October 2010

In the middle of the night on Aug. 31, bricks began falling off the Carol Shire Commons condominium complex, according to the Carol Stream Press. By the time the fire department arrived, six decorative exterior balconies had collapsed. No injuries were reported, but 10 families were displaced.

If a sudden, dangerous situation happens in your condo or homeowners association, what steps must you take? Do you call your lawyer? Manager? Insurer? If so, what information should you report? Here we discuss the steps to take after a sudden accident befalls your HOA.

Your first call should be to…

Your first step when an accident happens at your association is to make sure no injuries occur after the fact. "The first thing you'd do would be to take steps to prevent any danger to people or property," says Robert Galvin, a partner at Davis, Malm & D'Agostine PC in Boston who specializes in representing condos and co-ops. "You may have to do something like cordon off the area so nothing harms people or property."

After the area is secure, experts are divided about whom your board should call first. "Call your lawyer first," says Elizabeth White, a shareholder and head of the community associations practice at the law firm of LeClairRyan in Williamsburg, Va. "Not every attorney has experience in dealing with association insurance coverage, so ask if your attorney has that type of experience."

Why not call your manager first? "Your association's manager doesn't know how to put your insurance carrier on notice or what to say to the carrier," says White. "A lot of times managers will overdisclose. The manager will start just talking, and that can be bad. He could say, 'We knew termites were in the building, but we hadn't inspected that overhang yet because we couldn't get into that owner's unit.' But if the manager sings like a canary to the lawyer, presumably that conversation will be privileged."

White also recommends that you think about who will take pictures, which you need to do immediately. "Who's going to have those pictures knowing they're discoverable to the insurer?" she asks. "It's better for the attorney to go out and take those pictures. Also, who's going to have custody of that information? You need all the correspondence with any involved owners to go to your attorney so your attorney can be aware of what you're doing."

Donna DiMaggio Berger, managing partner at Katzman Garfinkel & Berger in Ft. Lauderdale, Fla., who advises associations, also recommends contacting your attorney first. "Boards need to know their limitations, and dealing with insurance claims is a significant limitation," she says. "If you mishandle the claim or if someone leaks out information, it's going to hurt your ability to collect as much as your association is owed under the policy. Insurance companies are looking to pay as little on the claim as possible, and they're looking for ways the policyholder is going to screw up. Why take the chance? A lot of people will rely on the insurance adjustor, who'll say, 'You don't have a claim.' Of course they'll say that! Do it right from the beginning. Get with your attorney. That doesn't mean you have to litigate, but good attorneys understand association insurance policies."

Call your manager first

In the camp of calling your manager first is James R. McCormick, Jr., a partner at Peters & Freedman LLP in Encinitas, Calif., who represents associations. "The first and only person you should call is your manager, who should coordinate with your insurance agent or broker and your association attorney," he says. "I agree that the last thing your board wants to do is sink its case before it has a case. But the facts are what the facts are. The insurer will discover whatever it's going to discover."

McCormick says it's fine if associations want to call their lawyer first, but many boards won't want to do that. "The problem we run into today is boards telling managers, 'Don't call the attorney because we don't want to spend the money,'" he explains. "By contacting your manager first, that gives the responsibility to the manager to do what he's supposed to do, which is manage the community."

In the meantime, make sure nobody on your board makes promises to owners out of sympathy. "Don't contact the people involved," says McCormick. "Let the manager do that. The worst thing that could happen is human nature. You say, 'We're sorry. We'll take care of this. 'You're trying to be helpful, but you're really shooting yourself in the foot. Owners will think if you say such things as a board member that you're making comments or promises in that capacity, whether you have the authority to do that or not."

Making a claim properly

Be sure to read your insurance policy to make sure you take the proper steps when making a claim. "Most insurance policies make it an absolute prerequisite to coverage that you report on a timely basis," says White. "You're definitely going to need to put your carrier on notice. But often I'll get a call from a board member about an accident, and I'll say, 'We need to look at your policy so we can put your carrier on notice.' The board member will say, 'We already did that.' My response is always, 'Great, tell me how you did that.' Sometimes the policy will require written notice within a certain amount of time, and the manager has only called the agent and given notice verbally."

Galvin recommends formal notice no matter what your policy says. "Call and send a certified letter to your insurance agent," says Galvin. "State, 'On this day, this happened, and we're submitting this as a claim under our policy, number XXX.' All insurance policies provide that the insured has to cooperate. The insurance company will ask questions and investigate to see if your claim is covered and what's the appropriate amount to pay. These decisions are always fraught with a lot of controversy, but you should always answer the insurer's questions honestly."

Designate a point person to work with your insurer. "Maybe you should even create an insurance committee on your board made up of the people who are the most sophisticated about insurance," says Berger. "You want to have a tight circle of people with information to work as a liaison with the insurer. You don't want leaks. It's not the same as you or I handling a claim on our own when we don't have to rely on consensus about what to do. Some board members or owners may not want to make a claim to keep premiums down, and others are bigmouths. We've had cases where people on the board are leaking information to their friends at insurance companies."

"This is a delicate situation where you gather information that could create harm to the investigation," agrees White. "It has to be carefully managed."

McCormick says there's a bigger lesson. "Don't defer maintenance," he says. "This is what always happens when boards say, 'If we put this off, we'll save money and fund our reserves.' Wrong. Deferring maintenance isn't going to save you much money, you won't be able to put much in reserves as a result of deferring maintenance, it'll cost you the same or more to do the repairs later because of inflation, and you may have accidents like this on your head. Accidents are usually way more expensive than what you were supposed to fix in the first place."

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