential equipment and building systems.  Accidents and injuries are less frequent and costly when property owners have sound business strategies, attentive property managers and implementing effective inspections and maintenance.   


The majority of fires are caused by heating equipment, cooking, candles, grills, electrical wiring and smoking.  We recently reviewed the insurance portfolio of an association that suffered an $80,000 fire loss due to a candle in a window sill.  Regular inspections can help to identify and correct potential fire hazards. Smoke detectors should be installed in all the right places with fresh batteries replaced every six months and alarms replaced every ten years. 

 Water Damage

Roofs are an obvious source of leaks but leaks also develop in plumbing and appliances, especially in washing machines and water heaters.  Once again, regular inspections and maintenance programs can identify and correct leaks before they cause damage. 

 Slips and Falls   

Studies continue to show that slip-trip-and-falls are one of the leading, if not the number one, source of injuries, claims and insurance costs.    Within the category of falls, the second leading source of accidents (after uncarpeted floors) is falls on stairs steps and ramps.   Fifteen percent of all falls, and fourteen percent of all dollars paid were related to falls on stairs.    Remember, a fall on stairs can expose someone to greater than normal risk of serous head, face and neck injury.  This is because someone can roll slie and twist until they come to a stop.  Preventing these types of injuries should be a priority if this pertains to an Association.  

 All stairs should be built and maintained to Code.   Make sure all stairs on the property have tread depth and riser height uniformity, surfaces with slip resistance, easily gripped handrails at the proper height and length, contrast between flat walking suface and stair flight, and adequate lighting.    Even if stairs are up to Code, they must be maintained in a safe condition.   An increasing number of state courts are shifting the burden of proof in slip-and-fall cases.    It is important to document, perform routine inspections so HOA’s can prove it took reasonable precautions to keep all waking surfaces free from hazards.   

 Remember that if the stairs are not built or updated to code, the plaintiff may sue not only for their individual loss but for punitive or exemplary damages which are above and beyond the normal pain and suffering and are not covered by insurance. 

 Some other quick items of note that should be repaired quickly are:

  • Uneven or raised sidewalks
  • Sprinkler heads  causing sidewalks to become wet or form small puddles or that are too high and therefore a tripping hazard.     

Remember,  always review your liability limits and be sure you have adequate limits.  In addition to being   in compliance with civil code 1365.9,   you can pick up  additional $1,000,000 limits for a typical Association that can cost as little as $400.00 per  increment.  

 Final Note    to Associations with swimming pools, basketball/tennis/racquetball courts and similar amenities.  Throughout the years we have received literature that includes information of juries awarding damages that have far exceeded the limits Associations had in force.   Swimming pool deaths are just one example we have seen on several occasions.  We strongly recommend  considering  higher limits than what the CA Civil Code requires.   


Do the sprinklers come on for the correct amount of time?   Are there any raised sprinkler heads that someone can trip over?   Are any of the sprinklers causing sidewalks to form puddles?    Inspections can help to insure the sprinklers are opearting properly.


Are any trees leaning or appear to be in danger of falling?     Are any tree roots staring to cause sidewalks or pavement to crack or raise up?    Are trees regualry trimmed to prevent limbs from falling?   

 Playground Equipment

Playground equipment must now conform to the highest safety standards which include local regulations for playgrounds and play equipment. The Consumer Product Safety Commission’s Handbook for Public Playground Safety offers guidance for safe equipment, fall-cushioning material, and inspections online at 


With the exception of tile,  it is good general rule of thumb to consider replacing roofs once they are 20+ years old.   Reserve studies will normally reflect the age of the roofs and how many years of useful life they have remaining.  If frequent repairs are being made; replacing the roof(s) may be more  cost effective   

 Fire Extinguishers

NFPA requires fire extinguishers to be installed on all types of occupancies and hazardous areas such as parking areas, laundry rooms, boiler rooms, etc. The size and location of the fire extinguishers depends on the hazard of occupancy. A Habitational type risk is considered as Light (Low) Hazard Occupancies. This requires a minimum 2-A rated fire extinguisher with 75-feet of travel or one per 3,000 square feet of area. Fire extinguishers should be readily available and visible for use on small incipient type fires. We have had this question on Condominium buildings several times before. If there are common areas such as interior hallways or multiple buildings with exterior common areas and parking areas fire extinguishers should be available. There are some condominium layouts that may not require fire extinguishers.   Please refer to for more information on Fire Extinguishers and how it may relate to your Association.


