Party Fouls - Should associations take out insurance policies for special event spaces?
Question: Our condominium community has a large clubhouse, in which we hold association-sponsored events (the annual Christmas party, for example) and that we also make available for a fee to owners for private functions. A new board member recently asked a question we haven’t considered but probably should: Should the association have special “event” insurance in addition to the coverage in our master policy? And should we require owners who use the space to have this supplemental coverage as well?
Answer: There may be insurance questions that can be answered simply, but if they exist (which we doubt), this isn’t one of them. Gregory Pierce, LIA, CPA, vice president and director of business development at NorthStar Insurance Services, Inc., provides the answer.
The key concern for the association and for owners, he explains, is “liquor liability” – the potential liability that could arise if a guest at one of these events drinks too much and injures himself (by diving into the shallow end of the swimming pool) or drives while intoxicated and injures or kills someone else. It is more likely than not that the injured guest, or individuals the guest injures, would sue the association, the owner sponsoring a private event, or both.
The general liability coverage in the association’s master policy would cover “host liquor liability” for an association-sponsored event, Pierce says, as long as the association is not “in the business of manufacturing, distributing, selling, serving or furnishing” alcoholic beverages. As long as you’re not charging residents for the alcoholic beverages, he notes, your master policy should provide the coverage you need, paying for your defense, if you are sued for an event-related claim, and paying the damages if the injured party prevails.
Hiring a catering firm (which has its own host liquor liability coverage) would further insulate the association from liability risks, because the caterer’s policy should be the primary target for any claim.
But neither the association’s master policy nor a caterer’s policy would prevent the association from being sued. If you’re sued, you will have to defend yourself, and if you want your insurer to defend you (which, presumably, you will), you will have to file a claim under your master policy. The obvious concern: Even if you have no liability, because a court determines that you weren’t negligent, filing a claim could boost your insurance premium.
For that reason, Pierce advises associations to obtain special event coverage, because you would turn to that policy rather than your master policy for your defense if the association is sued.
Insurance considerations for condominium owners are similar to those for the association, but laced with somewhat more ambiguity. The HO6 form adopted in 1991 and still widely used today, clearly provides host liquor liability coverage for owners, Pierce says. The 2000 and 2011 forms include exclusions for “motor vehicle liability” that may or may not limit the host liquor liability coverage, Pierce says. Different insurers may interpret the language in different ways, he notes. “But an owner facing a liability claim doesn’t want to wonder which version of the insurance policy they have, or how their insurer is going to interpret it.”
The association doesn’t want to wonder if an owner has coverage either, Pierce points out, because the association may represent the only deep pocket available if both the owner and the association are sued for an owners’ event, and it turns out that the owner isn’t adequately insured.
Pierce’s bottom line: Obtaining special event coverage is the recommended “best practice” for both associations and for owners; and associations should make obtaining that coverage a requirement for owners who use association space for private functions.
The coverage is inexpensive, Pierce points out, and while it may not be essential, he thinks it is definitely worth having. “It’s like wearing suspenders and a belt to keep your pants up,” he says. “You may not need the suspenders, but they provide additional support – and peace of mind.”