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What if you could get some insider scoops on how some Agencies take advantage of HOAs by overcharging them, missing coverages that violate the CC&R and have the HOA sharing the same policie(s) with the “Leaning Tower of San Francisco” and others?
In the last couple of months an HOA of 700+ Units, 600+ Units and twin 13 Story high-rise towers switched to our Agency. They switched because our Free reviews found they all had 1-3 things in common:
- The Agents were charging Broker/Administration Fees above their Commission. Some Agency fees were as high as $23,000/Year for all the years with that Agency.
- Missing coverages that appear to violate the CC&R. One HOA found out coverage was missing the hard way, after a claim occurred, resulting in a $50,000 out of pocket expense by the HOA.
- Sharing the same policy with the “Leaning Tower of San Francisco”, in addition to other HOA’s, by being part of a “Pool Policy” without the Board knowing they were sharing the same policy.
Reviewing Your Policy
Too many times when asked if the HOA would like a Free review, we hear “If the Board asks for one we would be glad to.” But what the Board/Manager really mean is:
- We have been with our Agent, who specializes in HOA’s and know we are not being overcharged nor missing coverages. I call this the “Bernie Madoff” syndrome. Bernie Madoff was a Financial Investor, loved by all his clients until they discovered he ran a Ponzi scheme and stealing their money. I am not suggesting the Agent is stealing money, but recommending the HOA do a review and not blindly follow the Agent, no matter how big the agency is.
- We don’t want to take the time to review the Insurance and most likely not going to need it. This is ok until a claim occurs and the HOA finds out after the claim, coverage is missing. In fact, most CCR requires an “Annual Review” of the Insurance.
But with a Free review, most of the time we find:
- The Agency is overcharging the HOA in the form of “Broker/Administration” fees. The bigger the HOA the bigger the fee?
- Their Policy was missing coverage that could violate CCR and expose them to Owner lawsuits?
As one of your New Year’s resolutions, get a FREE HOA Policy review!
The Challenge with Pool Policies
You may have heard about the Millennium Tower high-rise in San Francisco, which has made headlines for sinking sixteen inches and tilting two inches since its establishment in 2008, and the resulting storm of lawsuits filed against the developer and other authorities. Imagine your HOA IS SHARING THE SAME POLICY AS THE “LEANING TOWER OF SAN FRANCISCO” AND DID NOT KNOW?! Well, that is what a “Pool Policy” is. Sharing the same policy or policies, with numerous other HOA’s. Being part of a “Pool Policy” can cause problems for the Board, Owners and the Management in many ways:
- More Lenders are refusing to accept “Pool Policies” to qualify for a Loan. Reduction of available Lenders can reduce the value of the HOA.
- Uncertainty if insurance funds will be used up, by other HOA’s and therefore, funds are not available when your HOA needs to file a claim. An important factor of Insurance is to have “Known Protection against an unknown claim”. Having a Pool Policy can cause uncertainty since you don’t know who the other “members” are and how much in claims the other unknown HOA’s have submitted. Obtaining a “Dedicated” policy prevents the unknown from occurring. The Dedicated policy is for your HOA and not to share.
- Lack of Funds for Claims can cause suits by Owners and Lenders against the Board and Managers. If Owners are told a claim cannot be paid, because the Pool funds are exhausted, they can bring lawsuits against the Board and Managers. Again, this can be avoided by having a “Dedicated” policy.
The danger here is that you don’t know how many HOA’s are part of the pool and a number of claims from other HOAs could completely deplete the pool’s funding. Even scarier, many HOAs are not even aware that they are part of a pool policy. Most board members would not know to ask whether they are in a pool, and agents are not jumping at the chance to inform you. Or worse, the Agent tries to rationalize such a large claim using up the Pool, “would never happen”. Next time the agent says that, ask the Agent, if the policy falls short, in writing, if She/He will cover the difference and watch what happens.
The Scott Litman Difference
When working with a new agent at Scott Litman, many HOAs are shocked to see an itemized breakdown of their previous insurance company’s costs. One such example is demonstrated in the following excerpt from testimonial sent to us by a recent client:
I am the General Manager of a 22-story high-rise condominium in Downtown LA, and the Association could not be happier. Scott Litman Insurance not only was able to increase our coverages so that the Association is better protected, but they also saved the Association money in the process. During the investigative process, Scott Litman Insurance uncovered the fact that the Association was paying $13,000.00 in duplicate commission, that there were either missing or unnecessary coverages, and that the Association was part of a “pool” for its general and umbrella liability policies, which could become problematic for an Association.
–V. S. AMS
These are the kinds of serious insurance mistakes that can cost an HOA everything it has. At Scott Litman, our specialization and expertise in HOA insurance afford us the experience necessary to correct these common HOA insurance problems while helping boards save money and eliminate their risky coverage gaps.