Risk Management and Insurance Flashcards

A condominium association experiences a data breach exposing owners' financial information stored in its management software. Which coverage would respond to notification costs and regulatory fines?

Answer: Cyber liability insurance

Cyber liability insurance specifically covers data breach response costs, regulatory fines, notification expenses, and related losses that standard CGL policies exclude.

What is the primary purpose of requiring a vendor to provide a 'hold harmless agreement' in addition to evidence of insurance?

Answer: To contractually shift liability for the vendor's negligence away from the association

A hold harmless (indemnification) agreement is a contractual risk transfer tool that obligates the vendor to defend and indemnify the association for claims arising from the vendor's work.

Under workers' compensation law, if an association's landscaping contractor is found to be an uninsured subcontractor, what risk does the association face?

Answer: The association may be liable as the statutory employer for the worker's injury claims

Many states make a hiring entity the 'statutory employer' of uninsured subcontractors' workers, exposing the association to full workers' compensation liability.

An association's property is insured on an 'actual cash value' (ACV) basis. After a hail storm destroys the roof, the insurer pays $40,000 instead of the $60,000 replacement cost. The $20,000 difference most likely represents:

Answer: Depreciation subtracted from the replacement cost to arrive at ACV

ACV equals replacement cost minus depreciation; the $20,000 gap reflects the age and wear-related depreciation the insurer deducted from the replacement cost.

Which of the following scenarios would most likely trigger coverage under an association's 'environmental liability' or 'pollution liability' policy?

Answer: Mold discovered in a common-area HVAC system contaminating multiple units

Pollution liability policies cover bodily injury and property damage from pollutants such as mold, asbestos, or chemical releases, which standard CGL policies often exclude.

When is a community association most likely to need 'loss of assessment' income coverage?

Answer: When a covered disaster renders common areas unusable and owners refuse to pay assessments during repairs

Loss of assessment income coverage protects the association's cash flow when a covered disaster makes common facilities unavailable and assessment income drops as a result.

Which best practice should a community association follow when its master property policy is up for renewal to ensure adequate replacement cost coverage?

Answer: Obtain an independent appraisal or professional property valuation before the renewal

An independent appraisal provides an objective current replacement cost figure, preventing underinsurance that triggers costly coinsurance penalties after a loss.