Associations built prior to 1976 may want to consider some of the following. 

  • Periodic Inspections and validation by a licensed electrical contractor constitutes an “update” when the wiring is of current technology.  Old technology wiring, which can create a significant fire risk, often requires replacement.  Seek evaluation from  a contractor and plan to upgrade to newer wiring.
  •  Look for corrosion in steel piping, older cast iron drains and waste piping and older copper piping.  

Swimming Pools

Must comply with all local health codes that address water quality, access control, rescue equipment, signage, etc.  As discussed in previous tips of the week must also now have an anti-vortex drain cover to be in compliance with Federal law (Virgina Graeme Baker Act) in December of 2007.

Community Association Tip of the Week – “Insurance to Value”

March 19th, 2012


Insurance to value (ITV) has always been a concern with us and we now believe it is more important than ever to help our clients understand the insurance coverage required to rebuild.    Recent events such as the increasing severity of weather events, disasters like the earthquake in Japan and skyrocketing construction costs illustrate the significance of ITV.   We were surprised to learn that an estimated 75 percent of commercial businesses are underinsured by an average of 40 percent or more.   This is important because underinsurance can greatly impair, or even bankrupt a business that is trying to recover from a major disaster.   

We would expect to see similar statistics for Condominiums and Townhomes with respects to being underinsured.   For illustration purposes let’s use a 200 unit condominium association that has been insured for $30 million by one agent and carrier for many years. A fire causes a complete loss and it ends up costing $40 million to rebuild.   The carrier will only provide $30 million in the rebuilding efforts so the $10 million not covered will be equally assessed to the 200 unit owners.  Many carriers have 125% extender endorsements but it is important to note these have clauses that state if the property is not properly insured to value (100%) then the endorsement is null and void.  We estimate that over 90% of CC&R’s state that Board of Directors are mandated to carry a property limit for the 100% Full Value Replacement Cost with no deduction for depreciation or coinsurance. This is why we want to help provide our clients with the information you need to make sure the properties you manage or own are properly insured.


There have been several devastating weather events in recent years.  Some of these were unprecedented and unexpected but for the year ending 12/31/11, the United States alone experienced $38 billion in insured losses.    Many experts are predicting the severe weather to continue.    These events cause the need for communities to rebuild which causes an increase in demand for building materials and labor.   To provide you with examples the following materials rose significantly for the fifteen month period 4/1/2010 to 7/1/0211: 

Copper Pipe  26.5%           Drywall           5.5%                      Steel Rebar                   15.8%

Plywood        11%              Lumber        11.7%                      Structural Steel              13%

 Construction costs are increasing and buildings constructed as recently as two years ago would not be able to rebuild for anywhere near their original costs.  Please keep in mind insurers evaluate the cost to rebuild properties, not its current resale value.   Even though the commercial real estate market has plummeted, property insurance costs may not have followed suit because of the increasing cost to replace property. It is always important to understand that Real Estate value have very little to nothing to do with the cost to replace and/or repair damaged property.

 A good percentage of today’s blanket Master policies include what is known as a 125% extender endorsement.  This endorsement essentially states that whatever the limit is on the declaration page (i.e. $40,000,000) that there is an additional 25% (or in this scenario $10,000,000 more for $50,000,0000 total) of coverage at the time of loss.  It is our understanding that all of these endorsements mandate the Association must already be insured for 100% of the best estimated insurable value in order for it to be valid.  Due to this we want to caution you that some policies may be underinsured (in the above example let’s say for a limit of $32,000,000) to drive down the premium and then assume the 125% extender will increase the total coverage back to the $40,000,000 in the event of a total loss.  Per the above, it is possible this may eliminate the benefit of the 125% extender. 

We hope that from this tip of the week you realize ITV is a critical element of any well-constructed property insurance program.  Our commitment is to always keep you up to date on information important to homeowner associations.   If you have any association that we do not insure but would like us to review to see if the current property limit is adequate we would be happy to do so free of charge.       

