COVID-19 Related Insurance Issues for Community Associations
Date: June 22, 2020
There are two major types of community association insurance coverages pertinent to this discussion. First, there is the Directors and Officers (“D&O”) liability coverage and the second is General Liability (“GL”) coverage. D&O insurance protects directors, officers and the organization itself against any claims of alleged wrongful acts when acting within the officers' and directors’ capacity. Such insurance usually does not cover bodily injury, but it would provide a defense should a unit owner bring an injunction action to force the association to open an amenity. Thus, there, most likely, would be coverage and defense should an association be sued for not opening the amenity, but there, most likely, would not be coverage should the amenity be open and a person contracts the virus. In short, claims for bodily injury caused by the COVID-19 virus will not be covered by the D&O policy.
On the other hand, the GL policy covers bodily injury claims, but many GL policies contain exclusions to that coverage. For example, one exclusion is the “expected or intended injury exclusion,” which is when the insured foresaw or intended the claimant’s injury. This exclusion applies when a reasonable person could or should expect the virus to spread because of actions taken or decisions made. Some may say that opening the amenities, such as pools, where more than ten people can gather during this pandemic may trigger the expected injury exclusion. Another exclusion is the “communicable disease exclusion,” which focuses on bacterial diseases and some viral infections. Finally, there is the “pathogen exclusion,” which not only excludes mold and fungi claims but also in some instances may exclude claims related to viruses. No court has opined on these exclusions as they relate to COVID-19-related claims. Thus, it is important that all managers and Board members work with counsel, to understand the laws of their specific jurisdiction and to minimize financial exposure to the associations.
Needless to say, COVID-19 is a serious public health threat, which has never been confronted by the community associations or their insurance companies in the past. A decision as to whether there is or is not coverage is very fact specific and depends upon the actual language of the association’s insurance policy as well as the specific facts relating to a claim. Any questions relating to coverage are best addressed by counsel who can review the association’s insurance policy, as well as applicable court decisions, to guide directors and managers in determining the scope of the association’s insurance coverage. This may avoid a potential coverage dispute with the insurance carrier, which is not in the association’s best interest.
If there is no coverage, associations must work with counsel to determine if the risks, such as the costs of defending oneself in court, outweigh the benefits of allowing a few residents to enjoy the amenities under the different re-opening phases. Unfortunately, at times, difficult decisions have to be made, even if some residents do not welcome those decisions. Working with counsel will give the members of the Board and management the legal foundation in which to address those frustrated residents so they understand the Board’s rationale.
During this pandemic, we are often asked by our clients whether they should reopen their amenities and how they can minimize their risks if they choose to reopen. Each community is different. If in doubt about re-opening, contact your association’s counsel and ask the question. If the Board chooses to re-open, counsel can assist them with preparing a plan to limit exposure, complying with the various jurisdictional orders, and ensuring that communities are safe and the amenities are enjoyed. If the Board chooses not to re-open, counsel can provide guidance and support for that difficult decision. The owners/residents may not be happy, but they will understand that the decision was made with thought, preparation, in good faith, and in the best interests of the community association as a whole.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.