One aspect of association operations that often doesn’t get enough attention is the association’s crime coverage. F.S. §720.3033 (5) requires a HOA to maintain coverage in an amount equal to the maximum funds that may be in the custody of the association or its manager at any one time. For condominiums, this requirement is found in F.S. §718.111(11)(h). Coverage must extend to all persons who control or disburse funds of the association, and must include the President, Secretary and Treasurer. A fidelity bond may be used for this purpose, but most associations opt for a policy of crime insurance.
When it comes to crime insurance, it is important to know on what basis the association’s policy is written. The association’s crime policy can be written on either a “Discovery Basis” or a “Loss Sustained Basis.” A Discovery Basis policy will generally cover losses that are discovered during the policy period regardless of when the loss was incurred, with an exception being losses sustained prior to the policy retroactive date. The retroactive date is the date when a crime policy will no longer provide coverage if the crime occurred prior to that date.
Unlike a Discovery Basis policy, a policy written on a Loss Sustained Basis only covers losses that are sustained during the policy period and discovered during the policy period or discovered within any extended period provided by the policy. Generally, the extended period to discover loss is limited in duration (e.g., 60 days) and terminates once a replacement policy is obtained.
To ensure the association is getting the best value for its insurance dollars, it may be prudent to periodically obtain competing proposals for the statutorily required crime coverage. When doing this, be sure to maintain uninterrupted coverage and to avoid a situation like that which follows:
Example: Association X is concerned with the rising cost of crime insurance coverage provided by Company A, and decides to obtain proposals to replace their policy. After assessing all proposals, Association X chooses a less expensive policy from Company B, with the new policy term commencing on the same date that Company A’s policy expires. Approximately 30 days after the new policy is in effect, the Association discovers that an employee stole money from a bank deposit 60 days earlier. Their agent reports the claim to both Company A and Company B. Even though the loss was incurred during Company A’s policy period, Company A denies the claim stating that extended loss discovery period terminated when the replacement policy became effective. Subsequently, Company B denies the claim stating that its policy was on a Loss Sustained Basis, and since the loss was incurred prior to the policy commencement date, there is no coverage. How Could Association X have avoided this situation?
During the extended loss discovery period, Association X had the option of purchasing Extended Reporting Period Coverage. That coverage would have extended the period within which a covered loss could have been reported, even if a replacement policy was in place. Another alternative would have been to ensure Company B’s policy was being issued on a Discovery Basis with a retroactive date earlier than the date of loss.
Of course, the foregoing is merely an example of what could happen when replacing insurance policies and it underscores the importance of ensuring uninterrupted coverage. The specifics of the policy make a big difference. Pay close attention to reporting requirements, maintain uninterrupted coverage, and scrutinize renewal policies for changes to retroactive dates. Most importantly, be sure to discuss this concern with your insurance agent or consultant at any time a change of policies is being considered.
The Terra Tribune publishes information that may be of interest to members and directors of Florida community associations. David Felice is a Florida attorney, CEO of Terra Management Services, LLC, a licensed Florida community association management firm, and a principal of Terra Law Firm, P.A. Use of this website does not in any manner constitute an attorney‐client relationship between Terra Law Firm, P.A. and the user. Information on this site which addresses legal issues is not intended as legal advice or as a substitute for the particularized advice of your own counsel. Anyone seeking specific legal advice or assistance should retain an attorney.
