Understanding the Meaning of “Claims Made” Insurance Coverage to Protect Against Claim Denials Due to Late Notification

A homeowners association must have liability insurance that covers the association as an entity, as well as its officers, directors, and volunteer committee members for claims arising from alleged action, or inaction. Such policies are commonly referred to as “D & O” insurance coverage.

D & O policies are typically “claims made” policies where, in order to trigger coverage under the policy, a claim must be tendered to the insurance carrier within the policy period. Under a claims made policy, the actual acts that are the subject a claim could have occurred years before a claim is made, but the insurance policy that provides the coverage for liability based on those acts is the insurance policy that is in effect when the claim is actually made and tendered to the insurance company.

Provisions contained in the policy may include additional restrictions that specify the time period in which the information regarding the claim, or a potential claim, must be provided to the insurance carrier. A failure to comply with the fine print that is contained in the policy regarding when notification of a claim must be provided to the insurance carrier can result in the insurance company denying coverage on the basis that the claim was not timely submitted. It is not unusual for an association’s board of directors to become aware of facts or circumstances that are clear expressions of criticism of the association or its manager, officers or directors, but not interpret the comments as an actual claim, or a situation that is likely to lead to a claim. As a result, the matter is not reported to the association’s liability insurance carrier out of fear of increasing insurance rates for claims that are not taken to the next level by the claimant, or because they are not aware of the reporting requirements in the policy that provides the coverage.

It is also important for an association’s board of directors to understand what actions, or inactions, are covered under the terms of the policy. Some D & O policies will provide coverage for claims that seek equitable relief (i.e. a claim that seeks a court declaration of rights and responsibilities, or directs the performance or nonperformance of certain acts), and some policies may only cover claims that request damages, or monetary relief. Some policies may also define a claim so broadly that it includes requests for alternative dispute resolution. In such a case, a homeowners association could have to notify its insurance carrier of all homeowner requests for ADR in order to protect against denials of coverage for claims that are submitted after an unsuccessful ADR has developed into a lawsuit.

To minimize the potential for a claim being denied because it was not tendered to the insurance company in a timely manner, it is critical for the board of directors to be familiar with what the policy provisions state regarding the reporting of actual or potential claims to the insurance carrier and the procedures that are required to be followed for the submission of claims to the carrier. Each year, the board should review the association’s current policies in order to know how to respond to claims issues that arise. Furthermore, all decisions regarding the reporting of a claim, or potential claim, to the association’s insurance carrier should be made by the association’s board of directors and not a property manager or an individual director or officer. In situations of doubt, the board of directors should consult with legal counsel for an opinion on whether or not to submit the matter to the insurance carrier, or error on the conservative side by tendering the matter to the insurance carrier.