CMCA Risk Management and Insurance 3 — Questions and Answers
Question 1: 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?
- Commercial general liability (CGL)
- Workers' compensation
- Employment practices liability (EPLI) (Correct answer)
- Professional liability (E&O)
Correct 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.
Question 2: Under an 'occurrence' based liability policy, when must the triggering event happen for coverage to apply?
- The claim must be filed during the policy period
- The injury or damage must occur during the policy period regardless of when the claim is made (Correct answer)
- Both the occurrence and the claim must happen during the policy period
- The policy period is irrelevant as long as premiums were paid
Correct 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.
Question 3: What is the significance of a 'waiver of subrogation' endorsement in a contract between an association and a contractor?
- It allows the contractor to cancel the contract without penalty
- It prevents the insurer from suing the contractor after paying the association's claim (Correct answer)
- It increases the coverage limit for contractor-related claims
- It transfers the deductible obligation to the contractor
Correct 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.
Question 4: Which of the following best describes 'loss assessment coverage' available to individual unit owners?
- Coverage for damage to the owner's unit caused by a neighbor
- Coverage that pays a special assessment levied by the association due to an uninsured loss (Correct answer)
- Coverage for the owner's share of the master policy deductible only
- Coverage for loss of rental income when a unit is uninhabitable
Correct 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.
Question 5: 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?
- $2.5 million (Correct answer)
- $3.5 million
- $5 million
- $1 million
Correct 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.
Question 6: Why should a community association conduct a formal risk assessment at least annually?
- It is required by all state condominium statutes
- To identify new or changed exposures and ensure insurance coverage remains adequate (Correct answer)
- To satisfy lender requirements for association-secured mortgage loans
- To qualify for lower premiums from all insurers automatically
Correct 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.
Question 7: What is the function of a 'claims-made' liability policy compared to an 'occurrence' policy?
- Claims-made covers only property damage; occurrence covers only bodily injury
- Claims-made requires both the incident and the claim to fall within the policy period or extended reporting period (Correct answer)
- Claims-made policies have higher premiums but broader coverage
- Claims-made policies automatically include a tail endorsement at no extra cost
Correct 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).
CMCA Risk Management and Insurance 3
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?