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Burden Of Association Insurance Companies

by | Mar 5, 2021 | Firm News

Occasionally, insurance carriers for common interest communities elect to cancel or refuse to renew the policy.  The tension created after a loss when the manager or board finds that the policy has been cancelled can drive a person to drink.  Through incompetence, negligence or just plain mistake, the board may find that the association is no longer covered for losses. Failing to complete the renewal process or paying the premiums can and usually will result in insurance cancellation.   Heavy loss runs during prior year can lead to non-renewal.  One of the least known and perhaps often overlooked provisions of the Common Interest Ownership Act is Section 47-255(g).  47-255(g) prohibits carriers from cancellation or non-renewal until sixty (60) days after the carrier has provided notice not only to the association, but by mailing such notice to each unit owner and their mortgage companies.  The plain reading of that provision suggests that as long as the unit owners and/or their mortgagees request a certificate of insurance, the carrier must provide them with sixty days’ notice before the policy is legally cancelled.

Associations and mortgagees are in all likelihood protected by the operation of their respective interests.  Associations request and are provided certificates of insurance each year when they purchase a new policy or renew existing coverage.  Mortgagees usually request proof of the association’s insurance coverage as a condition of lending money to the borrower/owner.  In rare cases, unit owners may request a certificate of insurance, but that is the exception and not the rule.   Best practices would be to have every unit owner request a copy of the insurance declaration page or have the association request them on behalf of its unit owners.  The executive board can simply send the request to the association’s insurance broker and attach a copy of the unit owner list with mailing addresses.

Given the total absence of case law in Connecticut on this particular provision, it is not safe to conclude that a single request will trigger the insurance company’s notice obligations.  One could argue that the insurance policy, as a contract, expires annually.  One contract ends while a new one begins either by renewal or purchase of a policy from a different carrier.  It would seem logical that a new request for an insurance certificate to a new carrier is necessary to bind that carrier to the notice provisions of 47-255(g).  It is less clear that another request for the certificate from the same carrier under a renewed policy is necessary.  As a ”belt and suspenders” kind of attorney, I would strongly suggest annual written requests for insurance certificates be made simultaneously with each renewal.  As a practical matter, mortgagees are not likely to make such additional requests, but as long as the association and the unit owners do, they are protected against surprise cancellations and a lapse of coverage.

Armed with this information, association boards are well-advised to discuss this matter with the association’s broker.