A Fight to Track Down ‘Twisted’ Insurance Policies
Question: The first thing our management company did when it was hired was to persuade our homeowner association board to cancel the insurance company that issued our master policy 28 years ago.
Instead of one policy, we now have several with companies around the world, but none here in California. The broker never returns phone calls, his secretary tells us to call the management company, the management company tells us to call the board and the board totally ignores us.
We recently learned that two of the insurance companies are insolvent. We can’t get answers. Wasn’t our board required to do due diligence before selecting an insurance company? How can we get copies of the master policies, verify we have viable coverage and protect ourselves?
Answer: Persuading your board to cancel the 28-year master policy in exchange for several inferior policies is a process insurance industry insiders call “twisting.” It often occurs as the result of a recommendation from the management company to the homeowner association board that they change policies.
Although “twisting” is promoted as a way to save money on the master insurance policy, it can be a highly speculative and dangerous practice because the coverage you once had under an umbrella policy (one policy with the needed coverage riders) is now divided among many insurance companies--some of which may not be able to pay claims when made, may merge with other companies or sell out.
Your board should have made the decision to switch brokers and insurance companies after a proper due diligence investigation. Too often the due diligence is by default because a board merely accepts management company recommendations about brokers and insurance companies.
According to the California Department of Insurance, receiving a “certificate of insurance” or “binder”--terms used interchangeably--is no guarantee that insurance is in place. These forms, produced by the Assn. for Cooperative Operations Research and Development, and known in the industry as “ACORD forms,” are available to anyone who can afford to buy them or download them from the Web site (https://www.acord.org).
The Department of Insurance reports that there is a lot of abuse. Dishonest brokers or agents can collect and pocket premiums, issue phony certificates or binder numbers, then never pay the insurance company to issue the policy, hoping homeowners never make a claim. The certificate of insurance may refer only to binder numbers and not identify which company has what coverage--a violation of Civil Code section 1365(e), part of the Davis-Stirling Act.
Even with the entire master policy in your hand, the insurance company’s solvency is not guaranteed.
When the broker is across the street or in the same city, or is one with whom you have dealt for many years and who writes policies on companies whose names you know, the problems are greatly reduced or eliminated.
When your broker is out of state or the insurance company is offshore, it is next to impossible to track the agent or the company without costly assistance, especially when time is of the essence.
According to section 1365(e)(4) of the act, at the same time your board distributes the summary of insurance, it must also state “in at least 10-point boldface type” that the summary “should not be considered a substitute for the complete policy terms and conditions contained in the actual policies of insurance.” That section also enables homeowners to view and receive copies of the master insurance policies from their board, but does not limit the amount a board can charge. Your request should be in writing and sent by certified mail, return receipt requested, directly to your board of directors, not the management company.
Some boards believe if they pay an attorney every month to keep their documents, they are safe. It is the board’s responsibility to keep the documents, not the attorney’s. If you have problems locating your insurance company or broker, or getting a copy of your association’s policy, the department’s Web site (https://www.insurance.ca.gov) provides forms for filing complaints, and staff members there have told us they are always eager to assist consumers. If you know the name of the insurance company or broker, the department can help you get a copy of the policy.
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Stephen Glassman is a writer and an attorney in private practice specializing in corporate and business law. Donie Vanitzian, J.D., is a writer and arbitrator and manages commercial property. Both live in common interest developments. Send questions to: Common Interest Living, P.O. Box 451278, L.A., CA 90045 or e-mail your queries to CIDcommonsense@aol.com.
