Zurich Seeks Court Ruling on Condo Board Coverage in Kentucky Dispute
Zurich American Insurance Company has filed a lawsuit in a Kentucky federal court to determine whether it is obligated to defend former condominium board members accused of mismanagement and fiduciary breaches. The case, centered on the Sherrin Square Condominium Association in Louisville, highlights the complexities of directors and officers (D&O) insurance coverage for community associations and could set a precedent for similar disputes nationwide.
The Dispute
On August 5, 2025, Zurich filed a complaint in the U.S. District Court for the Western District of Kentucky, seeking a declaratory judgment that it has no duty to defend or indemnify former board members of the Sherrin Square Condominium Association. The defendants, Richard Levin, Pamela Levin, Erin Levin, and the association itself, are embroiled in a lawsuit brought by condo owners Daniel J. Guillory III, Andrea Oswald, Sharon Hall, Richard Brown, Debra Nicholson, and David L. Nicholson. The plaintiffs allege that the former board members breached their fiduciary duties and mishandled association funds, resulting in financial losses for the community.
Zurich, as the successor to Assurance Company of America, issued a Precision Portfolio Policy covering the association from November 1, 2011, to January 1, 2013. The insurer argues that this policy does not extend to the claims raised by the condo owners. Specifically, Zurich contends that many of the alleged missteps either occurred after the policy’s cancellation on January 1, 2013, or fall under exclusions for intentional acts, conversion (unauthorized taking of property), and unjust enrichment.
Zurich’s Position
Zurich’s complaint emphasizes that the Precision Portfolio Policy was designed to cover specific risks associated with condo association management, not every conceivable dispute. The insurer argues that the policy’s terms and exclusions limit its liability for the allegations against the former board members. For example, Zurich points out that claims involving intentional misconduct or actions outside the policy period are not covered. The company is asking the court to clarify its obligations, asserting that it should not be required to defend or indemnify the former board members in the underlying lawsuit.
The Underlying Lawsuit
The condo owners’ lawsuit accuses the former board members of mismanaging association funds and failing to uphold their fiduciary responsibilities. These actions, the plaintiffs claim, caused significant financial harm to the Sherrin Square community. While the specifics of the alleged mismanagement are not fully detailed in Zurich’s filing, the case underscores common tensions in condo associations, where board decisions can lead to disputes over financial accountability and governance.
Implications for the Insurance Industry
This case is a stark reminder of the intricacies of D&O coverage for community associations. Insurance professionals note that disputes like this often hinge on the precise language of the policy and the timing of the alleged wrongful acts. The outcome could influence how insurers draft policies for condo associations and how board members assess their liability risks. A ruling in Zurich’s favor could reinforce the importance of clear policy exclusions, while a decision against the insurer might expand the scope of coverage expected in similar cases.
Broader Context
This isn’t the first time Zurich has navigated complex coverage disputes in Kentucky courts. For example, in Nichols v. Zurich American Insurance Co. (2021), the Kentucky Supreme Court reversed a lower court’s ruling, finding that Zurich’s denial of underinsured motorist (UIM) coverage lacked a reasonable basis, allowing a bad faith claim to proceed. Similarly, in BOARD OF EDUC. OF ESTILL COUNTY, KY v. Zurich Ins. (2002), Zurich successfully pursued a subrogation claim, highlighting its strategic approach to limiting liability. These cases demonstrate Zurich’s willingness to litigate coverage disputes to protect its interests.
The Sherrin Square case also echoes broader issues in condo governance, as seen in other disputes. For instance, a 2017 lawsuit in Lexington, Kentucky, involved condo owners suing over construction defects, illustrating the financial and legal challenges associations face. Posts on X also reflect ongoing frustrations with homeowner associations, with some users noting the financial burdens imposed by mismanagement or strict regulations.
What’s Next?
The Kentucky federal court has yet to rule on Zurich’s complaint, and the former board members have not yet responded in this action. The judge’s interpretation of the Precision Portfolio Policy’s terms and the timing of the alleged misconduct will likely determine the outcome. As the case progresses, it will be closely watched by insurance professionals and community associations alike for its potential to clarify the boundaries of D&O coverage.
For now, Zurich’s challenge underscores the importance of precise policy language and the need for condo boards to understand their insurance coverage fully. The industry awaits a decision that could shape how insurers and associations navigate similar disputes in the future.
Sources: Insurance Business America, Justia, Kentucky.com, X posts