For more information on Commercial, Homeowner, Personal or Workers Compensation insurance please call our office at (949) 487-6131.

 **The information contained in this HOA Tip of the Week is for information purposes only and is not specific legal advice or a substitute for specific legal counsel.   Readers should not act upon this information without seeking professional counsel.  **

Community Association Tip of the Week – “When is a D&O Claim a Claim”?

March 15th, 2012


Many of you are already aware of the unique nature of the D&O (Directors and Officers) liability policy for being “claims made” instead of the traditional “occurrence” based policies.  Occurrence based policies state the carrier who is or was on the risk at the time the incident “occurred” is the carrier that will be responsible for handling the claim.  A “claims made” policy says that the carrier who is on the risk when the claim is made, or when the Association becomes aware of the claim, is the carrier that will be responsible for handling the loss.

The problem is determining what the definition of a “claim” is.   According to most D&O policies, a “claim” is “a written demand for monetary or non-monetary relief, commencement of a formal criminal, administrative or regulatory proceeding….”  Some may ask, “What constitutes a written demand”?  According to the dictionary, a “demand” is “to ask for urgently, to ask to be informed, to claim as just due.”

The problem we run into is when a Board receives a letter inquiring about an issue that could constitute a “demand” and the current D&O carrier does not get notified.  A month or two later, the D&O policy is renewed but placed with another carrier.  Several weeks later the party who sent the earlier letter now sues.  The current carrier upon doing their due diligence determines that they will not provide coverage because the claim (the letter) was not “made” during their current term.  The previous carrier also denies coverage as their policy is no longer in force.  The Association is uncovered and it could have been avoided.

Accordingly, it is absolutely critical that all Boards of Directors, Managers and Attorneys remit any and all letters that could be construed as a claim immediately to the D&O carrier via the insurance agent upon receipt.  This will put the existing D&O carrier on notice even if they no longer write the risk.  Should a suit eventually arise, they will have to step up and defend if the allegation is a covered event.

To summarize, with respects to the association’s D&O Policy, any written request, demand, inquiry, etc., that could lead to an allegation of a wrongful act down the road should be submitted immediately.   

For more information on insurance related matters please contact A/R/R Business and Insurance Solutions at  949.487.6131 and ask for Jon Crain at Ext 226.   

 **The information contained in this HOA Tip of the Week is for information purposes only and is not specific legal advice or a substitute for specific legal counsel.   Readers should not act upon this information without seeking professional counsel.  If you do not want us to contact you by email, we will gladly unsubscribe you from our online community by replying to this email with the word “remove” in the subject line**

New California Workers’ Compensation Regulations

September 16th, 2010

New California Workers’ Compensation Regulations

Action required by October 8, 2010

Written Notice to New Employees: Effective October 8, 2010, every employer shall provide to each new employee, either at the time of hire or by the end of the first pay period, a written notice to new employees concerning the rights, benefits and obligations under workers’ compensation law as outlined in section 98880.  The distribution must be in English and Spanish and include a form that the employee may use as an optional method for notifying the employer of their choice to predesignate a “personal physician” per LC4600 and LC 4601.   When distributed with the Predesignation Form, the new posting notice (DWC-7) fulfills the requirements for new hire distribution when distributed to each new employee at the time of hire and again at the notice of injury.  Additionally, if an employer has implemented a Medical Provider Network (MPN), the full MPN implementation notice must be included in the new hire distribution as well.  Please note that it is advisable for all employers to include a check list and acknowledgement of receipt form with signature line to confirm the receipt of all notices included in the distribution. 



July 22nd, 2010


1. OPEN LINES OF COMMUNICATION.  Have Employee handbooks updated so they are easy to understand, in all languages necessary, explaining what each employee should do if and when they get hurt, addressing injury management and return-to-work programs and policies.  Employee communication is critical in controlling costs.  Go with the injured worker to the clinic, drive them home, and follow up on their progress.

 2. INJURIES NEED TO BE REPORTED IMMEDIATELY.  You must have a goal to report all injuries within 24 hours. Why?  There is a marked increase in claim costs the later the claim is reported.

