Homeowners association directors have specific duties that are related to the insurance coverage that is purchased for the association. Those duties include: (i) purchasing and maintaining proper insurance coverage; (ii) keeping association members informed about the association’s insurance coverage; (iii) consulting appropriate insurance agents / brokers regarding the available coverage; and (iv)notification and tendering claims to insurance carriers when appropriate.
Purchasing and Maintaining Proper Coverage.
Determining the proper insurance coverage for a homeowners association necessitates knowing whether or not there are any specific insurance requirements that are imposed by state laws and what insurance requirements are imposed by the association’s governing documents. Thus, it is imperative that applicable state statutes and the insurance provisions contained in an association’s governing documents (generally found in the declaration/CC&Rs and/or the bylaws) be reviewed to determine any required types of coverage and other mandated requirements such as the amount of a particular coverage and deductibles. Insurance that is typically purchased by homeowners associations include:
a. Liability Coverage for Officers & Directors. This coverage provides protection for the association’s volunteer officers and directors against personal liability based on claims due to negligence or breach of fiduciary duties.
b. Commercial General Liability Insurance. This insurance protects the association and its members against liability for claims which seek damages resulting from incidents that occur on the association’s common area property such as slip and fall accidents.
c. Property Insurance. This insurance protects the association against losses that result from damage to association property that is caused by various specified risks such as fire
d. Fidelity Bond. This coverage protects against losses resulting from dishonest acts by an association’s officers, directors and employees
e. Umbrella. Umbrella insurance coverage is obtained through an additional policy that provides excess coverage over and above the limits of the primary underlying policy. For example, if there is a primary liability policy that provides $1,000,000.00 in coverage and there is a claim that is in excess of $1,000,000.00, the umbrella coverage would cover the amount over the $1,000,000.00 up to the maximum amount of the umbrella coverage.
f. Workers Compensation. Workers compensation insurance coverage is required by law in order to provide compensation for employees who suffer job-related injuries. The coverage provides the injured employee with medical care and a monetary award for temporary and/or permanent disabilities suffered as a result of the job-related injury and also job retraining- if necessary. This coverage may also apply to a homeowners association’s volunteer workers such as officers, directors and committee members.
g. Earthquake Insurance. Earthquake insurance provides coverage for losses that are suffered as a result of an earthquake. This insurance is typically optional and left to the discretion of the association’s board of directors. Even so, the cost must be within the association’s approved budget limitations, or membership approval will be necessary.
h. Commercial Auto Insurance. Association’s that own vehicles need to have separate insurance to cover those vehicles and to insure against liability for personal injury and/or property damage that is caused by those vehicles.
Duty to Keep Members Informed About Insurance Coverage.
The association’s directors also have a duty to provide all of the members of the association with information concerning the insurance policies that are maintained by the association. Some state statutes and/or association governing documents may mandate that the insurance policy information be provided to the members at periodic intervals, such as annually. Association management personnel must be aware of the specific disclosure requirements relative to the association’s insurance policies and see to it that the members are provided with the required information.
Duty to Engage Professionals Relative to Association Insurance Coverage.
Given the importance of maintaining proper insurance coverage to protect against possible association liability or property damage losses, association directors have a duty to consult with experienced insurance agents / brokers who have expertise in providing insurance coverage to homeowners associations and common interest developments. Such consultants should be provided with copies of the association’s governing documents to enable them to assess what coverage is mandated. These consultants will also suggest appropriate carriers, and coverage limitations/deductibles to facilitate acquiring the right coverage for the association.
Duty to Provide Notice of Claims When Needed.
Insurance policies contain provisions that require that the carrier be given proper notice of an actual or potential claim that the association management personnel becomes aware of. A failure to provide the required notice could result in a denial of coverage if a claim is tendered outside of the required notification period. This would result in exposing the association to liability for claims that might otherwise have been covered. To protect against such a denial, association directors have a duty to immediately report and tender a claim to the proper insurance carrier immediately upon becoming aware of it.
Considering the potential liability and/or damage than can result from not having proper insurance coverage, homeowner’s association directors and management personnel should always be aware of their responsibilities regarding insurance coverage and implement policies and procedures to make certain that all association directors are kept informed of, and comply with, their duties concerning insurance coverage for their association.