Who's Invited to this First Party?
A “first party claim” is simply a claim that a community association makes for coverage under its own insurance policies. Generally, these policies are intended to cover certain types of property damage. The coverages provided by the carrier and the exclusions from coverage are outlined in the insurance policy. Typically, exploding water tanks, bursting pipes, damage to the buildings from a car or other accidents are events that insurers routinely recognize as covered claims under an Association’s first party or property policy.
These claims differ from “third-party claims.” In third-party claims, a person sues someone and the person sued looks to his or her liability insurance for coverage. In that situation, the insured asks its insurer to defend and/or indemnify the insured against the claims.
But “first party claim” has become a buzzword as of late to describe a particular type of claim that community associations may be able to make against property insurance policies going back for many years. The specific type of claim may differ depending on the nature of the association’s insurance policy. The claim may involve “collapse” or property damage caused by a list of covered causes, such as “wind driven rain.”
This type of first party claim is especially beneficial for complexes that are beyond the general statutes of limitations for claims against developers or contractors for construction defects. If a building is outside of the statute of limitations but still suffers from substantial damage to building elements, your association may have a chance at recovering something by making a claim against your association’s prior property policies. Courts have recognized coverage under association policies dating back as far back as 10 years.
In general, insurance companies will tell you that property policies are not intended to cover damage due to “construction defects” or errors made during the original construction or reconstruction of buildings. In fact, most policies purport to exclude damage caused in any way by construction defects. When a construction defect or other excluded peril (such as rot) is specifically excluded by a policy, there may be other ways of demonstrating coverage. Depending on the type of insurance policy, you may be able to establish coverage if the damage was also caused in part by a covered cause such as collapse or wind driven rain.
Establishing coverage under old policies requires careful analysis of the complex and convoluted language of the association’s policies as well as a solid understanding of the interpretations given to the various policy terms used over the years. For example, the courts in various states interpret the exact same word – “collapse” – to mean very different things. Some courts require a building to be reduced to rubble whereas other courts only require that the building suffer from substantial impairment.
Because these types of claims are potentially high dollar claims involving the most convoluted sections of coverage, it is not uncommon for insurance companies to initially deny claims that appear in any way related to original construction defects. It is also possible that the very nature of the tender may jeopardize whether you are successful in triggering coverage. Thus, it is often necessary to get legal help before tendering this type of “first party” claim to your association’s insurer. In other words, make sure your attorney gets invited to the party.