As you know, the number of reported cases of Coronavirus/COVID-19 is increasing each day. The president has declared a national emergency and high-profile events in our area and across the country have been canceled or postponed to avoid exposure to the public through large gatherings. Further, as school systems are closing and moving to online classrooms, and transportation and other services may become more limited, we would recommend that Community Association Boards of Directors and management companies also consider the long-term welfare of residents and plan accordingly.
Property insurance covers loss or damage to owned property of a direct, physical nature, and at this time few if any businesses have reported actual property damage resulting from the Coronavirus. There may be issues surrounding the ability to occupy, resulting in a temporary closure of a business (and for a condominium, cooperative, or homeowners association, such closures would not apply to homes or units, but rather to amenities). It’s important to note, however, that such closures likely would not be covered by an insured’s Business Income coverage form, which exclude virus and bacteria loss.
Understanding that an Association’s amenities generate income (or the expenses of the amenities are built into assessments), it is likely (but not assured) the good business judgment rule would apply:
The business judgment rule is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.
Business Interruption under Commercial Property
In order for the Commercial Property policy to trigger coverage for Loss of Business Income the following chain of events must occur:
- Physical damage to insured property (building and/or business personal property);
- Physical damage to insured property as a result of a covered peril;
- Physical damage must result in an interruption of business; and
- The interruption of business must occur for a defined period of time (waiting period)
Naturally, Associations with amenities may be wondering whether to keep amenities such as clubhouses, fitness rooms, spas, swimming pools, etc., open during the high alert period, or until such time as the virus has run its course and the Centers for Disease Control (CDC) make public announcements lifting the alert.
Recognize that it is impossible to keep surfaces clean and free from bacteria all the time, even when properly disinfected. Until we learn more, Boards may want to close off amenities and postpone meetings to protect themselves and members from further spread of the disease. It’s important to note that General Liability policies, which respond to bodily injury claims, typically include an exclusion for bacteria and virus loss.
Coverage may be triggered if for instance, the Board and/or management were to allow staff to work from home. Whether an employee’s personal computer is equipped with the same controls an office computer has remains to be seen and if an employee’s personal computer is hacked and association or member personally identifiable information is breached, the Association could have a cyber claim.
While Workers’ Comp is not intended to cover claims for communicable and contagious diseases, there might be exceptions, depending on how and where COVID-19 is contracted. Coverage evaluations will be based on a thorough review of the facts and circumstances of each claim.
Directors and Officers (D&O) Insurance
Shareholders and other stakeholders could sue a business should they fail to respond appropriately to COVID-19 concerns. Specifically, stakeholders may contend that management failed to develop adequate contingency plans or detail how COVID-19 could impact the company’s financial performance. It should be noted that most D&O policies exclude coverage for bodily injuries, but may offer some protection depending on the specific allegations. As such, it’s important for businesses to review the scope of their D&O policies to confirm they are covered in the event of an incident.
In addition, recognize that doing nothing may result in wrongful act/failure to act allegations against the Board and management. For instance, the Association may open itself up to claims if the fitness equipment were not properly cleaned frequently, or if the Association opted to keep its amenities open or move forward with activities and meetings when perhaps closing and postponing for a period of time might have been the better option. An Association’s Directors and Officers Liability policy is written to respond to allegations (actual or alleged) involving wrongful acts and/or failure to act, but those policies also include an absolute bodily injury exclusion.
Person to person contact between owners may raise concerns, but there is no duty for the Association to test its owners for virus. Certainly issuing a statement to your members to stay home if they are ill or in a high-risk group, avoid common areas and amenities if they are ill, to call a doctor prior to visiting a doctor’s office or emergency room, to stay away from large gatherings, to wash hands frequently, etc., would be a proactive rather than silent approach to addressing this issue (regardless of all the media information available).
The information we and the general public are receiving continues to update almost daily. We recommend that our clients take into consideration their own unique exposures and plan with caution, considering the long-term welfare of residents. We also invite you to review (and check back frequently) the Centers for Disease Control site at:
For tips on what you can do to limit the spread of Coronavirus, we recommend an article written by Edmund Allcock, a partner with the law firm of Marcus, Errico, Emmer & Brooks of Braintree, Massachusetts. Ed is current president of the College of Community Association lawyers:
Like many organizations, we are learning and adapting to this emerging risk. We are here to assist our clients as needed. If you have a specific coverage question, please contact us.