A slip-and-fall claim is the most common occurrence addressed by GL. Other allegations include property damage to a home or neighboring property caused by the association’s asserted failure to maintain common area components,
such as
sprinklers or drains.
Directors & Officers (D&O) Liability Insurance
D&O liability insurance is generally a required coverage, though some governing documents do make it optional. It is recommended that a policy be in place before serving on a board of directors. This is how a board member’s personal liability is protected when making decisions on behalf of the association. Similar to GL, the DSA suggests minimum limits for D&O policies. Communities with up to 100 homes or units should maintain at least $500,000 of per occurrence D&O insurance, and larger communities should maintain at least $1 million of per occurrence insurance. Most commonly, the GL and D&O limits will be the same amount for simplicity and continuity.
Duly elected members of an association’s board of directors and committee members appointed by the board are considered insureds. Everyone should be a volunteer. Coverage does not apply to board members who are compensated. The means of compensation that may trigger a coverage issue could include a gift card or even something non-monetary. The important thing to remember is that service by members of the board must remain completely voluntary.
Among other things, the insurance carrier will provide defense and pay judgment or settlement amounts for allegations of wrongful acts, breach of duty, and failure to enforce the CC&Rs. Ideally, the policy will include conditions for failure to procure adequate insurance, defense cost outside the limit of liability, and non-monetary claims.
Crime/Fidelity Insurance
Maintaining appropriate crime/fidelity insurance is a requirement of the DSA, and always a requirement for a member’s sale or refinance of their unit or home. The DSA and lenders require a limit at least equal to the total of three months
assessments, including reserve contributions.
In addition, the DSA requires a computer fraud and funds transfer fraud limit equal to the limit of coverage for theft. If the association uses a community management company, crime/fidelity coverage needs to include coverage for acts by the managing agent as if they were also an employee of the association.
The insurance carrier will indemnify the association for financial loss via theft, fraud, or embezzlement. It’s worth noting that the association must do all the forensic accounting, including informing authorities, in order to validate the claim of loss.
Umbrella/Excess Liability
Umbrella/excess liability is rarely a requirement of the governing documents. The policy provides additional
liability insurance
over the GL and D&O policies. Few carriers offer GL limits higher than $3 million per occurrence or D&O limits higher than $1 million per occurrence. If the governing document-required limits, or those of a State regulation, are higher than what can be offered by the underlying carrier, an umbrella policy is necessary to reach those requirements.
In addition, the umbrella/excess liability insurance is used to increase limits to meet the risk tolerance of a board of directors. For example, the board of directors of a small single family home community may satisfy legal requirements with a $2 million per occurrence limit, but the board of a large master-planned community with liability exposures like a lake, streams, or athletic facilities may wish to maintain higher limits for additional peace of mind.
Workers’
Workers’ Compensation Insurance compensation
(“work comp”) insurance is a
requirement for any association that has employees. Coverage includes medical costs and lost income for work place injuries.
It is also considered best practice to maintain an “if-any” work comp policy even if the association does not actually employ individuals. If a vendor’s work comp carrier denies a claim, the association may be considered the employer of the vendor’s employee. The work comp policy protects the association from this rare but real exposure.
Other Coverage to Consider
If not included in other policies purchased, and depending on exposure, a board of directors should consider coverage for equipment breakdown, pollution liability, cyber theft and cyber liability, commercial auto insurance, or specific event liability.
Remember, the risk management program involves avoiding, controlling, transferring, and accepting risk. If something cannot be avoided, controlled, or transferred, it is then an accepted risk and the association will need to address expenses related to that exposure. Industry professionals specializing in common interest developments can advise on which exposures exist and make recommendations to limit the risks that are accepted by the association.
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Limits of crime/fidelity insurance vary based on the CC&R requirements, with the most common being a limit required by the DSA and lenders. The association’s insurance professional should compare the CC&Rs requirement with other r equirements and recommend a limit matching the more conservative figure.
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