Many of you know that for the past 7 years I have raised concern over the liability our association may face if there should be an uninsured bodily injury loss caused by a rock fall on 1450 South.

I want to direct the following to the members of the Board of Directors:

What happens if for any reason the "underlying" policy denies the claim?

First, you would look to the Excess/Umbrella liability policy for coverage. In this policy there are two parts; part A and Part B. Part A basically covers over the existing underlying policy, however, if the insurance company denied coverage under part A (if coverage for the claim did not exist in the underlying policy), then the insured would have to look to Part B for coverage. In this case, Part B excludes any loss due to earth movement, earthquake, etc.

*Somewhere I heard "It doesn't matter if our other policies deny our claim, we have an umbrella policy that covers everything". I don't recall who said this, but it simply is not true.

Now the Board of Directors has a problem.

If the Board of Directors failed to properly insure a known risk, and if at the time of a loss the carrier denied coverage on all possible policies, (Underlying, Part A Excess and Part B Excess) then the Board of Directors has a problem. Actually, they have approximately 470 problems, since all, or nearly all, homeowners would sue the board for their failure to properly insure this risk, and none of them could say they were not aware - I have been making them aware for years.

So, wait - you may say there's no problem since the Board of Directors has purchased a D&O (Director's and Officer's Policy), and the umbrella would surely cover over the D&O, right?

Wrong.

While the umbrella has a limit of $10,000,000 per occurrence, the umbrella does not include D&O in the Schedule of Underlying Insurance, meaning to say the umbrella does not cover over the D&O policy.

Now what?

Since the known risk and the problem with continual falling rocks existed before the effective date, prior acts date, and even in the event when the D&O provides "Full Prior Acts", a problem may exist with the knowledge each of the Board of Directors had when the application for insurance was completed - was full disclosure indicated on the application? Which brings up another question, was full disclosure indicated on the Underlying Policy and the Umbrella Policy?

At that time, the board of directors would have no choice other than sending each homeowner an assessment for their share of the loss, and if some homeowners are not able to pay their assessment, the assessments for other homeowners may increase.

If the carriers all decline coverage, and assessments are sent to homeowners, each member of the board of directors could very well expect to be sued by 470+ homeowners, and they may very well be personally liable.*

PLEASE NOTE: I AM NOT SAYING THAT THE PROPER COVERAGE DOES NOT EXIST. I AM SAYING THERE NEEDS TO BE CONFIRMATION THAT, CONSIDERING THE CONCERNS I HAVE RAISED, THAT COVERAGE WOULD APPLY. THE ASSOCIATION SHOULD OBTAIN A WRITTEN STATEMENT FROM AN INSURANCE ATTORNEY THAT COVERAGE FOR THE ABOVE CONCERNS WOULD BE COVERED IN OUR EXISTING POLICIES.THIS EFFECTS US ALL!

*While I am an insurance broker, I am not an attorney. Board members should consult with their attorney/attorneys regarding their possible personal liability. As I have repeatedly said, the right time to confirm these concerns is before a loss - not when you are notified of a lawsuit.