Risk Management and Insurance Flashcards

A community association's property insurance policy contains a coinsurance clause requiring 80% coverage. If the building is valued at $1,000,000 but insured for only $600,000, how does this affect a $200,000 loss?

Answer: The insurer pays $150,000 (75% of the loss)

With a coinsurance penalty, the insurer pays (amount carried / amount required) × loss = ($600K / $800K) × $200K = $150,000.

Which type of liability coverage protects a community association board member sued for making an honest mistake in their governance decisions?

Answer: Directors and Officers (D&O) liability

D&O liability insurance specifically protects board members and officers from claims arising out of their management decisions and actions.

An association's governing documents require earthquake insurance, but the board cannot find affordable coverage. What is the most appropriate course of action?

Answer: Amend the governing documents via member vote to remove the requirement

The proper legal mechanism to change an insurance requirement in governing documents is a formal amendment approved by members as required by those documents.

What does 'subrogation' mean in the context of community association insurance?

Answer: The insurer's right to pursue a third party responsible for a loss after paying the claim

Subrogation allows the insurer, after paying a claim, to step into the insured's shoes and sue the negligent third party to recover the paid amount.

A condominium association receives a claim from a unit owner whose personal property was damaged by a pipe burst in the common area. Which policy should respond first?

Answer: The association's master property policy

Damage originating from a common area pipe is typically the association's responsibility, so the master property policy responds first for structural and common-area damage.

Which risk management technique is employed when a community association requires vendors to carry their own liability insurance and name the association as an additional insured?

Answer: Risk transfer

Requiring vendors to carry insurance and naming the association as an additional insured transfers the financial risk of vendor-caused losses to the vendor's insurer.

What is the primary purpose of an association obtaining a fidelity bond (also called employee dishonesty coverage)?

Answer: To cover theft or fraudulent acts by employees or board members handling association funds

A fidelity bond protects the association's finances against dishonest acts such as embezzlement or theft by those who handle its money.