Risk Management and Insurance Flashcards

A homeowners association hires a property manager who is later sued for discrimination in enforcing community rules. Which insurance policy would most likely cover the association's defense costs?

Answer: Employment practices liability (EPLI)

EPLI covers claims of discrimination, harassment, and wrongful termination arising from the employment relationship, which includes management decisions about employees.

Under an 'occurrence' based liability policy, when must the triggering event happen for coverage to apply?

Answer: The injury or damage must occur during the policy period regardless of when the claim is made

An occurrence policy covers events that happen during the policy period, even if the claim is made years later after the policy has expired.

What is the significance of a 'waiver of subrogation' endorsement in a contract between an association and a contractor?

Answer: It prevents the insurer from suing the contractor after paying the association's claim

A waiver of subrogation endorsement prohibits the insurer from pursuing the contractor to recover funds paid on a claim, which can preserve a good business relationship.

Which of the following best describes 'loss assessment coverage' available to individual unit owners?

Answer: Coverage that pays a special assessment levied by the association due to an uninsured loss

Loss assessment coverage in an HO-6 policy pays the unit owner's share of a special assessment the association levies because its insurance was insufficient to cover a covered loss.

An association's umbrella policy has a $5 million limit, and the underlying CGL has a $1 million limit. A judgment of $3.5 million is entered against the association. Assuming no deductible complications, how much does the umbrella policy pay?

Answer: $2.5 million

The CGL pays its $1 million limit, and the umbrella pays the remaining $2.5 million to reach the $3.5 million judgment total.

Why should a community association conduct a formal risk assessment at least annually?

Answer: To identify new or changed exposures and ensure insurance coverage remains adequate

An annual risk assessment identifies changes in the community's operations, property values, or activities that may create new exposures or gaps in existing coverage.

What is the function of a 'claims-made' liability policy compared to an 'occurrence' policy?

Answer: Claims-made requires both the incident and the claim to fall within the policy period or extended reporting period

Under a claims-made policy, coverage is triggered only if the claim is reported during the active policy period or an extended reporting period (tail).