Board Members, What HOA Insurance Does Your Community Have in Place?
Serving as an HOA member of the Board is an important job. The homeowners in the HOA count on you to do what's best for the homeowners and the association in general. Not all board members bring the same background and experience to the job but most people today have at least a passing acquaintance with the purpose for insurance and how it functions. Well, our question for you today is: what HOA insurance does your community association have in place? You may wonder what insurance is right for your HOA. So, let's see if we can answer that for you. Read on for our four suggestions for insurance coverage for the typical HOA.
Let's start with the coverage that's intended to protect you, the Board members. Directors & Officers Liability, referred to sometimes as D&O, protects you and your fellow board members for claims filed against you while you serve on the board of directors of the HOA. They policies cover you for the management decisions you make that have adverse financial outcomes. D&O policies have what the industry calls "shrinking limits" which means that defense costs reduce the overall limit of liability under the policy. This is the opposite of what you might understand from a comprehensive general liability policy where the defense costs pay in addition to the general limit of liability. That's a significant difference, too, because defense costs are often a large share of the litigation cost. D&O policies are also usually "claims made" policies which means that the insurance will only pay claims for damages incurred during the policy period and for claims filed during the policy period. D&O policies also cover monetary damages, not bodily injury or property damage -- which brings us to our next insurance coverage.
Master Insurance Policy. This is a good place to note that most state laws and HOA founding documents require the HOA to maintain a Master Policy of insurance. The Master Policy includes improvements, common areas, and depending on the founding documents, the individual units for the owners. If the Master Policy covers all improvements, common areas and individual units, then the owners only have to cover their personal contents and the liability for their units (known as "walls-in coverage").
- Liability insurance is the protection against a claim for damage to the personal or real property or bodily injury of someone caused by the Board's negligence or willful act. An example is that the Board's maintenance personnel are painting the outside of an owner's unit and negligently damage the owner's slate patio. Another example is that the HOAs maintenance team did not repair a sidewalk in the common area and one of the owners falls and injures himself. This type of liability for property damage or bodily injury of another comes under the Comprehensive General Liability coverage of the Master Policy.
- Property insurance is the protection against financial loss of the HOAs structures in case of damage or theft. Typically, damage means fire, smoke, wind, hail, ice and snow, etc. Water damage from floods, storms, ground water are not generally covered under property insurance but separate policies may give some protection.
Workers' Compensation. HOAs can buy workers' compensation insurance to cover their employees injured in the course of their employment as well as volunteers, like the Board members and owners who volunteer their time without pay, to provide services to the HOA. This does not replace the workers' compensation that contractors provide their employees. The Board still must exercise due diligence that contractors they hire provide workers' compensation coverage for their employees working on an HOA project.
Fidelity insurance. This insurance coverage provides protection for the HOA against financial losses from the fraudulent acts of employees or the management company who handle large sums of money. The policy generally covers theft, and may also cover embezzlement, forgery, and computer fraud.
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