A Guide To Community Association Insurance

Community Association insurance is insurance designed specifically for community associations like HOAs. 

This insurance provides protection for the community and its members against liability and risks that may arise in the community. 

There are four main components of community association insurance: Property insurance, directors and offices (D&O) insurance, liability insurance, and umbrella Insurance. 

Property Insurance 

Property insurance provides coverage for the physical structures owned by the association like the clubhouse, communal areas, recreational facilities, parking structures, and other communal amenities. 

Here are some key aspects of property insurance: 

• Coverage for Buildings: Property insurance typically covers the buildings owned by the association, including their exteriors and interiors. This may include residential units in a condominium association, townhomes in a homeowners association, or the clubhouse and other structures in an association. 
• Perils and Risks: Property insurance protects against a range of perils or risks, such as fire, lightning, windstorms, hail, explosions, smoke damage, vandalism, theft, and certain types of water damage. It helps the association recover from the financial impact of these incidents. 
• Common Area Valuables: In addition to the buildings themselves, property insurance may also cover the contents of common areas, such as furniture, equipment, appliances, or fixtures. 
• Replacement Cost vs. Actual Cash Value: Property insurance policies may provide coverage on a replacement cost or actual cash value basis. Replacement cost coverage reimburses the association for the cost to rebuild or repair the damaged property without considering depreciation. Actual cash value coverage considers depreciation and reimburses the association for the current value of the damaged property. 
• Deductibles: Property insurance policies often have deductibles, which constitutes the amount the association covers prior to the insurance coverage kicking in. Higher deductibles may lead to lower insurance premiums, but it’s essential to find a balance between deductible amounts and financial feasibility for the community. 
• Additional Coverages: Depending on the specific needs of the community association, more coverage may be added to the property insurance policy. This may include coverage for equipment breakdown, boiler and machinery, etc. 

Directors and Officers Insurance 

Directors and Officers (D&O) insurance for community associations provides financial protection to board members, officers, and other volunteers serving a community association against potential lawsuits and claims arising from their actions, decisions, or omissions while acting on behalf of the association. 

Let’s look at the main elements of Directors and Officers insurance within an association: 

• Coverage for Board Members and Officers: D&O insurance covers the personal liability of board members and officers of the community association. It helps protect them from claims made by association members, third parties, or even other board members alleging errors, omissions, negligence, or wrongful acts regarding their duties. 
• Claims Examples: D&O insurance can cover a wide range of claims that board members and officers may face. This can include allegations of mismanagement of association funds, breach of fiduciary duty, failure to maintain or repair shared areas, discrimination, employment practices violations, conflicts of interest, and other similar claims. 
• Legal Defense Costs: D&O insurance typically covers the costs associated with defending against claims, including attorney fees, court costs, settlements, and judgments. 
• Entity Coverage: In addition to individual coverage, D&O insurance may also include entity coverage, which protects the community association itself. This coverage can activate when the association is named as a defendant in a lawsuit alongside the board members and officers. 
• Exclusions and Policy Limits: It’s vital for board members and officers to understand the policy exclusions and ensure they follow their duties and responsibilities. D&O insurance policies may have specific exclusions like intentional wrongdoing or criminal acts. Policy limits set the maximum amount of coverage available for each claim or in total during the policy period. 

D&O insurance is crucial for associations because it helps attract and keep qualified board members and officers. It also helps ensure that decisions are made in the best interest of the association without the fear of personal financial consequences. 

Liability Insurance 

Liability insurance supplies coverage for claims and lawsuits arising from bodily injury, property damage, or personal injury that occur within the community’s premises or because of the association’s activities.  

Here are some crucial elements of liability insurance related to an association: 

• General Liability Coverage: General liability insurance protects the community association against claims for bodily injury or property damage caused by the association’s negligence or the negligence of its employees, volunteers, or agents. It covers medical expenses, legal defense costs, settlements, and judgments resulting from such claims. 
• Slip and Fall Accidents: Liability insurance is especially important for community associations, as slip and fall accidents can occur in common areas like walkways, parking lots, staircases, or recreational facilities. If a visitor or resident is injured due to unsafe conditions, liability insurance helps cover medical expenses and potential legal claims. 
• Property Damage: Liability insurance also covers property damage caused by the association’s operations or negligence. For example, if a maintenance crew accidentally damages a resident’s property while performing repairs, liability insurance can help cover the cost of repairs or replacement. 
• Personal Injury: Liability insurance often provides coverage for claims of personal injury, including libel, slander, defamation, or invasion of privacy. If someone alleges that the association or its representatives caused harm to their reputation or privacy, liability insurance can help cover legal expenses and potential damages. 
• Directors and Officers Liability: It’s worth noting that liability insurance may also supply coverage for certain claims against board members and officers. This coverage can extend to allegations of mismanagement, negligence, or breach of fiduciary duty. 

Umbrella Insurance 

Umbrella insurance, or excess liability insurance, is an added layer of coverage that goes beyond the limits of primary insurance policies. It offers broader protection and higher policy limits to community associations.  

Here are some important components of umbrella insurance related to a community association: 

• Increased Liability Coverage: Umbrella insurance is designed to provide more liability coverage beyond the limits of primary insurance policies. If a claim exceeds the limits of the underlying policies, umbrella insurance kicks in to give extra financial protection. This can be crucial in situations where a significant lawsuit or multiple claims exceed the primary policy limits. 
• Comprehensive Coverage: Umbrella insurance covers a wide range of liability risks that the community association may face. It extends coverage to several types of claims, including bodily injury, property damage, personal injury, libel, slander, defamation, and other potential liabilities. It acts as a safety net, offering comprehensive protection against unforeseen and significant liability risks. 
• Aggregate Coverage: Umbrella insurance typically provides aggregate coverage, which means it applies to the total amount of claims during the policy period. For example, if a community association has a $1 million umbrella policy with a $5 million aggregate limit, the insurance will cover claims up to $5 million in total during the policy period, regardless of the number of individual claims. 
• Excess Coverage Structure: Umbrella insurance follows an excess coverage structure. It kicks in once the underlying primary policies have reached their limits. For example, if the primary general liability policy has a limit of $1 million, and a claim exceeds that amount, the umbrella insurance would cover the remaining amount, up to its own policy limit. 
• Cost-Effective Protection: Umbrella insurance offers significant added coverage at a relatively low cost compared to increasing the limits of each primary insurance policy individually. It offers cost-effective protection against potentially catastrophic claims that could have severe financial consequences for the community association. 
• Customizable Coverage: Umbrella insurance policies can be tailored to the specific needs of the community association. The coverage limits and scope can be customized based on factors such as the size of the association, the nature of its activities, and the potential liability risks it faces. This allows the association to obtain the proper level of coverage to address its unique needs. 

Conclusion 

Every community association should have insurance. The four main components of community association insurance are important to understand, so that you know what to expect from insurance and feel comfortable as a community member or officer without the fear of personal liability.