Dealing with Insurance Agents as a Property Manager and Association Board Member

Insurance agent relationships between property managers and association boards are important. Insurance agents are required to obtain the best coverage at the best price. The problem is when different insurance agents, competing for business, start telling property managers and association boards different things about the insurance in place and comparing insurance coverages.

Here are some basic rules when it comes to dealing with insurance agents when purchasing Association insurance:

1. Make certain the agent is given all your bylaws. In writing, ask the agent to review the by-laws and obtain quotes for the coverages and properties required in the bylaws and state statutes.

Merlin Law Group attorney Corey Harris' mother is a director at Edgewater Condominium in Destin, Florida. She has a form letter she requires any agent providing proposals to confirm in writing they have obtained the coverages required in the by-laws and as required by state law. She asks that all the Association property required to be insured not be excluded property but insured, even if by endorsement.

Often, many association policies fail to cover all association property. The policies have a section for "property not covered." If the by-laws or state law requires that property be covered, endorsements need to be added to cover things like fences, pools and whatever is required to be covered.

Exclusions and limitations of coverage can lead to a better price. It is fine to purchase "cheap" insurance if it is your own property, but Association Boards and property managers have to purchase the mandated coverage in the by-laws or required by state law and can only avoid that obligation through waivers in a manner allowed in the by-laws which usually requires notice and votes by all the association members.

2. Ask the agents to confirm in writing your understanding of what they are saying so you get away from oral promises and oral "misunderstandings." If you have a question, put it in writing. If they have an answer, it should be confirmed in writing for the benefit of all.

If you are contemplating changing agents, make certain that they have agreed to abide by the instructions as stated in point one above. Then, if they are making comparisons, ask that those only be made in writing so all board members can view them and the property manager can safely rely on written acknowledgements of coverage rather than oral promises which can be misunderstood or not complete.

Agents who will not agree to deal in writing should not be association agents. As pointed out in Homeowner Association Managers, Agents and Officers Beware - Check Insurance Requirements to Avoid Lawsuits From Individual Members!!, board members and property managers can be liable for not obtaining the proper coverage. What is often not told is that many Board and property manager errors and omission policies exclude coverage for this omission. You can be personally liable for not following by-laws. So, only deal with agents that understand your concern and your significant legal responsibility.

Liability on the Insurance Agent

A few weeks ago, Corey Harris and I briefly wrote about liability that can fall back on the insured in our respective posts, Errors in Insurance Application May Leave You with No Coverage and More on Errors in Insurance Applications. This week, presents a situation in which liability may fall back on the insurance agent. Similar to the situations mentioned the posts above, an insurance agent may be liable for errors in an insurance application, for giving improper insurance advice, or negligently failing to procure insurance for a customer. The laws vary from state to state, but generally insurance agents owe a duty to their customers, that, if breached, could make an insurance agent liable for resulting harm.

In Florida, the Supreme Court has recognized that an insurance agent may be liable to a customer under theories based both in contract and negligence. See Wachovia Ins. Services v. Toomey, 994 So. 2d 980, 990 n.4 (Fla. 2008). In Toomey, the Florida Supreme Court noted that an insurance customer may sue his or her insurance agent for negligence if:

[1] [the insurance agent] knew or should have known that the [customer] ‘wanted to purchase [an] insurance policy…;’ [2] that [the insurance agent] owed a duty to the [customer] to procure such an insurance policy; [3] that [the insurance agent was] negligent in failing to procure such an insurance policy; and [4] as a result of [the insurance agent’s] negligence, damages were suffered. Romo v. Amedex Ins. Co., 930 So. 2d 643, 653 (Fla. 3d DCA 2006).

Also in Toomey, the Court noted that an insurance agent owes a duty of reasonable care in rendering advice on insurance matters. Insurance agents generally know about this duty and purchase errors and omissions insurance (E&O insurance) to protect themselves from liability if that duty is breached.

In a recent news story out of Georgia, The Brunswick News reported that Glynn County Georgia continued paying thousands of dollars in insurance premiums for a building even after the building was razed in 2003. The county’s insurance agent admitted that his agency was responsible for a clerical error on the policy, asserting that the policy was actually intended to cover the building next door to the demolished building. The agent had reason to believe that the insurance company would have honored a claim made on the intended property, but was also quick to point out that the insurance agency “carries a significant amount of ‘errors and omissions insurance’ that would have covered a claim.” The insurance agent obviously wanted the article to be clear that his client would have been covered despite his error.

While each case depends on the specific facts leading to the problem and the particular law of the jurisdiction, generally, if it turns out that an insurance claim is denied because there is no coverage due to an insurance agent's error, the insured may able to collect from the insurance agent or the agent’s errors and omissions insurance. However, the amount of damages that may be recovered from the agent or E&O insurance is generally limited to the terms of the policy that the customer should have received. See Klonis v. Armstrong, 436 So. 2d 213 (Fla. 1st DCA 1983).