Frequently Asked Questions
COMPANY POLICY AND PROCEDURES
No. We’ve always been concerned about a potential conflict of interest if our office decided to write both the Association’s coverage and the coverage on the individual unit. As insurance brokers, our job is to be an effective advocate for our clients if there is a dispute on a claim. If we wrote both policies, how could either one be assured of our allegiance? So we’ve decided to only represent the Association’s interest. In this way, there’s no question of loyalty.
It depends on a number of factors,* but in order to get your Association the most competitive terms, we will need to allow enough time to properly exhaust the marketplace. Additionally, correctly addressing coverage for common interest developments is a complex task. To do an earnest job, we need to review the CC&Rs, gather detailed underwriting information such as square footage and photos, prepare estimated values, and review the loss history. Then we can evaluate which of our available markets may represent viable candidates for the Association’s coverage.
On earthquake submissions in particular, the carriers need to assess additional factors (e.g. determine the distant to faults, the type of parking, the susceptibility to liquefaction, the type of soils, etc.) . The carrier’s need to also assess their own appetite for business in a particular location based on prior placements of earthquake coverage and their own accessibility to reinsurance.
Ultimately, whether we are quoting master or earthquake coverage (or both!), we are approaching multiple facilities, awaiting their feedback, and going back to them to negotiate terms before preparing our final presentation to the board. Together with our underwriting efforts, this process generally takes about two weeks from start to finish, but it can take more or less time depending on your account’s individual circumstances.* (For earthquake insurance inquiries, we can usually offer a preliminary indication much more quickly (within 2-3 business days), to provide you with a general idea of the ballpark pricing before we embark on a full-fledged marketing effort.) All this to say, any time you can provide us with a specific deadline (we call this a “need-by date”), that’s enormously helpful!
*Size, renewal date, unique exposures and recent and/or open claims are some of the factors that can influence our turnaround time.
Unfortunately, no. As indicated above, the number of variables at play make it nearly impossible for us to provide you with a fair and legitimate proposal during a single phone call.
However, we are more than happy to have an initial phone call with you and take down some basic information that we will use to help find the best quote to suit your needs.
No coverage can be bound or altered through this website.
If the Association has a Master Policy covering the residential buildings, do I still need to purchase individual coverage?
Yes. Even when the Master Policy is written on a broader “All-In” basis, maintaining a Condominium Unit Owner Policy (HO6) is absolutely essential for individual owners in the development. When properly written, an HO6 addresses five (5) important coverages:
(1) Real Property
(3) Loss of Use
(4) Premises Liability
(5) Loss Assessment
Absentee owners are especially in need of individual coverage. As landlords, they may be sued if a tenant, guest, or invitee is injured inside the unit, and they also would need protection for loss of rental income (called “Loss of Rents”). For more information on this, see our helpful video here.
I’ve heard that I can only buy earthquake coverage from California’s State-run earthquake program (California Earthquake Authority) if the Association has coverage. Is that true?
False. The California Earthquake Authority (CEA) offers coverage to individual unit owners regardless of whether the Association has purchased any amount of coverage or is currently without any coverage at all.
No. With respect to master/ fire insurance, there is a great deal of standardization in terms of the perils insured (most “Special Form” policies are virtually identical in terms of the covered causes of loss), but many coverage extensions have divergent sub-limits or limitations. For example, the coverage available for Sewer or Drain Backup, Ordinance or Law, Equipment Breakdown or Outdoor Property (to name a few) can be quite different from one policy to another. Carriers often have proprietary endorsements, that may expand OR limit coverage, based on their risk appetite and their individual filings with the Department of Insurance.
As for commercial earthquake insurance, there is far less standardization, and in many cases, the entire policy forms are proprietary in nature and unique to the facility from whom it is purchased. In some cases, it might be an earthquake-only policy; in others, it may include the perils of earthquake, earthquake sprinkler leakage (EQSL), and flood.
For BOTH master/fire and earthquake policies, the scope of the building coverage provided to the Association can and does vary. Depending on the carrier,
• The policy may provide only “bare walls coverage,” or
• It might insure the interior finishes only up to the kind and quality as those originally installed at the time of the project’s development (referred to as “original builders specs” coverage), or
• It may be an “All In” policy which includes affirmative coverage for permanently attached unit owner betterments and improvements, or
• It may defer to the Association’s insurance obligations*, as set forth in your governing documents, and only cover unit interior real property to the extent that the Association is required to insure such property. (*In rare cases, it may even look to the maintenance and repair obligations, which would likely translate to a “bare walls” policy.)
