By Randall A. Pentiuk, Esq.
To supplement the excellent article by Randall Pentiuk in the April 2011 MAHC Messenger on the above subject, it should also be borne in mind that the backup protection, in the event that the advice provided by Attorney Pentiuk does not work, bearing in mind, no systems are full proof, there bonding or crime insurance coverage.
Since a bond taken out by a cooperative covers only cooperative employees and officers and a bond held in the name of the management agent covers only their employees and officers, a gap exist with respect to a cooperative having the ability to make claim for a loss when it employs a management agent.
Whether the cooperative is added by name in any fashion to the management agent’s bond, the bond and any claims made under it are strictly controlled by the management agent as the named insured. If the management agent fails to make claim or is not around to make claim, the cooperative, unless there are specific provisions in that bond, cannot make a claim and takes the loss itself.
The other risk of a management agent’s bond is the possibility it is in an adequate amount to cover the potential losses of all of its clients. In the event of a default or disappearance of the management agent itself, there may not be enough funds to cover the claims of all of its clients.
Therefore, it is recommended to pressure, as oft times is needed, the insurance agent or broker to insure that the cooperative’s bond or prime insurance policy lists the management agent and its employees as insured’s under the cooperative’s bond through a management agent’s endorsement. This bond is owned and controlled by the cooperative and in event of any lost by either employees or principals of the cooperative or the management agent, the cooperative can make claim.