By: AgencyEquity.com
Two fires at a condominium complex in Colorado combined for more than $16 million in damage. Its property insurance company denied all coverage, and two insurance agencies faced lawsuits.
A property management company oversaw the condominium association’s daily operations. It was responsible for obtaining and administering the complex’s insurance policies. It was also responsible for communicating with the association’s board regarding the policies’ terms and conditions, “including the existence of ‘protective safeguards’ in the policy.”
The management company engaged an independent insurance agency in 2019 to obtain the insurance. According to the court’s opinion, the agency “held itself out … as an expert in the insurance field.” Over the years, they provided newsletters with information about recommended coverages. The property manager asked the agency to obtain insurance that:
- Was based on the complex’s existing condition and features.
- Would cover losses caused by fire.
- Would comply with state law and the association’s by-laws.
The agency’s 2022 insurance proposal boasted that it could custom build insurance plans suited to the client’s needs, obtain “better” coverage terms, and deliver competitive pricing. It also suggested additional coverage for the board to consider.
The agency worked with what the opinion described as the association’s “wholesale insurance agent.” Unusually, the wholesaler had a direct relationship with the property manager for more than 12 years. It provided insurance-related inspections for a fee and played some role in obtaining the policies. In fact, the declarations page for the policy at issue in this case named the wholesaler as the producer. Unknown to the insured, the wholesaler did not have the necessary Colorado insurance license.
The property insurance policy covered fire losses, among losses from other causes. However, neither of the insurance agencies nor the property manager communicated to the board “about the potential inclusion of protective safeguards” in the policy. In addition, they did not provide the board with a copy of the policy when it was issued.
A fire in November 2022 caused more than $12 million in damage to the complex. The insurer denied coverage for the loss, in part because the association allegedly obstructed the investigation, but also because the condominium units lacked hard-wired smoke detectors that the policy required. While the wholesaler was appealing the denial, a second fire occurred in February, causing more than $4 million in damage. This claim was also denied.
The insured, after suing the insurer, sued the property manager and the two agencies on multiple grounds in November 2023. In April 2024, the agencies asked the court to dismiss the suit.
In March 2025, the court ruled in the agencies’ favor. Both agencies, the judge explained, had acted reasonably in obtaining fire insurance for the association and had no duty to obtain it without a protective safeguards requirement. While the insured argued that the agencies had a duty to obtain coverage “based on the existing condition of the condominium complex” (that is, without hard-wired smoke detectors,) the judge noted they had never discussed the complex’s fire detection equipment. Given that, he could not hold the agencies liable for obtaining a policy that required it.
The insured also argued that the wholesaler’s failure to obtain the required license caused its loss of coverage. The judge found that the failure to obtain a license had nothing to do with the existence of the protective safeguards requirement in the policy, and he rejected that claim with all the others.
These agencies were working with an insured that could be considered a sophisticated insurance buyer who could be expected to read the policy. It appears that neither the insured nor the property manager did so. If they had, they would have discovered the protective safeguards endorsement and raised it with the agencies. The court’s opinion does not say that this endorsement was added on the 2022 renewal, so presumably it had been part of the coverage for more than three years. The agencies did their job; the insured did not do theirs.
