This article originally published in Insurance Commentary and is republished here with the author’s permission.
Here is a liability judgment brought to my attention in the CIRMS Yahoo Group:
“A Nevada state court jury slapped a homeowner’s association with a $20 million verdict on February 15, including $10 million in punitive damages, in a lawsuit filed by a teenager who suffered a traumatic brain injury when a swing set’s metal bar broke and landed on his head.”
What are the odds that the HOA has $20M in liability limits? That means that the HOA will make very large loss assessments against its members if the judgment holds up when it is likely appealed.
Most homeowners policies include $1,000 for liability loss assessments, but that amount can be increased by endorsement. Some carriers will only go to $50,000, but others may go higher and/or offer higher limits on an umbrella policy. The premium cost to go from $1,000 to $50,000 is typically in the range of $15-$30. When my son bought a condo, the max. available was $100K and cost about $30…I made sure he bought it.
If I’m an agent quoting an HO policy, I would include the maximum assessment limit (both property and liability) in my proposal, breaking it out if necessary. Also, consider this… how many agencies carry E&O limits comparable to the liability limits (or exposures) of their customers? If you’re selling an HOA a $1M CGL and $5M umbrella, what kind of limits do you carry yourself?
If I’m a homeowner, I might consider alternative risk management techniques in lieu of or in addition to insurance. For example, avoidance if you’re a prospective home buyer… don’t buy a condo or home that is part of an HOA. Or have the HOA remove equipment of this type from the premises. Or apply loss prevention techniques such as using properly designed and maintained equipment, denying older residents access to such equipment, etc. Or consider contractual risk transfer mechanisms such as hold harmless agreements with residents, equipment sellers, etc.
This claim is a good example of how various risk management techniques, not just insurance, can converge to minimize risk. What kinds of loss assessments limits are available from your HO carriers and what are the premium costs?
Why is this important? I’ll quote from one of the last statements in my forthcoming book “When Words Collide: Resolving Insurance Coverage and Claims Disputes”:
“Never, ever forget in everything that you do professionally that the purpose of insurance is to insure and that the mission of this industry and every professional in it is to assist individuals, families and organizations in minimizing their exposure to serious or catastrophic financial loss.”
Coming May 2018.