The Six Important Insurance Policies for HOAs
Every Association needs to gather information on six insurance policies so that the Board can make an educated business decision. This includes coverages and costs for general liability, property coverage, Directors and Officers insurance, crime and fidelity, workers compensation and an umbrella policy.
General liability insurance helps protect the Association from founded or frivolous lawsuits. These lawsuits claim negligence on or by the Association and claim the Association caused physical injury or property damage. General liability is designed to defend these types of lawsuits. An example is if someone is hurt at the pool, hurt walking on the sidewalk or due to the possible negligence resulted in some property damage to one’s home or personal property.
Property insurance for an Association covers physical damage to commonly owned property or commonly insured property. An example of commonly owned property is an entrance sign or clubhouse and an example of commonly insured property is a townhome with property coverage or a condominium. Always remember to obtain an insured-to-value (ITV) report for the buildings. This will give you the replacement cost, per square foot, to rebuild that building, which will eliminate guesswork for the Board on the amount of insurance for that piece of property.
Directors and Officers Insurance
Directors and Officers insurance protects the Board and Association from lawsuits against the Board for the management or running of the non-profit community Association. Common lawsuits brought against the Board and Association are resulting from denials from the Architectural Review Committee for size, height or types of fences, additions to homes, paint colors and types of mailboxes. Also, among the most common are lawsuits for budget issues, Board elections, following your fiduciary duty or discrimination claims. It is important to know the coverage provided by your insurance policy. The Directors and Officers insurance pays for the defense of these types of lawsuits. Remember to have your policy reviewed.
Crime and Fidelity
Crime and Fidelity insurance covers the actual dollars in the operating and reserve accounts from embezzlement or stealing of that money. Coverages for these types of policies will vary widely. Therefore, you need to know who and what is covered on these policies. The who always needs to be the Board of Directors, committees, volunteers, spouses, accountants, bookkeepers, Manager for the community and crimes committed by third parties. What needs to be covered are the modern crimes from online hackers, but also check and wire fraud. Please ensure you have this policy reviewed by your insurance agent.
Workers compensation for non-profit Associations needs to cover volunteers. If an Association does any volunteer cleanup days, like spreading pine straw, planting flowers, painting or even trimming trees, the Association needs workers compensation coverage because the general liability will exclude all work-related injuries. If the Association does not do this type of work themselves, it does not need this insurance. However, it does need its risk analyzed to help make a business decision, whether the Association needs this insurance or not.
An umbrella is the least expensive way to increase the liability limits of the insurance. Having this umbrella, which is stand-alone, will cover over the general liability and over the Directors and Officers policy. We highly recommend an umbrella policy if a community has any of the “Four P’s,” which include pools, parks, playgrounds and ponds. Again, if your community has any of these, it is highly recommended that you obtain an umbrella policy.
We have discussed six types of insurance coverage that every Association should gather appropriate information on. While every Association is different, it is important for Boards to work with legal counsel and insurance professionals as to ensure that policies and coverages fit the needs of their Association.