Status Certificate Claims and D & O Insurance – Some Issues to Consider

Status certificates are one of the greatest risks of liability for a condominium corporation.   

However, if a condominium corporation issues an inaccurate status certificate – and suffers a resulting “status certificate loss” (for instance, inability to collect a special assessment from a purchaser) – one would assume that the corporation’s insurance should cover this loss.

And in our view the corporation’s insurance should indeed cover a status certificate loss in most cases.

However, we caution that some condominium insurers don’t agree – and therefore the insurer sometimes denies coverage (for the loss) in such circumstances.

The insurer’s position (when denying coverage for a status certificate loss) is typically as follows: The loss is suffered by the condominium corporation, not by the Directors. Therefore, the corporation’s Directors and Officers Liability (D & O) Insurance doesn’t apply. [Note that the corporation’s general liability insurance normally doesn’t apply in such cases, because there is typically no harm to persons or property due to an inaccurate status certificate.  A status certificate loss is normally “pure economic loss”. So again, coverage for a status certificate loss should, in our view, exist under the corporation’s D & O insurance – but is sometimes denied by the insurer.]

When faced with this sort of denial of insurance coverage, our response is as follows: Although the corporation does indeed suffer the loss, the Directors (along with the Manager) are normally responsible for the error (the inaccurate status certificate); and the corporation therefore has the right to claim the loss from the Directors (and/or from the Manager). And even though the Directors are (in turn) generally entitled to be indemnified by the corporation, the D & O insurer is typically obligated to cover the corporation’s indemnification obligation.

So in summary, we often feel that coverage is in fact available (for a status certificate loss) under the corporation’s D & O policy. But the key is as follows: This can sometimes lead to a battle with the insurer.

The key takeaway is that these arguments about coverage (for a status certificate loss) can arise with some condominium insurers. And the further takeaway is as follows: You may want to carefully review these coverage issues with your insurance broker (particularly when it comes to obtaining D & O insurance coverage).

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