General Liability and Umbrella Liability Insurance Coverage
 

"Are we covered?" Time and time again, this familiar refrain is repeated by anxious boards of directors contemplating any number of hypothetical claim scenarios involving the general liability coverage carried by their association. In this article, we will review the nature and scope of the coverage that is typically provided by general liability and umbrella liability insurance policies. Further, we will examine the important difference between the terms coverage and liability.

General liability coverage insures against claims arising from alleged bodily injury or property damage, including personal and advertising injury. Examples of these types of claims include slip and falls, as well as playground or swimming pool injuries. The insurance company has the duty to defend the association against any such claim alleging injury or seeking damages, regardless of whether the association is negligent. This is where we can draw our distinction between the terms coverage and liability, and in doing so, answer the question posed at the outset of this article.

If your association has the typical general liability policy in force, and someone makes a claim against the association which would be covered by that policy, the association is "covered" in the sense that the insurance company will provide the association with a defense against that claim. The insurance company will also investigate the circumstances of the loss. All of this occurs irrespective of whether the claim being made has any merit.

Should the investigation reveal that fault does exist, or should a judgement for damages be awarded against the association, then, the association having been found liable, the liability policy will provide for payment of those damages, as well. Of course, policy limits and coverage exclusions would impact any payments made. Most general liability policies allow for defense costs to be paid in addition to the limit of liability provided per each occurrence. For example, assume your association has a policy with a limit of liability for bodily injury claims of $1 million per occurrence, and that the individual making the claim wins a judgement for $1 million. Further, assume the association's defense costs in the matter were an additional $100,000. In this case, the liability policy would cover both the $1 million in damages and the $100,000 in defense costs. In short, to be covered means you have a policy in force, which will respond to and defend against a claim. Damages are only paid if liability on the part of the insured can be demonstrated.

So what are the typical coverage provisions and extensions of coverage provided by most general liability policies? In addition to bodily injury and property damage coverage, the general liability form also provides coverage for Personal and Advertising Injury. Personal and Advertising injury includes such items as false arrest, detention or imprisonment, malicious prosecution, libel, slander, defamation of character, invasion of privacy, wrongful eviction and wrongful entry. Furthermore, some policy forms may also provide coverage for humiliation claims.

Other coverage extensions may include:

·         Host liquor liability, which provides coverage for liability that may arise out of an association sponsored event where liquor is served or consumed. Coverage is afforded as long as the association is not in the business of manufacturing, distilling, selling, serving or furnishing alcoholic beverages.

·         Property damage legal liability (sometimes referred to as "Fire Legal Liability,") provides coverage for the association for property of others in the care, custody or control of the association at the time of the loss.

·         Garage keepers legal liability provides protection for automobiles of unit owners or guests that are in the association's care, custody or control, such as valet or attendant parked cars.

The board should carefully review how the association's general liability policy defines "who is an insured." Policy definitions can vary among insurance carriers. A broad definition of who is an insured would include the association, the directors & officers, the association's property manager and management firm, employees of the association and others, including association members, while acting at the direction of the board. Review the specific definitions found in your association's policy with the association's insurance agent.

Most general liability policies have occurrence and aggregate limits of liability, and it is important to understand the distinction between these terms and how they affect the total amount of coverage actually available to your association. If the policy has, for instance, a limit of $1 million per occurrence and an aggregate limit of $2 million, then the most that policy will pay for any one occurrence is $1 million. The most it will pay for all liability losses within a given policy year is $2 million.

Umbrella liability policies provide coverage in excess of general or primary liability, as well as other coverages which could include automobile liability, employers liability (work comp), and directors & officers liability. An umbrella policy takes effect when the limits of the primary or underlying policy have been exhausted. However, it is important to understand the breadth of the umbrella coverage form. The board should establish whether there is a self-insured retention which would apply to coverage not included on the primary or underlying policy. A self-insured retention limit works similarly to a deductible, and is usually ten thousand dollars, so it is important to understand the potential exposure this presents to the association.

As a result of risk management procedures, insurance carriers will often mandate loss control requirements to their clients. When the association receives information pertaining to the potential for loss which exists in the community, the board should take this information seriously, and comply with any safety recommendations made. Remember, the insurance carrier and the board both have an interest is preventing losses as opposed to simply responding to claims after they have occurred.

Boards of directors often look to the association's insurance agent for advice regarding how much liability insurance the association should carry. Most insurance professionals will resist recommending a specific dollar limit. After all, how much is enough? The amount your association will ultimately carry will depend on many factors, including risks specific to the community (pools, playgrounds, stormwater ponds, etc.,) and premium considerations. As stated earlier, there are no "one size fits all" recommendations. The most important step the board can take is to meet with the insurance agent, and review not only the general liability and umbrella liability coverage, but the complete insurance package as well. This is important because many Directors & Officers liability policies have exclusions for "failure to maintain insurance." Policy exclusions, provisions and limits can and do vary. By meeting with the agent on a regular basis, the board can advance its understanding of this coverage, and in doing so, put itself in a position to answer the question, "Are we covered?"

This article should be used as a guide for associations in discussions of these and other matters with the association's insurance agent. No article on insurance is exhaustive, and every association's circumstances are different. Use this piece as a beginning tool for further exploration into the important matter of your association's insurance program.