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Insurance and Community Associations

Insurance is one of the many aspects of community management that most people may not completely understand and find a little complex. There are many facets to insurance and risk management for HOAs and condominiums. Insurance is typically divided into two broad categories; accident, life and health and property and liability. Property and liability is then divided into commercial and personal policies – an owner in a community association would obtain a personal policy, while the entity would purchase a commercial policy. We are going to drill down on the various components of a commercial policy in this article and discuss briefly the importance of proper coverage.

There are defining factors that must be considered by a Board of Directors when purchasing an insurance package, such as the types of activities that the association engages in, the requirements outlined in the governing documents, state and local laws that may apply, and of course the association’s components and elements. All associations engage in business activities, governmental, and community activities. Business activities include protecting the association’s assets. There is truly no “one size fits all” policy that will work for all associations. Some communities may have amenities such as pools, tot lots, fitness centers, equestrian centers, etc., and each policy will need to be defined based on the amount of liability and exposure to risk. Even the most rudimentary community will have common areas such as trees, streets, entry features, etc.,which should be properly insured. The insurance that a high-rise condominium would purchase versus an association comprised of single-family homes with no amenities, would be vastly different type of coverage protects against claims of wrongful acts that allege mismanagement of the association’s affairs.

A commercial policy has the following basic components:

  • Property & Liability
    • Property – provides coverage for most of the association’s property exposures to loss.
    • Liability – provides most of the legal liability coverage required for community associations to include, but not limited to, duty to defend, damages, personal and property damage, and medical payments.
  • Blanket Employee Dishonesty – often referred to as crime or fidelity coverage and provides protection of the association’s funds and funds the association is legally responsible for. The management agent is often named as an additional insured on this policy.
  • Directors & Officers Liability – often referred to as D&O coverage it has three basic functions:
    • Funds indemnification of the Board which is often required by the governing documents.
    • May cover liability claims excluded in the other liability policies.
    • Assures community volunteers that they are not risking their personal assets.

A commercial policy can be enhanced by adding endorsements. For a community with a pool for instance, a good risk management tactic may be to also purchase a Commercial Liability Umbrella policy which extends over and beyond the basic coverages.

These are the very basics of risk management for community associations and as we mentioned, insurance is very complex for common interest communities. We encourage our volunteer leaders to work with reputable agents and carriers. Insurance quotes and policies require a thorough review and a detailed analysis comparing coverages and ensuring compliance with the association’s documents. In short, risk management is essential and one of the most important elements to proper community association management and requires a professional and careful review.