Is an insurance company required to practice standard of care?

I am a board member of a Condominium Complex.

Long story short, a condo owner inappropriately tried to fix a plumbing issue by himself thereby causing a flood into the lower unit. (He did not shut off the water before he removed a pipe)

The owner of the lower unit filed a claim with his insurance at the advice of our inept management who never even notified us of the event.

The insurance company started an extensive demo of their client's entire kitchen and other areas of the unit and then stopped work. Our Board then received the flowing notice requesting that we file the claim will the Association's master carrier for settlement:

..."Your governing documents require that Unit owners policies contain a waiver of subrogation, which would prevent USAA from recovering from the responsible party. Moreover, it has come to our attention that the unit owner that caused damage to our insured does not have insurance."...

..."Additionally, as our insured was the unit affected by this loss and was not the source of the loss, it would not be typical nor have I found language in your governing documents that would substantiate that the deductible for the master policy would be the responsibility of my insured to bear."...

..."At this point in time, USAA is formally requesting that you file the claim will your master carrier for settlement."...

The unit owner's insurance started the demo and then decided that they would not cover the expense.

We the Association would rather have not gone through the Association's insurance to pay for the cost. Although the Association did not cause the problem, it would have been better if the Association had been given the opportunity to decide to fix the unit without insurance. Yet now we are roped into a more costly situation because of the damn insurance stuff.

Did USAA use reasonable standard of care before they had demolition crew come out to gut an entire kitchen and then to discover they will not cover?

Our board never had the opportunity to do our due diligence to investigate the matter.

Is it appropriate for them start acting on a claim and then midway decide against it and then rope some other entity's insurance to cover?

How do we respond to this?

I'm with Jeff. You might want to contact your HOA attorney too.

I don't see this where the HOA insurance should be involved accept maybe in some minor issues outside the unit. Seems to me the two owner's insurances should sort this out. The HOA responsibility should stop at the door so to speak. That's just my opinion and experience.

We had a tree fall on a house from a neighbor's yard. The owner who had the tree did not have insurance. The house that was struck did. The HOA was responsible for the tree clean up portion of the damages. It was a tree on our common area. However, after that the fence and house damages was to be sorted out between the 2 owners. The HOA does not own the house nor the fence the tree fell on. All that is the owner's responsibility.

Your board delegated its authority to a management company you now describe as "inept." The management company knew of the flooding and resulting damage; in its capacity as your delegated representative, the management company advised the homeowner to take certain actions. Your board is responsible for whatever acts the management company you hired did or failed to do. You were deprived of "the opportunity to do our due diligence to investigate the matter" entirely by your own failure to supervise the actions of the management company. Neither the homeowner who caused the flood, the homeowner who suffered the damage, nor his insurance carrier is responsible for your own negligence.

I'm learning that filing a claim is a can of worms. The at fault party didnt have insurance and the way it works is that the insurance goes after the entity with the deep pockets. In our situation, our Association is the deep pocket at the brink of going bankrupt however. It may have not even mattered the at fault party carried insurance because it's about DEEP Pockets.

I recently went to a seminar held by my own insurance company for my private business and the title was "settling stinks before insurance"

Thank you JeffT2 for your interpretation of the waiver of subrogation.

However, what I am wondering is why they didnt investigate this before they gutted the entire kitchen? They acted on a claim expecting to recover loss from the upstairs unit owner, but discovered they couldn't go after them for the loss. So now the entire Association is responsible.

Does an insurance company have the responsibility of asking the Association to see if we would like to use our insurance before they act on the claim like gutting an entire kitchen?

My belief is USAA should make the owner (their insured) whole (make the repsirs) then go looking who to subrogate with. USAA is just trying all (the association for one) on for size.

Yes

This is what Davis Stirling Act says:

http://www.davis-stirling.com/tabid/1657/Default.aspx

Owner Responsibility. Assuming the CC&Rs are silent on the issue, boards may adopt a policy in the Rules & Regulations that any loss attributable to an owner that results in a claim against the association's insurance, the owner shall pay the deductible. The policy can be added to the Rules but amending the CC&Rs makes the policy stronger. Any such amendment should make it clear that owners pay the deductible when they are responsible for the loss, either because of their own negligence or because something under their control failed (such as a dishwasher, toilet valve, etc.)