 3. IDENTIFY THE EMPLOYEES THAT ARE MOST LIKELY TO BE INJURED.  Safety should be everyone’s business.  Some things you should consider are new hires, untrained, apathetic, those who complain or that are habitually late.  Whatever your company’s particular factors are, once identified, focus attention on them to practice safe procedures always. 

 4. MANAGE MEDICAL CARE.  Research and get to know your clinics.  You can instruct them to work with you on 1st Aid claims and keep them out of your experience rating formulas, you pay twice that way.  Always try and look for 2nd opinions on large claim reserves. Ask their help to fight fraud.

 5. IMPLEMENT SOME TYPE OF ANTI-FRAUD PROGRAM. Send a clear and professional message to your employees that fraud hurts them, their fellow employees, and the employer. Inform them Fraud will not be tolerated and there will be a reward for employees that identify fraud. Screen all employees. Supervisors must investigate all injuries.


Commercial and Industrial Real Estate Flood Insurance

April 13th, 2010


Commercial and Industrial Real Estate Owners looking for flood insurance through the National Flood Insurance Program are anxiously waiting for Congress to vote on  reinstatement of the program April 12th.  As of March 28, 2010, Congress adjourned without passing an extension to the Federal program. The program has stopped issuing new and renewal policies, however, current policies are still in force. It is anticipated that the federal program will be retroactive back to the March 28th date. This will be a temporary extension as Congress will only be able to extend the program through April 30, 2010.

Please contact Armstrong/Robitaille/Riegle/Robco, Business and Insurance Solutions, for assisting Commercial and Industrial Real Estate Owners in placing flood insurance. We are available to strategically identify your exposures and   put together the appropriate program to address your unique business needs.  Please call 714 221-3901 or 888-800 5242.


Keep Your California Workers Comp Insurance Costs Low

March 8th, 2010

Lower workers compensation rates are sure to make employers happy.  It is important to not slack off in your vigilance to keep safety procedures and management up and running. Remember that Workers Compensation coverage is not an expense of doing business.  Costs rise and fall on the number and costs of injuries in the workplace.  You should not confuse lower rates with lower costs.   

Employers should look at keeping the low cost of workers compensation as a basic business practice.  Always be looking at safety and workers compensation management programs and be prepared to implement changes when necessary.     Never rely on past good behavior only.  Continuous reviews can help to insure you keep the lowest rates possible. 

Employers need to demonstrate to their insurers they have fewer claims with shorter life spans.  Providing proof that you are a “preferred policy holder” will help you qualify for all the “perks” your insurer and state may offer.

 How do I achieve “Preferred Policy Holder” status? 

Be sure to document your safety history.  You can include things such as ergonomic best fits for sedimentary computer workers, floor coverings, training in lifting, climbing, warehouse safety, removing tripping hazards and including signage.

 Show proof that your employees are returning to work faster than the average.  Try and obtain a goal of 95% of injured employees returning within 1-4 days.  (Note:  You should not include med-only claims in this calculation)

 Employers should communicate with injured employees from day one.  This will show good faith and demonstrate you are an ally in his/her recovery.  Document how they are doing every week by talking to them.  Send flowers or a small gift.  This will help you create a complete log of when, where and how you communicated with what was discussed.  

Training!  Employees should always be kept up to date with safety procedures and the expectations from workers comp management.  Training employees on safety and post injury response procedures as well as business protocol for convalescence, such as return to work programs, modified responsibilities, etc.  Inform your employees they must take a Work Ability Form with them to the treating physician and have it completed and faxed back to you with their diagnosis and any work restrictions.  This will allow you to create modified job duties that will adapt to the restrictions listed.  Employees must then sign off when they receive training so you can demonstrate to insurers that your employees have, in fact, received training.

 Employers must file the Work Ability Forms to show you are on top of each visit to the doctor’s office.  This further shows you are ready to address any restriction with modified job duties when applicable. 

 If you can demonstrate that you have engaged in the above activities and that you have lowered the incidence of work related injuries, you may become eligible for the state mandated credit programs, the insurer dividends and the “Preferred Policy Holder” status. 

Keep Your California Workers Comp Insurance Costs Low