By Tressa Bishop, MBA, CIC, CB Insurance
A community association manager’s job is rewarding, but it’s not without risk. Today’s management professionals do much more than just focus on taking good care of the properties. They also act as accountant, human resource manager, complaint mediator, law enforcer, property inspector, real estate guru, insurance consultant, and much more. With such a wide array of responsibilities, many community managers worry about whether they’re protected against mistakes or oversights that could come back to haunt them in the form of lawsuits. Errors and Omissions (E&O) and Commercial General Liability (CGL) insurance help protect against financial losses that are directly related to mistakes made by managers.
How can I be sued even if an error was truly a mistake?
Let’s be honest, anyone can be sued for just about anything. Even though you do the best for the associations you serve, there may be situations where you find yourself in a bit of hot water whether you did what is alleged or not. This is why the liability policies all include defense language similar to "the insurer will defend whether the allegations are frivolous, false or fraudulent.” Imagine each of the following scenarios:
- Manager had a vehicle towed at an association they manage. Owner sued claiming that the vehicle was towed in violation of the declarations. They also added that you discriminated against them, because they were a minority, old or disabled.
- A tenant fell and was injured on an uneven walkway. The investigation revealed that the manager hired an unlicensed contractor to install it. The tenant sued the manager to cover medical costs and lost wages associated with the injury.
- The same scenario as above, but the unlicensed contractor was also uninsured and the subcontractor was injured on the job.
- A manager is accused of mismanaging an association’s funds following a construction defect lawsuit settlement. The HOA is currently wrapping up an accounting audit and is planning to sue the management company.
- A manager didn’t handle an eviction notice properly, resulting in a wrongful eviction lawsuit.
- The manager's employee walked away with a laptop that included the personal data of all its managed associations.
No matter how well trained, experienced, and meticulous managers strive to be, there’s a good chance that one day they could still be sued. Mistakes happen. Not only do mistakes happen, but challenging association members happen. There’s no way to guarantee that you’ll ever be fully protected from risk.
I have an “indemnity agreement” or “hold harmless provision” in my management agreement with the association. Doesn’t that mean I’m already covered?
No. Indemnity agreements and hold harmless provisions under general liability policies typically only cover bodily injury, property damage, personal injury, and advertising injury claims. Further, they generally require the manager to spend his or her own money to defend a lawsuit or a claim, then apply for reimbursement later. There’s no guarantee that the reimbursement will ever be received. If this should happen to you, you could drain your bank accounts with no promise of recouping the costs. The less considered unintended consequence is that not only will you be seeking indemnity to recover your costs, but you will be seeking it for "your" mistake from "your" client.
I’m already covered through the community association’s Directors and Officers (D&O) liability policy. Do I really need E&O insurance?
In Colorado, Community Association Managers (CAMs) are licensed. All licensed professionals require E&O insurance and, if you do not have it, it is imperative that you disclose that to your client or prospective client in the management agreement or other notice.
Many management professionals don’t realize that D&O policies don’t provide coverage if the community association itself sues them. You would need to purchase a separate E&O policy to protect yourself against this circumstance.
You should keep in mind that not all D&O policies are the same with respect to coverage for management professionals. Some do not provide any coverage for the CAMs, some only provide coverage pursuant to the express services stated in a written management agreement, and some provide coverage as long as there is an agreement, whether written or not.
If you own a management company that has employees, you should be aware that there is no D&O policy on the market that will provide coverage for a management professional when their employee brings a claim against the management professional or company. Employment practices liability coverage is needed to protect against this type of exposure (this can be added to an E&O policy).
Why do I need CGL coverage? Isn’t E&O coverage enough protection?
Managers need both Commercial General Liability (CGL) and professional liability (E&O) coverage. The CGL policies that the associations carry naming the manager/management company as an additional insured have exclusions that may prevent the manager from being covered. Specifically, most CGL policies include a professional services exclusion.
The association CGL is there to protect the management professional if its services or lack of services caused a third party bodily injury (BI) and/or property damage (PD). Most E&O policies will expressly exclude BI and/or PD, although there are a few policies that provide "contingent BI/PD” when the damage arises out of the management professional’s act, error, or omission.
Are all E&O policies the same? Can’t I just purchase the cheapest policy?
Errors and Omissions insurance is designed to protect managers against claims such as discrimination, wrongful eviction, class action suits, hiring unlicensed contractors, and other actions. Just like all insurance, the cheapest policy is often the cheapest policy. Not all policies are created equal, so below are some questions to ask when shopping for an E&O policy:
- Does the policy include non-monetary relief, investigations, or regulatory proceedings?
- How long do I have to report a potential claim? 30 days, 60 days, 90 days?
- Does the definition of loss in the policy include punitive damages?
- Does the policy include class action lawsuits?
- Does the policy include tenant discrimination claims? Is this included or extra?
- Does the policy include independent contractors?
- Does the policy include employment practices coverage and if so, is it included or is it extra?
- Does the policy include contingent bodily injury and or property damage coverage?
Unfortunately, we live and work in a society that’s increasingly susceptible to legal complaints. And, like other service professionals, managers must wear multiple hats, with no room for mistakes. Therefore, managers should view Commercial General Liability and Errors & Omissions insurance the same as any other cost of doing business. These policies should give you comfort in knowing that you have protection against claims of wrongdoing - no matter how careful you are in trying to prevent them.
Our team at CB Insurance is solely dedicated to Colorado’s unique association insurance marketplace. When you work with one of our qualified insurance professionals, you can be assured that you’re getting the coverage you need - so you can focus on caring for your associations, satisfying your current clients, and attracting new ones. Call us today to begin your insurance review!
Sources include:
http://mcgowanprograms.com/wp-content/uploads/sites/2/2016/03/EO-Exposure.pdf
http://www.ihginsurance.com/Pages/Community-Manager-Errors-Omissions-Coverage.aspx
The information in this article does not change or amend any actual policies. The terms, conditions, exclusions and endorsements of policies will apply. Every policy and every claim is different.
