Does Your D&O Insurance Policy Exclude Property Damages?
There May be no Coverage Available for Claims Against the Association for Allegations that Include Failing to Maintain & Repair the Property, Negligence, Breach of Contract and Breach of Fiduciary Duty.
This recently decided case highlights several legal maxims that should be more widely known, such as:
Tangible Property Exclusion - the "Non-Profit Management and Organizational Liability Insurance Policy" was for the purpose of covering "any loss ... incurred by the [Association] as the result of any claim ... made against the [Association] ... for a Wrongful Act." The term "Wrongful Act" was defined in the typical way, as any error, act, omission, misleading statement or breach of duty that caused, or is alleged to cause, damages. However, the policy excluded coverage for claims "arising out of any damage, destruction, loss of use or deterioration of tangible property". The definition made sure to mention that damages from construction defects, mold, toxic fungus or mildew were specifically excluded. Thus, the insurance carrier was right when it determined there was no coverage for defense or indemnification under the policy in light of an owner's claim for damages to her unit, personal property and common elements of the condominium that forced her to use alternative accommodations.
Duty To Defend v. Duty to Indemnify - You may have heard or been aware of this maxim.
Now you have a direct citation to authority for the proposition that that the duty to defend is distinct and broader than the duty to indemnify the insured. In fact, the Court cites to the proposition that:
All doubts as to whether a duty to defend exists are resolved against the insurer and in favor of the insured. As long as the complaint alleges facts which create potential coverage under the policy, a duty to defend is triggered. (Trizec Properties, Inc. v. Biltmore Const. Co., 767 F.2d 810 (11th Cir.1985).
Notice & Prejudice to Carrier - Insurance policies require the insured to notify the carrier of the claim or demand 'as soon as practicable'. This case recites the principle of law that lack of notice merely shifts the burden to the insured to prove that the carrier hasn't been prejudiced by the delay. In other words, while the insured's failure to notify the carrier of the claim in a timely manner may constitute a complete bar to recovery, if the insured can prove that the delay in notice did not prejudice the carrier (its position, defense to the claim, etc.) then it is still entitled to coverage.
In this case the original claims were clearly related to damages to tangible property (including the loss of use). The owner later amended the complaint to include economic damages, which ostensibly would have triggered coverage, but the Association did not notify the carrier of the new allegations.
What do we learn?
- First - understand which policies cover which types of losses and discuss/compare exclusions with your agent.
- Second - notify the carrier of the desire for coverage as early as you can and thereafter if allegations change; and
- Third - investigate owner damage claims (especially water/mold). Acting quickly (and/or having evidence of the conditions) will often reduce disputes.
