As an HOA or condo association board, it’s always your primary responsibility to put the community’s well-being first. However, your association and your board members need to be protected as well. Residential communities are complex entities subject to the unpredictability of nature, people, the economy, and a host of other risk factors.
Ensuring your association itself — and the volunteer board members who manage it — have the proper insurance is part of its fiduciary responsibility to the community at-large, as inadequately insured HOA or condo associations can severely damage the financial solvency and overall health of a community.
Make sure to consult with your legal team or lawyer about the minimum state requirements for insurance coverage. This can vary from state to state. Let’s take a quick look at insurance coverage that is critical for any association:
- Business Property Insurance. This is not for the residences in the community; it is to cover areas owned by the HOA like the clubhouse, pool, and other so-called common areas. The policy should cover structures, building, and personal property owned by the HOA. Having the right property insurance coverage can protect your HOA or condo association against a variety of risks, including vandalism, theft, and fire damage. Every policy is different, so read the fine print before signing.
- Commercial General Liability Insurance. A lot of unpredictable things can happen in a community. After all, people live in it, right? Liability insurance can protect against accidents or injuries that occur in areas owned by the HOA. This type of insurance should protect the HOA against fees incurred in lawsuits. In addition, general liability insurance protects against property damage resulting from the use of common areas, personal injury (think libel and slander), and copyright infringements. What’s more, this protection extends outside the community should HOA or condo association activities be held off community grounds.
- Auto Insurance. This should cover HOA employees doing HOA business using a vehicle. Hired-car liability protects against risk associated with vendor-driven vehicles operating in the community. Non-owned auto insurance covers vehicles not hired by the HOA.
- Fidelity Bond Insurance. Otherwise known as employee dishonesty insurance, this protects your association against fraud and a host of other nefarious acts by board members and HOA employees. It can also protect the association against the criminal behaviors of an independent management company as well.
- Comprehensive Equipment Coverage. This covers what your general commercial property insurance does not: your boiler and other machinery necessary to run your HOA or condo association.
- Umbrella Insurance. Another gap-filler policy that covers the possible discrepancies between existing coverage limits and claims that exceed those limits. Every umbrella policy is customized to an association’s specific needs.
- Directors and Officers (D&O Insurance) D&O insurance is critical for your board. General liability insurance does not protect individual board members from legal action — D&O insurance does, to a degree. D&O insurance typically protects individual board members against perceived breaches of fiduciary duty but not against fraud. Having D&O insurance not only protects board members, but it also helps in recruiting volunteers and giving board members the confidence to handle community disputes without fear of personal repercussions.
Those are some of the main insurance coverage types that every HOA or condo association should have. It’s important to note that many associations have master insurance policies that contain many of the above coverage types, that is to say every category listed above doesn’t require a separate provider and contract. The master policy simplifies insurance coverage somewhat.
Always remember, insurance regulations vary by state and insurance needs differ for every community association. There is no one-size-fits-all coverage. So, take an inventory of your insurance portfolio frequently and consistently, consult your legal counsel, and take proactive steps to plug any gaps in coverage to stay true to the board’s wider fiduciary responsibilities.
At Comsource, we have unmatched expertise when it comes to HOA board and condo association management, including obtaining and maintaining the correct insurance coverage that mitigates risk and complies with government regulations.
Reach out to us today and learn more about how we can help you take control of your association’s insurance coverage portfolio.