- Most fidelity policies do not delineate, on a crime-by-crime basis, what convictions constitute grounds for cancellation. Instead, a broad “dishonest acts” clause is used. Brokers are unlikely to prove informative on this front, and may in fact be barred from opining by law or company policy. Must associations solicit a costly legal opinion from their insurer?
- Effective January 1, 2019, specific fidelity coverage is now required by Civil Code section 5806. What are boards to do if their available marketplace of insurers indicate that they will decline to offer or terminate fidelity coverage if a candidate is elected to the board, but the insurers' grounds are not a past criminal conviction?
- In a related vein, what if the available marketplace does not prevent purchase or terminate, but instead prohibitively prices premiums. Is there any markup which would permit a valid disqualification?
- For associations which do adopt this qualification and “become aware” of a candidate’s past criminal conviction, this invites fraudulent concealment from their insurer, which could in and of itself threaten coverage. And that is only in regards to intentional concealment; few directors understand the legal concept of imputed knowledge, or just how low its bar can be.
- Civil Code section 5135 currently prohibits associations from using association funds to advocate for the election or defeat of any candidate. If a board becomes aware of a candidate's history that would jeopardize its mandatory Civil Code section 5806 coverage, but the grounds do not permit a valid SB 323 disqualification, is there any way the board can discharge its apparent fiduciary duty to communicate that information to the membership prior to the vote?
An exciting new minefield.