Every one knows that regular visit to your medical professional can identify and prevent a minor
health problem from developing into a major illness.
As members of an industry homeowners association, do we regularly schedule an examination of
our insurance coverage and risk management in order to prevent a minor issue from becoming a
very expensive major problem?
Individual owners as part of a larger condominium and homeowners' association can become
liable for a collective debt via special assessments if association fails to have the proper type and
amount of coverage when something unexpected happens.
Is it time for a check‐up?
What coverage is necessary? What coverage is available?
Insurance coverage is one of the best investments a homeowners’ association can make. HOAs
need to insure: A) the common property owned by the association and B) the actual association
itself against libility; and should strongly consider insuring: C) the association’s leadership, and
D) against the crime/theft and other types of insurance listed here as well.
(A) Property Insurance on the Residence Units and Common Areas at 100% of its replacement
value (including contents and Electronic Data Processing equipment) against loss or damage by
fire and lightning and all other risks covered by the usual standard endorsement for "All Risks".
Special option considerations:
Flood & Earthquake coverage
Building Ordinance and Demolition coverage
Sprinkler Leakage coverage
Business Interruption & Extra Expense coverage (to include Alternate
Accommodations and Extended Period of Indemnity)
Contingent Business Interruption coverage
Obviously an association should always insure the property it owns. Personal property insurance
protects the property from vandalism, theft and damage from storms, fires and natural disasters.
Liability insurance protects the association for any acts of “negligence” it may inadvertently
commit. If the association is found negligent because of an action it took (or didn’t take) they can
be liable for damages. A good liability policy will not only cover the damages if negligence is
proven; but it will also cover the costs of the association’s legal defense. It is not uncommon for
the governing documents of associations developed in the last decade to require a liability policy
of $1 Million per occurrence.
(B) Commercial General Liability Insurance protecting Association and Management Firm,
(including Liquor Law Liability and Product Liability) against claims for Personal injury,
Advertising injury, Employee Benefits Liability, and Property Damage occurring on, in, or about
the premises with a total limits on not less than One Million Dollars ($1,000,000) per occurrence,
Two Million Dollars ($2,000,000) aggregate per location, with deductibles as agreed by the
Board. Furthermore, it must provide medical payments coverage of at least $5,000 per person
with no aggregate and no deductible, unless agreed otherwise by the Board.
Special option considerations:
Garage Insurance coverage
Guest's and Owner's Property coverage
For industry HOAs that maintain insurance, typically property and liability are the two most
common forms of coverage they carry.
But what about other risks? Given the propensity for litigation in this county, no homeowners’
association is immune to the possibility of a lawsuit. And what is the association’s risk for theft
or embezzlement? One only has to search to Internet to find numerous tales of HOAs which have
become victims of a failure to property manage risk with insurance coverage. There are many
apparent reasons homeowners’ associations should consider a more comprehensive insurance
C) Directors & Officers (“D&O”) Liability insurance with limits of at least One Million Dollars
($1,000,000) per occurrence and in the aggregate, covering the actions and decisions of the
Board, Officers, and which should include entity coverage for the Association.
Directors and Officers Liability Insurance is a must have for self‐managed boards and is often
recommended by professional managers and property management firms as well. HOA bylaws
commonly include an indemnity clause stating that the board of trustees or association officers
shall be held harmless for most types of legal liability. In other words, if the courts find that an
HOA board acting on behalf of the association has erred and broken the law, the association has
agreed (through the presence of the indemnity clause) to hold the board harmless. Meaning the
association is responsible for the legal defense fees of behalf of the board members and they are
not personally liable.
A typical D&O policy covers errors made by board or committee members while acting on behalf
of the association. It will not protect willful acts of dishonesty, slander, defamation of
character. However, it will cover board members and officers when they step outside legal
bounds accidentally and without malice.
(D) Fidelity Bond or bonds, and/or Crime Insurance, for all officers and employees of the
Association and Management Firm having control over the receipt and disbursement of funds, in
such limit sums as shall be determined by the Association in accordance with its By‐Laws.
(E) Errors and Omissions insurance coverage for the Association and Management Firm, if
available, for a limit on not less than $1,000,000 per occurrence, covering the management of the
Fidelity Insurance protects the association from theft committed by an employee, contractor, and
even association volunteers. If you decide to carry fidelity insurance, remember to confirm with
your insurer to verify your policy extends to theft committed by non‐paid, volunteers of our
(F) Workers' Compensation and Employer's Liability insurance as required under applicable
laws. Policy limits of at least $500,000 for Employers Liability per Accident, $500,000 for Disease
per Employee, as well as in the aggregate.
(G) Automobile Liability insurance covering owned, hired, and/or non‐owned vehicles, with
separate coverage in an amount no less than One Million Dollars ($1,000,000) combined single
(H) Employment Practices Liability insurance of at least One Million Dollars ($1,000,000) and
coverage that extends to third parties, as well as all employees, with a deductible of no more than
(I) Umbrella Policy of at least Five Million Dollars ($5,000,000) that will be in excess of all
primary casualty insurance policies; to be an umbrella and not a straight excess policy.
(J) Other Insurance considerations:
Builders Risk (during construction or renovation of Association property)
These highlights have very obviously only touched the tip of the iceberg with regard to Insurance
pertaining to Owner Association, Directors and Management. The key for Associations and
Management is to establish a mutually beneficial relationship with an insurance firm and/or
agent which can guide them through the minefield of final determination of the coverage
necessary for the individual property in question.
At the endof the day, it is the association’s duty to protect the association and its members from
theft, liability, accidents and catastrophies. A comparhensive insurance plan will help provide
peace of mind. There are insurance agents who specialize in insurance for homeowners’
associations. These agents can work with you to build a package that meets the needs of your
unique community. Please visit the ARDA Resort Buyers Marketplace at www.arda.org for
contacts to insurance companies and agents who have experience in our industry.