Homeowners association directors need to be aware of their duties relative to HOA insurance coverage, which include: (i) insuring against various risks that the association is exposed to; (ii) utilizing proper insurance agents and brokers; (iii) tendering claims to insurance companies; and (iv) keeping association members informed about association insurance policies.
Purchasing Appropriate HOA Insurance Coverage.
Homeowners associations, acting through their directors and management personnel, are responsible for purchasing and maintaining different types of insurance policies that insure the association against a variety of risks. Knowing what type of insurance policies to purchase and the levels of coverage that are appropriate for an association requires a review of relevant state statues, knowledge of the content of the associations governing documents relative to insurance, good professional guidance, and prudent business judgment. All too often, well intentioned volunteer directors make important decisions about insurance coverage based solely on a desire to control expenses and avoid increasing annual member dues without complying with minimum insurance coverage requirements that may be specified in their states statutes and/or their associations governing documents. This can result in the association not having required insurance coverage at a time when needed and expose the association and its members to potential liability risks that would have been avoided had the proper insurance been obtained.
There are many different types of insurance policies that an association may be required to purchase which an associations directors should be familiar with in order to make prudent insurance coverage decisions. The following types of HOA insurance coverage is typical for homeowners associations and may be required by state statutes and/or an associations governing documents:
- General Liability Coverage which provides insurance coverage for the association which protects against claims made by parties who suffer personal and/or property damage as a result of conditions in the associations common area. State laws and/or association governing documents commonly impose minimum liability coverage requirements that must be complied with.
- Umbrella Coverage which provides additional coverage over the associations primary liability policy.
- Directors and Officers Coverage (D & O Coverage)– which is purchased in addition to general liability insurance and provides coverage for claims against the association and the individual directors / others covered by the policy for damages based on negligence, breach of fiduciary duties other theories of liability.
- Property Insurance which insures the associations property against physical loss or damage caused by risks such as fire.
- Fidelity Insurance which protects the association against losses that result from the dishonest acts of officers, directors, and employees of the association (i.e. theft or embezzlement).
- Workers Compensation which protects the association against liability to employees, and workers who are injured while providing services to the association.
- Earthquake and Flood Insurance which insures the association against losses for these risks which are not typically covered in basic property insurance policies.
Utilize Proper Insurance Agents and Brokers.
Making the important decisions relative to HOA insurance coverage necessitates an understanding of insurance coverage issues and policy provisions that require a level of expertise that association directors and management personnel do not typically possess. To fulfill their duties regarding insurance coverage, these decision makers need to consult with insurance agents and brokers who specialize in providing insurance coverage for homeowners associations. Such agents / brokers will assist the directors in determining the types of coverage that are needed and in making important decisions about the amount of coverage and appropriate deductibles.
Tendering Claims to Insurance Companies.
When faced with a claim, or even a potential claim, association directors have a duty to report the claim (or potential claim) to their insurance carrier. Each policy has specific policy language that requires the time period and manner in which claims must be reported and a failure to comply with those requirements could result in a denial of insurance coverage at a time when it is needed thereby exposing the association and directors to potential liability for the claims.
Keeping Association Members Informed About Insurance Coverage.
Associations have a duty to keep their members informed about the nature and extent of insurance coverage that the association maintains. State laws and/or association governing documents generally contain specific language that specifies that associations disclose information relative to the associations insurance to its members (usually done annually or upon request by a member). Association directors must be familiar with these responsibilities and provide their members with the information necessary to keep them informed about the associations insurance coverage.