One of my favorite events put on by Community Associations Institute (CAI) National every year is the Law Seminar. Here are a couple of take-aways that we at Berg Insurance Agency think you might find interesting:

Atain Specialty Insurance Company v. Lake Lindero Homeowners Association, 2020 WL 7416169 (C.D. Cal. 11/25/20)

In this case, the association answered “no” to two questions concerning 1) knowledge of any claim or suit against the insured or 2) knowledge of any fact or circumstance which may result in a claim, however there were two complaints against the association: one from the Department of Alcohol Beverage Control about misuse of the association’s liquor license, and the other from the California Water Resources Control Board, which had resulted in some repairs and a special assessment. The insurance company filed suit to rescind the policy (stop covering the association) based on these misrepresentations on the application. In court, the insurance carrier needed to prove that these were “material” misrepresentations in order to break the contract with the association. The carrier said that it would not have written the policy if the correct answers had been given, and they were allowed to stop coverage for Lake Lindero HOA.

Takeaway: If an insurance carrier has a question on an application, assume that it is “material” and be sure to answer it correctly.

Another interesting conversation centered around the use of certified appraisers to come up with building cost estimates to use when insuring, and generally engaging in risk management for, an association. We have certainly seen the provision included in an association’s CC&Rs, presumably to give the board of directors clear authority to spend the money to get a third-party opinion about the costs associated with rebuilding after a large loss.

What insurance professionals across the country were encountering, however, was that certified appraisers were coming in low on their building estimates. Why would that be? There were many factors that included items like not including the foundation or architecture fees that would be charged by the local government. Another reason was that certified appraisers often rated the construction costs based on “new” construction instead of “reconstruction,” which brings the number low, as well. Since this is a number that the association would like to rely on in order to have enough insurance and reserves to rebuild their association, underestimating can lead to some rather severe financial hardships.

Takeaway: We know that you may be required by your governing documents to obtain this appraisal, so be sure to loop in your insurance provider in order to prevent being left in the lurch.

Kimberly Lilley, CIRMS, CMCA is the Director of Business Development for Berg Insurance Agency and can be reached at kimberly@berginsurance.com