Insurance is an essential part of any community association’s risk management program.  But purchasing a good policy is only the first step in the process.  Proper claims handling must occur for the association to receive the benefits of insurance.  Colorado’s Front Range experiences some of the highest hail storm frequency and severity in the country.  More people means more roofs, and more hail claims.  At Altitude Community Law (ACL), we have noticed several troubling legal trends involving insurance claims.  Multiple court cases from Colorado reveal a pattern where insurance claim disputes have harmed community associations through delayed claim adjustment, reduced or denied insurance benefits, and delayed or reduced repairs and restoration work.  Each hail loss situation is distinct, but there are common and recurring themes.  ACL believes that education and awareness will help your communities reach prompt and fair claim settlements and avoid delays and adverse legal results.  Your protective actions will help inform and protect community associations so they maximize and hasten the insurance benefits.

This article discusses three basic areas where we have seen many adverse results for community associations in the reported legal decisions.  The topics are: claim reporting, public adjusters and appraisals.  We provide a basic overview of each area, but there are many other aspects.  We are happy to evaluate any insurance questions or concerns.

Every insurance policy provides a specific method and address for reporting claims.  There is a requirement for written notification in the first instance.   After more information is developed, insurers require a detailed and sworn proof of loss document detailing the extent and amount of damage.  It is essential that community associations timely provide both notifications to the insurer.  We have seen several legal decisions where community associations were denied valuable insurance benefits simply because prompt and proper notification had not been supplied to the insurance company.

A public adjuster is an insurance adjuster who is engaged on behalf of the insured association, as distinguished from an insurance adjuster employed by the insurance company.  Public adjusters are licensed and regulated by State of Colorado.  They generally have knowledge of construction and insurance issues which can provide great value and benefit to associations.  Many associations turn over responsibility for their insurance claims to public adjusters because the associations lack the time and expertise, or perhaps because the association does not want to engage legal counsel to pursue an insurance claim.

Public adjusters generally work on a contingent fee basis, meaning the fee they earn is a percentage of the insurance claim paid.  That type of fee arrangement may appear favorable at first blush to the association because there is no out-of-pocket expense.  Nevertheless, such fee arrangement can lead to unanticipated difficulties.  First, many associations believe that they must pay 10% for the public adjuster’s contingent fee.  That is not true.  Ten percent is maximum fee the public adjuster is allowed to charge pursuant to Colorado statute.  That fee is negotiable before entering into a contract with the adjuster.  Associations should take advantage of their right to negotiate.  Contingent fee arrangements also create an incentive on the part of the adjuster to maximize the amount of the insurance claim presented to the insurer.  Maximizing insurance proceeds paid by the insurer is a legitimate goal, and insurers do have a reputation of minimizing claim values.  Nevertheless, on occasion public adjusters inflate claims which are not supported by tangible proof.  If the insurer suspects that the claim is being improperly inflated, the insurers will dig in their heels, investigate more fully, and delay or deny payment.  Another recurring issue we have observed is provisions in the public adjuster contracts where the association turns over complete control for claim communications and handling from the association to the public adjuster.  In effect, the public adjusters take over sole responsibility for the claim, and then deny any obligation to provide status reports and/or updated information to the insured association. Another area of concern is arrangements where the public adjuster takes control of the insurance proceeds instead of the association.

The third topic is insurance appraisals.  Virtually every property insurance policy in Colorado contains an appraisal provision for determining the amount of a claim.  If either the insured association or the insurer demands appraisal, the process is mandatory and must occur.  The association and insurer then each select an appraiser, and two of them then select an umpire.  They investigate and provide information concerning the amount of the claim.  The amount of the claim is determined by the vote of two out of three of the individuals.  The process is designed to be quick and efficient.  But the Colorado legal cases reveal that many associations have had their appraisal results declared void by the courts because the appraiser which they selected was biased.  Bias is determined by whether the appraiser had a stake in making a higher award, such as in the appraiser’s fee arrangement for serving as appraiser. Bias can also be shown if the appraiser has a long standing business relationship with the public adjuster or attorney pursuing the insurance claim.  This has happened in many reported cases.  Those cases drag on for several years, after which the association’s appraised claim could be denied.  The repair and restoration expenses are then borne by the unit owners.

Insurance claims cannot be delegated or ignored.  Vigilance and monitoring by management and board members are essential.  There are many simple and practical measures which can be taken at the outset to reduce or eliminate the adverse consequences we have mentioned.

Please contact an attorney at Altitude Community Law, at 303.432.9999, with any questions about claim handling.