Finally, coverage for appurtenant property features (such as underground utilities, pools, paved surfaces, etc.) can differ by insurer as well, and of course this commentary is NOT exhaustive – insurance policies are detailed contracts, so there are myriad opportunities for diversity. Each policy, along with its forms and endorsements, should be reviewed carefully for a complete picture of its terms, conditions, limitations and exclusions.
Does our Association’s earthquake coverage have to be with the same agent or broker that writes the underlying fire insurance?
No. Actually, you’ll find that the coverage is often split between two different brokers. There are can be advantages to having two different brokers and adjusting teams involved in your loss. A fire that could follow an earthquake event is a very real concern. The agent/broker writing the Association’s Master fire policy would respond only to those portions of the premises impacted by fire, while the earthquake insurance broker (and their adjusting team) would be able to just concentrate on the resulting earthquake damage.
Deductible provisions in earthquake policies will vary from carrier to carrier, but yes, they are commonly expressed as a percentage. In these policies, the language will typically call for the percentage deductible to be applied separately to “each” affected building or structure. To clarify, the percentage deductible is not applied to the amount of the damage, but instead to the value of the structure damaged. Having the deductible applied separately is actually a valuable approach.
For example, let’s look at a project consisting of four 10-unit buildings. If only two buildings are damaged, the deductible is only applied to the value of those two buildings, instead of being applied to the value of the entire project.
What’s the difference between non-admitted carriers and admitted carriers? Are non-admitted carriers considered to be non-regulated?
Non-admitted carriers (often referred to as “Excess and Surplus Lines” insurers) are subject to some review by the California Department of Insurance, but not held to the same level of scrutiny as carriers domiciled in California (called “admitted” carriers).
Non-admitted carriers have the flexibility of using their own manuscript forms and rates without prior approval by the Department of Insurance. Admitted carriers must have their rates and forms approved prior to writing.
Non-admitted carriers must be placed on the List of Approved Surplus Line Insurers (LASLI) maintained by the California Department of Insurance, but also non-admitted carriers do not have insolvency protection that policyholders who use admitted carriers are able to benefit from. Keep in mind that the California Insurance Guarantee Association (CIGA) limits protection to California-admitted policyholders to only $500,000.
For a more extensive overview of this topic, see our helpful Article here.
No. At the time of this writing, there are four (4) CA-Admitted carriers writing new, commercial earthquake insurance business in California, but they have limited capacity and specific underwriting appetites. This means that, depending on the details of your particular account, there may or may not be a viable Admitted option available.
Why is our property management company named as an “additional insured” on the Association’s liability policy? Don’t they have their own coverage?
Since the manager is frequently acting at the direction of the Board, a typical management contract requires the Association to “indeminify” and hold the manger “harmless” for all circumstances which might arise from their management services, except for instances of gross negligence or willful misconduct. By requesting that the management company be named as “Insured” on the Association’s general liability and D&O coverage, the Association has, in effect, helped to “fund” the defense and indemnity responsibilities (to the degree that coverage is available) that they have contractually agreed to provide.
There are numerous circumstances in which the Association might be deemed to be the employer at the time of loss. For more information on this, see our helpful video here.
A recent landmark California Supreme Court decision from May 11, 2018 radically restricts the opportunity to name workers as “independent contractors” which greatly increases the likelihood the Association could be deemed the Employer at the time of loss.
The safest steps to obtaining the right coverage include:
(1) Purchase coverage from an insurance agent/broker that specializes in coverage for common interest developments; and
(2) Have him/her review the CC&Rs and the state laws to warrant that the coverage is in compliance both with the Association’s governing documents and the applicable portions of the civil code.
The Board has an obligation to purchase coverage that meets or exceeds the insurance requirements set forth in the governing documents. To fail to purchase the right coverage may open the Board up to lawsuits from disgruntled owners which, depending on the nature of the complaint, may or may not be covered by the Directors & Officers Liability coverage.
Is it safe to assume that our policy complies with all of the insurance provisions set forth in our CC&Rs?
In the best of circumstances, the Association’s policies would meet or exceed the minimum insurance requirements of the Association’s Covenants, Conditions and Restrictions (CC&Rs). Unfortunately, this isn’t always possible: some documents have technical inaccuracies, many require coverages that simply aren’t commercially available, and some even call for provisions that aren’t necessarily in the Association’s best interest.
In some cases, the best answer may be an amendment or restatement of your governing documents, and if this is your situation, we urge you to have a knowledgeable insurance agent/ broker review the draft language of the Insurance Section before finalizing.
