Picture a condo board that just received an engineer’s report flagging deteriorating supports on its exterior walkways. The association’s reserves can’t cover the repair. A month later, the board president signs the association’s insurance application. The report changes how the board should answer two questions on that form: whether planned projects have funding, and whether anyone on the board knows of facts that could lead to a claim.
If you place condo board insurance through Kevin Davis Insurance Services (KDIS) for an association that wants management liability, crime, and cyber coverage together, you can submit one application for all three. The board answers each question once, and those answers inform the underwriting for every coverage on the form. Knowing what each question measures helps you catch problems before your client signs.
Start With the Money
KDIS administers the Community Association Management Multi-Coverage Application. Its financial section asks a look-back question: Has the association had a negative fund balance at any point in the past three years? If the balance is negative or inadequate, the board also needs to attach its latest fiscal year-end financial statement, so ask for those statements early.
Then the form looks ahead. It asks about renovation or improvement projects that are in progress or under consideration over the next 12 months. If there are any, the board states whether their total value exceeds $100,000 and whether the work is fully funded or has proper reserves set aside. The walkway repair would get a “no” on funding.
Why does an underwriter care? An association that can’t pay for a major project out of reserves has to raise the money another way or wait. The board can levy a special assessment, raise dues, take out a loan, or postpone the work. Owners can challenge an assessment, a dues increase, or loan terms by alleging the board breached its duties. Postponing leaves the deteriorating condition in place, and owners can allege the board failed to maintain the property. Breach-of-duty and failure-to-maintain allegations both target the directors’ decisions, and D&O coverage responds to claims of wrongful acts by directors. An unfunded project shows the underwriter where a future D&O claim could start.
Who Can Touch the Reserves?
Reserve accounts come up again in the crime section, but here the question is control, not funding. The form asks whether the board regularly reviews the reserve fund balance and whether the property manager can withdraw from reserve accounts. Board review tells the underwriter whether someone besides the manager would notice an unauthorized withdrawal.Â
Withdrawal authority tells the underwriter whether the manager could make one. The underwriter weighs both controls when evaluating the association’s crime coverage. Before your client answers, check the management contract and the bank’s signature authorizations. Those documents show who has access to the money.
What the Board Knows
Back to the walkway report. Once the money questions are answered, the form turns to what the board knows, and it asks a prior-knowledge question in two places. The first version appears in the liability section. It asks whether anyone the policy would cover, such as directors and officers, knew of anything that could reasonably lead to a claim. The question applies to what they knew when the association first bought D&O and employment practices coverage, which may have been years ago. The form’s final question asks the same thing about what the board knows now, so a report the board received last month falls there.
So should the board list the report? Yes. If the board leaves it off and a related claim comes in later, the insurer could argue the board withheld a known circumstance and challenge coverage for that claim. Listing the report in the Additional Information section lets the underwriter set terms with the full picture.
The form also asks about the past. The new-business application requests five years of claims, litigation, or proceedings within the scope of D&O and employment practices coverage, whether insured or not. A carrier’s loss runs show only claims reported to that carrier, so ask your client about uninsured disputes, too.
Want a closer look at how reserve studies, inspections, and coverage fit together? Kevin Davis joins Robert Nordlund on Oct. 14 for “Reserves, Insurance, and Building Inspections: How They Work Together,” hosted by Association Reserves. Register for the 11 a.m. or 1:30 p.m. PT session. Nordlund is the Founder and CEO of Association Reserves, a registered Professional Engineer, and a credentialed Reserve Specialist.Â
Why the Signature Clause Counts
Every answer on the form becomes part of a contract when the board signs. The signature clause does three things:
- First, the signer confirms the answers are true and complete to the best of their knowledge and belief, after reasonable inquiry. In practice, the signer needs time to check with the board, the manager, and the association’s files, so build that time into your submission schedule.
- Second, except in North Carolina and Utah, the application becomes part of any policy issued. A wrong answer becomes a wrong term in the board’s condo board insurance policy, the same contract the board will rely on when a claim arrives.
- Third, the applicant agrees to tell the carrier about material changes. If a new inspection report comes in or a project loses funding after signing, the answers change. Ask your clients to send you those updates so you can pass them along.
Preparing Boards Before They Sign
Before the board signs its condo board insurance application, gather the documents behind each answer.
- Financial statements: The latest fiscal year-end statements
- Reserve study: The study’s current level and date
- Inspection reports: Every report the board has received and each finding’s status
- Project list: Scope, estimated cost, and funding source for the next 12 months
- Banking authority: Who can withdraw reserve funds and how often the board reviews the balance
- Claim history: Five years of loss runs plus any uninsured disputes
Several items on that list, including the reserve study, inspection reports, and project funding, are the focus of the Oct. 14 webinar on how reserves, insurance, and building inspections work together. You can find current forms on the KDIS applications page or reach the team at (855) 790-7393.
About the Author
Kevin Davis is President of Kevin Davis Insurance Services, Inc. (KDIS) and managing general agent for Travelers Insurance — one of the largest specialty insurance writers for community associations in the United States, currently insuring more than 40,000 associations nationwide. With three decades in the insurance industry — 25 of them devoted exclusively to community associations — Davis brings rare depth of expertise to a highly specialized field. He founded KDIS in 2000 with a two-person team and has since built it into a firm of more than 65 employees, establishing the company as a trusted leader in its market. A nationally recognized authority on loss prevention, Davis writes and speaks regularly on the subject. He also serves as a faculty member for Community Associations Institute (CAI) training programs throughout the country.
About Kevin Davis Insurance Services
For over 35 years, Kevin Davis Insurance Services has built an impressive reputation as a strong wholesale broker offering insurance products for the community association industry. Our president, Kevin Davis, and his team take pride in offering committed services to the community association market and providing them with unparalleled access to high-quality coverage, competitive premiums, superior markets, and detailed customer service. To learn more about the coverage we offer, contact us toll-free at (855) 790 -7393 to speak with one of our representatives.