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Feeling Left Out? Consider What is Included in Your Master Policy’s Exclusions Section


Brett Nebeker


Understanding the contents of the “Exclusions” section of any insurance policy may cause an insured to suffer immediate feelings of buyer’s remorse. For example, when learning that “Ordinance & Law” is excluded on the property insurance policy—even though the proposal gave very specific limits— could cause a board member or property manager to wonder, “What gives?” Even if it is added back on by endorsement later in the policy, the exclusion begs the question, just what isn’t covered in my condo’s master insurance policy?


The good news is that most of the policies are substantially similar thanks to the Insurance Services Office, or ISO. ISO publishes forms that many insurance companies use as a starting point for their own contracts. Not all companies adopt the ISO form, or modify it substantially, so each insurance contract may read very differently. A little extra care may be required to be sure that the contract is understood by the insured. But in my experience, the standard carriers that do not use ISO forms will still use contract language that generally addresses the same intent as the ISO language. It’s when a condo is forced to purchase insurance from the “surplus lines,” or non-admitted carriers (i.e., has not been approved by the state’s insurance department), that extra prudence is particularly recommended. This article is a brief overview of some of the more surprising or common exclusions and coverage issues to watch out for.


Property


In the state of Washington, most condominium master policies are written on an “all


in” basis, meaning they are


covering the structure, the common elements, the limited common elements and the units. Where the coverage can sometimes differ is whether the units will be rebuilt including the improvements made by the unit owner or tenant, or if it will be restored at an “as-built” level. This isn’t a specific exclusion per se, and sometimes the adjuster will need to look to the governing documents for direction on exactly how much they are expected to replace. There may also be an endorsement attached that specifies whether unit owner or tenant improvements are included and generally will spell out requirements for the owner to report the improvements.


General Liability


For associations that hire employees, there is an often overlooked coverage called Washington State stopgap. Washington is one of the few states in the country that has a state-run workers’ compensation insurance program. When a worker gets injured on the job, there can often times be extra expenses incurred that the state run program does not cover. The injured party can then sue their employer, in this case the association, for those extra expenses. This is a relatively inexpensive coverage enhancement that should be attached to any association that directly employs any worker.


14 Community Associations Journal | October 2014 Crime/Fidelity


Make sure that association managers are also covered, as some companies will exclude them. One, this will appease the lenders at the unit owners’ mortgage companies. Two— even though rare—this will protect the association should a property manager skim association funds or engage in other improper behavior.


Directors and Officers


Make sure that owner or tenant discrimination is not an exclusion. On some policies, it is an exclusion but can be bought back for a small premium charge. It is worth the money. I have seen cases where an upset owner simply didn’t have any avenues to sue the association so they claimed discrimination.


Earthquake/Flood


Earthquake policies can be tricky, and unit coverage again comes up as an issue. You may have purchased a limit that is equal to the full replacement value of the buildings, but then find language in the insurance contract stating that it is the intention of the policy to only cover the four perimeter walls of the structure. This is remedied by attaching the proper condo endorsements. Using an agent or broker who regularly works with condominium and homeowners’ associations should give you some peace of mind that the policy will indeed cover what it was intended to cover.


Umbrella


Umbrella insurance refers to liability insurance that is in excess of specified other policies and also potentially primary insurance for losses not covered by the other policies. The first thing to ask your agent about when purchasing an Umbrella is if it covers the Directors and Officers policy. An Umbrella simply extends the limits provided by the General Liability policy and ideally the Directors and Officers policy. They often are simply “follow form” policies that just agree to cover whatever the General Liability and Directors and Officers policies state that they will cover.


I always recommend to board members to read the exclusions section of the policy thoroughly. I also advise that they don’t panic, as many of the excluded items are added back on by endorsement. But this helps to open up dialogue so that the board members may be further educated on what the policy actually contains, and why it is written the way that it is. Be sure to interview potential agents to make sure they work with condominiums and homeowners’ associations often, so that you can develop a comfort level that items such as those outlined above are properly covered.


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