Regardless, you should always provide your insurance agent/ broker with a copy of your CC&Rs, and he/she should certainly be willing to review the Insurance Section with you and discuss the extent to which your current policies are in compliance. If there are any discrepancies that CAN be remedied, they should be addressed right away. As for any provisions that are either unobtainable or undesirable, your legal counsel can advise you regarding the best remedy, whether that be an amendment, a notice to the membership, or some other action.
GENERAL COVERAGE INFORMATION
What’s the difference between a “Captive Agent” and an Independent brokerage firm like the CLINE AGENCY?
Captive agents are contractually obligated to represent one or more carriers owned by a single company. State Farm, Farmers, and Allstate are examples of companies who rely on captive agents. Conversely, independent agents or brokers often have access to numerous companies and therefore have increased flexibility to craft a customized (and competitive!) program best suited to your unique coverage needs.
Yes, higher financing rates are usually a result of your insurance agent or broker trying to sneak in an undetected fee in the finance agreement. The fee is usually disclosed in the fine print of the agreement. We don’t believe this is equitable or fair. The only fee you’ll incur when setting up financing with the CLINE AGENCY is the actual cost of financing (expressed as an Annual Percentage Rate, or APR – although most finance agreements are usually one down payment followed by nine or ten monthly installments, totaling a 10- or 11-month period).
While this is a very common concern, it actually has no basis in reality. According to the Insurance Information Institute, the Northridge Earthquake (January 17, 1994) was the costliest earthquake in U.S. history in terms of insured losses (both actual and adjusted for inflation) with a total of $20 Billion (2013 USD) in insured losses. While 20th Century Insurance came close to collapsing under the weight of their earthquake claims, there were NO carrier insolvencies resulting from that event. Every carrier (including 20th Century) made good on their obligations to their policyholders. Fast-forward 20 years, and present-day carriers have extraordinarily sophisticated computer programs at their disposal which help them manage their accumulations along known fault lines. This, combined with greater reliance on risk transfer (through both reinsurance and emerging capital market alternatives), increasingly vigilant regulation both by the state and by independent rating agencies, and the unprecedented amount of surplus funds available in the current marketplace, significantly reduces the probability that any well-rated carrier will find themselves over-exposed after the next earthquake.
From an insurance perspective, how does the “flood” that normally occurs on dry land differ from a flood that might occur from an overflow of a bathtub, shower, or toilet?
The National Flood Insurance Program (NFIP) defines “flood” as “a general and temporary condition where two or more acres of normally dry land or two or more properties are inundated by water or mudflow.” That’s different from domestic flooding type events (which the industry refers to as “accidental water discharge”). This domestic flooding includes such things as burst supply lines to the “bathtub, tub or toilet.” The latter events (when instantaneous in nature, and not due to “leakage and seepage” over a 14-day or longer period of time) are typically covered on a standard property policy, while a “flood” event as described by the NFIP requires specialized flood coverage. While the following are not technical definitions, a good shorthand tends to be to think of the first type of flood as water moving horizontally into the building from an external source (typically excluded), versus the second type of flood as water moving vertically within the building (often covered, subject to limitations set forth in the policy).
A Broker of Record letter (sometimes referred to as a “BOR”) is a letter signed by a policyholder (or potential policyholder) appointing a new broker. A BOR is typically addressed to one or more carriers or underwriting facilities. The insurance carrier(s) receiving the BOR will typically give the incumbent broker a period of time (usually five business days) to have the letter rescinded, in case of a misunderstanding.
Do insurance requirements vary from state to state? (For example, are the insurance requirements the same in Texas as they are in California?)
Unfortunately, there is no state-to-state consistency. The Uniform Condominium Act (UCA) was drafted in 1980 by the National Conference of Commissioners on Uniform State Laws to provide the needed uniformity, but the current law pertaining to condominiums remains incomplete in most jurisdictions. Even those jurisdictions which have pioneered condominium legislation have not developed fully comprehensive acts.
No. We are not attorneys and none of the information contained in this website should be relied upon without review by your own legal counsel.
If the Association follows the info contained on this website, can they assume that they are in compliance with their governing documents or applicable state law?
Unfortunately, no. Governing documents (CC&Rs and By-Laws) will vary, as will applicable state law. Recent legal decisions can also have an impact on governing a common interest development.
Where this website provides a description of a policy form, condition, or exclusion, can I expect my Association’s policy to contain identical language?
While the Insurance Services Officers (ISO) provide some consistency, carriers portray great diversity when it comes to policy forms, endorsements, and exclusions. We always recommend you work with your insurance professional to make certain you have the right coverage for your needs.
As a reminder, this website contains only a general description of coverage and is not a statement of contract. For a more detailed description of your policy limitations and exclusions, please consult the policy itself.