NOTICE OF CIRCUMSTANCES

THE INSURANCE CLAIM YOU NEED TO KNOW ABOUT.

By Seema N. Kadaba and Cassie N. Holloway

Managers may be unaware of certain steps an association can take to protect its rights as it relates to an expiring insurance policy. Often insurance policies have certain reporting requirements to make a claim for a covered loss. These often state that claims for acts occurring during a policy period must be made before the policy expires.

However, many policies also contain a provision known as a “Notice of Circumstance.” This provision is often included as a way of extending coverage for events that may produce a claim at a later date, as long as the notice of the change in “circumstance” is given to the insurer file an anticipated claim that may not before the policy expires. This type of notice is not a claim for money, but rather a claim to reserve the association’s rights to later tender a claim under an expiring policy when it does not have sufficient information on whether its current situation will ripen into a formal claim.

WHY CONSIDER A NOTICE OF CIRCUMSTANCES CLAIM

If certain claims are not made by the date when an insurance policy period ends, the association will be prohibited from asserting those claims that occurred during that period. With a Notice of Circumstance tender, however, the association may preserve its rights before the policy period ends and coverage, under that policy, is terminated.

If a Notice of Circumstance is tendered during the policy period and a claim is later asserted after the policy period has ended, but arising out of the circumstance described in the Notice of Circumstance, then the insurer must treat the claim as if it were timely made when the Notice of Circumstances was tendered. The purpose behind this is to allow an association to file an anticipated claim that may not come to fruition until the policy period is over and the insurer adjusts the policy to exclude what may have been covered int he previous policy.

This is particularly applicable in current times. At this moment, associations do not know what claims may arise against it or the board related to the COVID-19 pandemic. A claim could arise that the board handled something incorrectly during the pandemic and the association should not lose the opportunity to file a claim with the policy that may currently cover the claim. The renewed policy will likely include new exclusions for pandemics, COVID-19, viruses in general, and/or government orders. In other words, it’s better to be safe than sorry.

THE WAY YOU REPORT YOUR CLAIM MATTERS

When drafting a Notice of Circumstances, the notice must contain sufficient information regarding the claims an association believes might be asserted against them. In other words, does the notice provide adequate information to the insurer that a court would deem sufficient?

The first thing you should do is determine your association’s Notice of Claim reporting provisions in your policy or policies. This will help you determine what information your insurer requires to be included in the notice. A Notice of Claim reporting provision could require that the insured specify all of the following:

a. the specific wrongful act,

b. the damages which have or may result from such wrongful act, and

c. the circumstances by which you first became aware of such wrongful act.

At first glance, the insured may think it is impossible to comply with these reporting requirements. For example, let’s say the association discovers that a resident of the community contracted COVID-19, and that same resident was at the community pool just one week prior. Although this resident has not sued the association yet, the association is concerned that a lawsuit will be filed since the resident could claim she contracted the virus while at the community pool. This lawsuit, you anticipate, might happen after the policy expires, even though the resident was at the pool during the period of the current policy.

Using the COVID-19 example, the “specific wrongful act” would be that a person may have contracted COVID-19 while they were on association property – the pool. The “damages” that “may result” would be any injuries that the person incurred due to contracting COVID-19 on the premises. And, the “circumstances by which you first became aware of such wrongful act” would be when the association discovered that a resident may have contracted COVID-19 while being at the community pool for which there is a potential claim.

As you can see, as long as you can comply with your carrier’s reporting provision and you can provide your insurance carrier with sufficient notice of the potential claim your association foresees happening after the policy expires, the notice will likely be sufficient.

With this in mind, associations should seek counsel and gather facts, documents, and any other evidence that might be considered an anticipated claim and consider whether it is prudent to file a Notice of Circumstance. Please note that it is important to send the Notice of Circumstance before the end of the policy period of the current insurance, because it is extremely likely that insurance companies will radically change certain coverages and add more exclusions to coverage in the new policy, given the COVID-19 pandemic.

Seema N. Kadaba and Cassie N. Holloway specialize in construction defect litigation at Berding|Weil LLP. Kadaba works out of the firm’s Bay Area office and has been in the industry for five years. Holloway works out of the San Diego office and has worked in the industry for two years.