Academy/Working With Professionals
Insurance brokers
The one thing the law requires, and the one thing it does not.
An insurance broker, technically called a producer, must hold an active state license to sell, solicit, or negotiate coverage for your association. Whether that same broker owes the board a duty to flag gaps beyond the coverage you specifically asked for depends on your relationship, not on a fixed rule, so ask in writing which kind of relationship you have.
Confirm the license before you trust the advice
"Broker" and "agent" are common titles, but the license underneath both is the same thing: a producer license. The model rule that underlies producer licensing law is direct about it.
"A person shall not sell, solicit or negotiate insurance in this state for any class or classes of insurance unless the person is licensed as a producer for that line of authority in accordance with this Act."
Source: Producer Licensing Model Act, National Association of Insurance Commissioners
Before your board signs anything, check that the person or agency is currently licensed for the line of coverage they are proposing, property, liability, umbrella, whatever applies. This takes a few minutes with your state's insurance department and it is the one credential that is not optional.
Agent or broker: get it in writing
A producer can be acting as the insurer's agent or as the association's broker, and the two roles carry different responsibilities. Some brokers will proactively flag a coverage gap the board never thought to ask about; others will procure exactly what was requested and nothing more. Neither answer is automatically wrong, but the board should not guess which one it is dealing with.
Ask the producer directly, in writing: are you acting as our agent or the insurer's, and what are you and are you not responsible for recommending? Put the answer in the engagement letter or proposal, not in a phone call nobody wrote down.
Following the broker's advice can back up the board's decision
A board does not have to guess right on every insurance decision to be protected from a lawsuit over it. Courts generally ask whether the board acted reasonably, not whether the outcome was ideal.
"(1) 'good faith'; (2) with care of an 'ordinarily prudent person in a like position would exercise under similar circumstances'; and, (3) 'in a manner the director reasonably believes to be in the best interests of the corporation.'"
Source: The Business Judgment Rule, Colorado Homeowners Association Law
A board that gets a written recommendation from a licensed broker, reads it, and follows it in good faith has real evidence of reasonable care if that decision is ever questioned later. The protection is conditioned, though: it holds only where the board reasonably believed the advice fell within the broker's actual competence, not where the board ignored what the broker said or handed the decision to someone with no plausible expertise in coverage.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
Your board is about to sign with a new insurance broker who cold-called your property manager. What should the board confirm first?
The board's broker never mentioned a coverage gap the board didn't ask about. Is the broker automatically at fault?
The board followed its broker's coverage recommendation and a claim was later denied. What protects the board's decision from being second-guessed in court?
Sources
- Producer Licensing Model Act, Section 3, National Association of Insurance Commissioners
- The Business Judgment Rule, Colorado Homeowners Association Law
- Understanding the Business Judgment Rule for Boards, Barker Martin, P.S.
Related elsewhere in the Academy
Working With Professionals
Next, see how the business judgment rule works when a board relies on any retained professional's advice, not just a broker's.
Whether your broker owes the association a duty to flag coverage gaps beyond what was requested depends on your specific relationship and your state, not on a fixed rule. Confirm it in writing with your broker rather than assuming either way.