Risk Management and Insurance Flashcards

A community association decides to self-insure its $5,000 deductible by not purchasing a separate deductible buy-down endorsement. This strategy is best described as:

Answer: Risk retention

Retaining the financial impact of the deductible internally rather than shifting it to an insurer is a classic example of risk retention.

Which of the following is typically covered under a community association's commercial general liability (CGL) policy?

Answer: A visitor's bodily injury sustained in a common-area slip-and-fall

CGL policies cover third-party bodily injury and property damage claims that occur on association-controlled premises, such as common-area slip-and-falls.

What key factor determines whether a loss to a unit owner's improvements should be covered by the master policy or the owner's HO-6 policy in a 'bare walls-in' master policy structure?

Answer: Whether the improvement is original construction or an owner-added upgrade

Under bare walls-in coverage, the master policy covers only original construction; owner-installed upgrades and betterments must be insured by the owner's HO-6 policy.

An association's governing documents require that reserve funds be used only for capital expenditures. After a major uninsured hurricane loss, the board wants to use reserves for repairs. What should the board do first?

Answer: Obtain member approval via a special meeting to authorize using reserves for the loss

Reserves restricted by governing documents generally require member approval to be used for purposes outside their defined scope; a properly called meeting ensures legal compliance.

When reviewing certificates of insurance from a vendor, which element is most critical for an association manager to verify?

Answer: That the association is listed as an additional insured and coverage limits meet contractual requirements

Confirming additional insured status and adequate limits ensures the association has direct coverage rights under the vendor's policy if a claim arises.

What does 'agreed value' coverage mean on a community association property policy?

Answer: The coinsurance requirement is suspended and the insurer pays the full agreed limit in a total loss

Agreed value coverage eliminates the coinsurance penalty; in a covered total loss the insurer pays the full stated limit without applying a coinsurance formula.

Which coverage gap does a 'law and ordinance' endorsement address for community associations?

Answer: The increased cost to rebuild damaged property to current building codes after a covered loss

Law and ordinance coverage pays the extra costs of complying with current building codes when repairing or rebuilding after a covered loss, costs standard property policies exclude.