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HOA & PUD Insurance “claims made”. Protecting rights to Directors and Officers

Homeowner Association (HOA) and Planned Unit Development (PUD) “Claims Made” Directors and Officers (D&O) Policy. Protecting rights to Directors and Officers insurance coverage.

The following material is for educational purposes only and does not constitute legal advice.
The following points are an excellent topic to discuss with your legal advisor.

It is suggested that any disputes, claims for compensation or claims for a change made by a homeowner to the association be resolved by Alternate Dispute Resolution or by the Internal Dispute Resolution process. If the homeowner does not believe the matter is resolved and is still angry after the mediation process is complete then it is suggested that associations or their professional managers communicate these unresolved issues to their legal advisor and to their insurance agent for a discussion and consideration of submitting a “Notice of Occurrence” to the Directors and Officers insurance company prior the end of the policy period as a means of preserving rights to coverage in the event the issue blooms into a lawsuit against the association/Directors at some future date.

As an example… A homeowner was not satisfied with how her small water damage claim was handled by the Homeowner Association and began making threats of a law suit against the Directors and Officers
so the Daniel W. Davis Insurance Solutions, LLC Agency submitted a “Notice of Occurrence” to the D&O carrier on behalf of our HOA client in order to preserve the association’s rights to coverage in the event the homeowner proceeded with a lawsuit at some future date. The following letter is the insurance company response to our submission.

Notice… how the HOA Directors and Officers insurance company defines Wrongful Act.
This definition appears to be broad, but HOAs and HOA Management Companies must be cautious about what type of D&O policy/coverage they purchase as some D&O carriers use a very narrow, limited definition of what constitutes a Wrongful Act.

Also Notice… the Exclusions… as D&O policies frequently exclude coverage when the D&O claim is based on a prior incident of Bodily injury, sickness, death or damage to property… as response to these perils is typically picked up and settled by the General Liability and or Property (Buildings Coverage) policies. Once again… be very cautious about what D&O policies your HOA purchases because some D&O insurance companies throw in more Exclusions than other companies.

Special Note… In my opinion just because the Directors and Officers coverage is provided by a well-known “Big Name” company does not mean they use a broad definition of Wrongful Act or only list
a few Exclusions. In my experience when the D&O coverage is included as part of a package (as “Big name” companies sometimes do) the coverage may be limited and or include more exclusions as compared to a separate “Stand-Alone” D&O policy – which may include a broad definition of Wrongful Act and may have fewer exclusions.

Dear _____,

We represent ___ Insurance Company, who subscribes the captioned policy (the “Policy”) issued to ___ Homeowners Association. This correspondence addresses the notice of a claim reported to ___ Insurance Company in connection with certain demands made against the Association by ___ (“the claimant”) in or about ___ 2016 regarding water damage inside the claimant’s home. We have now been informed by the Association’s broker that this matter was fully resolved and the claimant has withdrawn her claim. We will therefore close our file at this time.

We would like to remind you that, in relevant part, how coverage is afforded under the Policy for Wrongful Acts. Coverage Part C provides that ____ Insurance Company:

Shall pay on behalf of an Organization all Loss an Organization is legally obligated to pay
arising from a Claim first made against an Organization during the Policy Period and reported to Us in writing during the Policy Period or the Extended Reporting Period, if applicable resulting from a Wrongful Act. The Wrongful Act shall take place on or after the Continuity Date and before the end of the Policy Period.

Coverage Part D provides, in relevant part, that ____ Insurance Company:

Shall have the right and duty to defend and control any Claim made against an Insured based upon or arising out of any actual or alleged Wrongful Act(s), even if such Claim is groundless, false or fraudulent…

Wrongful Act is defined by the Policy to mean:

Y. Wrongful Act means:

(1)with respect to Individual Insureds, any breach of duty, neglect, error, misstatement, misleading statement, omission or act by such Insureds in his/her respective capacities as such, or any matter claimed against such Individual Insured solely by reason of his/her status as Individual Insureds of the Organization;

(2)with respect to the Organization under Coverage C, any breach of duty, neglect, error, misstatement, misleading statement, omission or act by or on behalf of the Organization;

(3)with respect to service on an Outside Entity, any matter claimed against such Individual Insured arising out of such Insured serving as a director, trustee, trustee emeritus or governor or an Outside Entity in such capacity, but only if such service is at the specific written request or direction of the Organization;

(4)with respect to both the Individual Insureds and the Organization and subject to paragraphs Y (1), (2) and (3) above, Wrongful Act shall specifically include:

(a)Employment Practices Wrongful Act: or

a.Non-Employment Discrimination; or

b.Community Association Management Wrongful Act

c.Libel, slander, defamation or publication or utterance in violation of an individual’s right of privacy; or

d.Wrongful entry or eviction or other invasion of the right of occupancy; or

e.False arrest or wrongful detention; or

f.Plagiarism; or

g.Infringement of copyright or trademark or unauthorized use of title

Because limited information has been provided by the nature of the alleged act, we reserve ___ rights to deny coverage to the extent that no act meets the definition of Wrongful Act as provided by the Policy.

We also note that Coverage Parts C & D are subject to a $5,000.00 deductible for each Wrongful Act. Therefore, even if coverage was available under the terms of the Policy, as the disputed amount appears to be $2,500.00 we reserve ___ rights to deny any indemnity payments accordingly.

Because this claim appears to result from Water damage, we would also like to turn your attention to Section IV of the Policy, Exclusions. In relevant part, Exclusion J states:

The insurance provided does not apply to any Claims, Damages, Loss or Defense Costs, involving, caused by, based on, attributed to, arising out of or arising from, in consequence of, resulting directly or indirectly from, or in any way related to the following, regardless of whether any other cause, event, material condition or product contributed concurrently or in any other sequence to such Claims, Damages, Loss or Defense Costs:

J. Bodily injury, sickness, disease, or death of any person, or damage to or Destruction of any tangible property, including the loss of use thereof; provided, however, that this exclusion shall not apply to emotional distress or mental anguish where there are no allegations of bodily injury, sickness, disease, or death of any person.

We reserve ___ rights accordingly.


Thank you for your time…