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									                   Community Association Risk Management

                                        By: Todd A. Sinkins, Esquire


    s we reported in May of this year,                                    the steps that an association can take to
A   several changes have occurred in the
    community        association   insurance
                                                                          minimize any possible liability issues that
                                                                          may be present on the property. In order to
market.     Consequently, as the cost of                                  reduce the risk of a liability claim against
insurance continues to skyrocket throughout                               the association’s policy, we recommend that
the industry, we recommend that our                                       the association contact their insurance
community association clients engage in                                   carrier to request a risk management survey
various risk management techniques to                                     of the association’s property.              The
attempt to reduce their association’s                                     association’s insurance carrier should be
financial exposure from incidents that occur                              willing to come to the association and advise
on the association’s property.                                            the association of the potential liability risks
                                                                          that may be present on the property. The
While it is great to have insurance coverage                              insurance carrier may also outline remedial
to protect the association against a claim, it                            measures that the association may wish to
is also important to protect the association’s                            take in order to reduce these risks.
insurance policy from repetitive or frivolous
claims. Generally, when an association                                    In addition, the association should attempt to
submits a number of claims to its insurer, it                             control risk in anticipation of the day that a
may either lose its coverage or the cost of                               claim is filed. In particular, risk control
the association’s insurance policies will                                 requires the association to maintain up-to-
increase substantially.         Therefore, we                             date records and to inspect the property
recommend that our community association                                  periodically.     It is important that the
clients engage in the following risk                                      association retain its maintenance records to
management techniques: 1) risk avoidance;                                 show that the association has not been
2) risk control; and 3) risk transfer.                                    negligent in its maintenance duties on the
                                                                          property. Likewise, a log of the inspections
Risk avoidance is obviously an important                                  of the property should be kept to document
step for any community association to take                                that the association’s Board of Directors and
to avoid claims. Risk avoidance focuses on                                management have been inspecting the


                     8133 Leesburg Pike ? 9th Floor ? Vienna, Virginia 22182 ? (703) 790-1911 ? Fax: (703) 848-2530
                                                                                                                       August 2002
2   Rees, Broome & Diaz, P.C.


property on a periodic basis. Again, these                                 property.     Increasingly, some insurance
records will demonstrate that the association                              companies have begun to change their
has not been negligent in its oversight of the                             individual homeowner policies to provide
property.                                                                  coverage only when the Association’s
                                                                           master policy deductibles are not covered.
A third important step the association can                                 That would mean that even though an owner
take to minimize the risk that claims are                                  may have their own individual coverage for
filed under its insurance policies is to                                   their unit or dwelling, their policy would not
transfer insurance risks from the association                              cover the owner’s loss unless a claim is filed
to the individual members. This is most                                    under the Association’s master policy. Even
easily done in a condominium setting, where                                then, the amount covered by insurance
the association can take steps to make                                     would
community association members responsible                                  be limited to any master policy deductible.
for the insurance deductibles incurred by the                              Nevertheless, passing some of the
association. In particular, if an association’s                            association’s insurance costs to its members
governing documents permit it, an                                          by enacting an insurance deductible policy
association may specify through an                                         resolution may reduce the overall number of
insurance policy resolution that individual                                claims filed under the association’s
owners are responsible for any losses that                                 insurance policies and such a policy
arise as a result of conditions that exist on                              provides members with an outline of the
their property or that are caused by the                                   Association’s insurance claim procedures.
negligent maintenance of their property.
                                                                           Unfortunately, this is only a brief
The association should also advise                                         description of various issues that your
individual members that they should obtain                                 association may wish to examine. If you
independent insurance coverage for their                                   have any additional questions on risk
units or homes to provide protection against                               management or insurance, you may contact
any physical loss that may occur on their                                  any one of our community association
                                                                           attorneys.




                      8133 Leesburg Pike ? 9th Floor ? Vienna, Virginia 22182 ? (703) 790-1911 ? Fax: (703) 848-2530

								
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