Many thanks to Jon Crain of Armstrong/Robitalle/Riegle Business and Insurance Solutions for the tip of the week below regarding D&O insurance for HOA Communities. Below you’ll find their article with this useful tip. We hope that our homeowners will find this information helpful.
WHEN IS A D&O (DIRECTORS AND OFFICERS) CLAIM A CLAIM?
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 The previous carrier also denies coverage as their policy is no longer in force.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.
If you would like an insurance professional to review your insurance policies, please contact John Crain at (949)381-7720 or via email at jcrain@ar-ins.com
