Is Your HOA Covered?
What coverages does your HOA need? Here’s a list of coverages your HOA should at least evaluate:
1. A General Liability Policy
“The two basic coverages you need for any condo association are property insurance covering the building—which means the common areas and the units—to 100 percent of your replacement cost,” explains Robert Galvin, a partner at Davis, Malm & D’Agostine PC in Boston who specializes in representing condos and co-ops. “With property insurance, the question always is: What does it cover? That depends on how the condo documents are written. If the documents are correct, if you could pick up the building, turn it upside down, and shake it, everything that falls out wouldn’t be covered.”
2. Liability Insurance
“Then you need liability insurance,” adds Galvin. “In Massachusetts, it’s normally $1 million, but you can have more. Remember that the liability insurance policy the association buys doesn’t cover things that take place inside the unit. If an owner has a guest in his unit who slips, falls, and sues your association, the association policy doesn’t cover it.”
How much liability insurance should your HOA buy? “The rule of thumb is to buy as much liability insurance as you can afford,” says Alan S. Chesler, a partner at Alan James Insurance in Sunrise, FL, which specializes in commercial and residential property insurance, including condos, HOAs, and co-ops. “It’s reasonably priced in Florida, and a basic policy includes limits of $1 million per occurrence and $2 million in the aggregate. That would be the minimum I’d expect an association to purchase.”
3. A Directors and Officers Policy
“For my board members, we explain that D&O is so important,” says Kristen L. Rosenbeck, a partner at the Mulcahy Law Firm PC in Phoenix, which represents associations. “Board members are volunteers, and I’d never volunteer on a board unless I knew I had D&O coverage and that it was adequate for the specific community I was involved in.”
4. An Employee Dishonesty or Crime Bond
“This protects your association’s assets from theft by the board or an employee,” says Chesler, “and it includes bank assets.”
5. A Workers’ Compensation Policy
If your association has employees, this is a must. “Even if you don’t have employees, I’d look at a standby workers’ compensation policy to ensure that if someone working on your property claims employee status, your association can protect itself,” explains Chesler. “It’ll cost in the low $600s, and it covers workers’ compensation defenses and, if your association were found to be an employer, the workers’ compensation costs.”
That’s not as far-fetched as you might think. “If you’re going to have any situation in which there could be the appearance of having an employee or a person could claim to be an employee, get workers’ compensation insurance,” advises Rosenbeck. “My recommendation is to hire licensed and bonded contractors, but that doesn’t always happen. An association might hire Joe off the street to change light bulbs, and the board thinks workers’ compensation isn’t going to be an issue. But Joe might perceive himself as an employee because he’s paid by the association.”
6. Garagekeepers Insurance
“If you have a garage and allow nonmembers to park there,” says Galvin, “you’ll need this coverage.”
7. Social Host Liability Insurance
If you serve liquor on your grounds, you probably need this coverage. “This will come up if you have reception where you’re serving alcohol, and a guest says he had a terrible accident on the way home and killed someone,” explains Galvin. “Now the victim’s family is now suing your association for $1 million on the theory that the bartender served the driver too much at your function.”
8. Discrimination Coverage
“This is one of the biggest coverage concerns we’re seeing right now,” says H. Scott Kerns, president of BayRisk Insurance Brokers Inc. in Alameda, Calif., which also insures condos and HOAs. “It hasn’t hit yet, but I think it will. We’re having a tremendous foreclosure problem. But if associations try to foreclose, people get desperate, which could create discrimination claims. You’re trying to get someone out of his unit, and to you it’s a straight-up business deal. But the owner comes back and claims you don’t like him because he’s in a protected class. So we’re looking more at association policies covering discrimination claims.”
