The purchase and annual renewal of the Master HOA Insurance policy for most associations is probably the quickest and least understood decision an HOA (Homeowner Association) board makes each year.
Since most of us know nothing about HOA insurance, other than we pay for it and rarely use it, we can only hope our insurance broker is advising us correctly, but how can we be sure?
- Buy Your Policy from an HOA Insurance ExpertThe first thing to understand is that your HOA Master Insurance Policy should be written by an agent that has expertise in HOA insurance.You probably take your car to a mechanic that specializes in your type of vehicle, and you select a doctor who specializes in your personal medical condition. HOA Master Insurance Policy coverage should be viewed the same way — go to the expert that specializes in the issues that arise in homeowner associations, particularly condominiums and townhomes.
IMPORTANT: Your insurance broker must review the CC&R for your association to understand the scope of the association’s responsibility. If the broker does not ask for the association’s governing documents, they are the wrong person to write the Master policy.
- Annual Face To Face ReviewYou pay a lot of money for your HOA Master Insurance policy.Ask your broker to come to a board meeting, or better yet, the Annual Membership Meeting, to give a presentation on your association’s Master policy, and the types of issues the broker has seen over the past year, and what advice he/she has for your community.
- How to Find an HOA Insurance ExpertFull disclosure, I have been an active member of Community Association Institute (CAI) since 2004. I attend a lot of their classes, seminars, and conferences, including the College of Community Association lawyers (CCAL) annual conference. A couple of years ago I started attending the Community Insurance and Risk management Specialist (CIRMS) workshops, held in conjunction with the law seminar. I was impressed, and stunned by the complexity of the HOA insurance issues.Knowing what I know now, I recommend that managers and boards seek out CIRMS certified insurance brokers, or at the very least, ask your broker what type of ongoing education they get (each year) to keep them up to date on issues that dominate the HOA industry.
- Keep Yourself UpdatedCAI offers a variety of webinars.I attended, Claims Denied: Why Do Clients Pay for Insurance, which awakened my understanding of the importance of having the right insurance broker advising the HOA board.
Epsten Grinnell & Howell, APC, a San Diego HOA law firm recently wrote in their newsletter, Insurance Renewals & Notices of Facts Which May Lead to a Claim “We are seeing with more frequency associations either carelessly completing insurance renewal applications, or allowing an uninformed insurance agent or broker to complete the application form for new or renewed insurance, without making sufficient inquires of the board and management about actual or potential claims. This is particularly important in the context of directors and officers liability insurance.” (Reprinted with permission)
Real Life Story:
Let me leave you with one unfortunate outcome of making poor Master Insurance policy decisions.
Lincoln Cummings of Cummings & Associates related a story about board members who unlawfully approved a reduction of insurance coverage, to save money, before a catastrophic fire caused $1 million more damage than the reduced policy covered, which resulted in a $100,000 personal judgement, on appeal, against each board member.
Moral of the Story:
Protect yourself, and protect your association, by hiring a qualified insurance broker who can advise your community based on the needs, trends, and threats that exist for your distinctive community, and then follow their advice.
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All excellent points by Ms. Cohen when considering the right agent to write your HOA policies.
Often times (board) members do not serve association needs as they do their own personal needs like in the analogy used: finding a specialist as you would for your car or medical needs.
This reiterates the importance of electing board members who understand the business of running an association, who are well educated and kept up-to-date on association laws and regulation within your state. You do not have to be a member of CAI to enjoy its benefits although membership is a smart option.
Hi Jill: Thank you for your insightful comments.
I personally support mandatory board education. A few states require a minimal level of board education to serve on an HOA board. Board member education is available through CAI as well as many local HOA law firms and management companies.
Great article! The importance of working with an insurance professional who specializes in HOAs cannot be emphasized enough – especially in Utah where the property insurance statutes applicable to HOAs are new and complex.
YES, always consult with the professional. The horror stories I received from lawyers concerning boards that under-insured are frightening.
Ms. Cohen you nailed two major points for HOA board members when reviewing their insurance that I felt was spot on. Using an experienced agent or broker can offer reassurance that proper underwriting will be completed. It is amazing how many times I review missing insurance coverage only because a board member had an uncle that sold auto and home insurance for a well known carrier but he himself only dabbles with community association insurance. Your second point being if the agent or broker doesn’t ask for a copy of the Declaration and By-Laws that should be a red flag is your best point. I can not begin to tell you how many times that happens.
I hope it is ok that I add a few more points.
The agent or broker should also ask for a copy of the HOA’s financials to confirm the proper limits of insurance or bonds for the Crime Loss exposure. This would be for the Reserves including the Operating Account. For what ever reason this exposure is often overlooked with improper coverage.
The agent or broker should be required to make a visual inspection of the community to evaluate all exposures. Many times I come across a community association with very inadequate liability coverage when I clearly can see that there are ponds or a small playground for example.
Lastly, aside from having a very comprehensive D&O policy an HOA should always purchase a Worker’s Compensation policy even if they have no employees on a payroll. There is always that exposure of a vendor working on the property getting injured and filing a WC claim against the HOA. For just the legal defense alone it would be a prudent purchase let alone the possibility of being legally liable to cover the loss. Purchasing a WC policy with the added coverage of including volunteers and/or board members, is the best form of protection.
Excellent points, Ron. Thanks!
A workers compensation policy does not offer any additional protection to an association with no employees. Subcontractors and Association’s do not have an employer employee relationship so the only type of suit that could be brought is some type of vicarious liability like negligent supervision or failure to keep property in safe condition. These claims are covered under the CGL policy. The same is true for volunteers (specifically on a non-profit program).
The injured person has to be statutorily eligible for workers compensation insurance to receive payment and since subcontractors are not eligible it is very likely the WC policy would not provide coverage even if you wanted it to.
This point is illustrated best through the work comp audit. During a workers compensation audit for a non construction entity Like an association the underwriter does not review and charge additional premium for uninsured subs. Why? Because they would not pay anyway and therefore there is no risk.
Recommending an “if any” workers compensation policy implies coverage for uninsured contractors which can lead to associations hiring uninsured subcontractors and potential claims and E&O issues.
WOW – an eye opener for sure! Our fellow HOAs in WV just learned a “I didn’t know” issue this winter. Apparently snow plow contractors’ insurance must equal or exceed the amount of insurance an HOA has when covering physical damages. So if an HOA has $1 Million and the snow plow contractor has $500 thousand we’ve learned to say NO THANKYOU. Insurance coverage text as well as brokers don’t tell HOAs about this disparaging conflict unless the HOA knows to ask that specific question. Sterling, I always appreciate insight in expressing well written articles & lessons to our HOAs. Tip O’ the hat to you and to Ms. Cohen!
Wouldn’t have guessed right on that one either, Nance. I like Victoria’s input. Brokers need to be educated on that one.
I’m so glad you enjoy our blog, Nance. Victoria, deserves all the kudos for this one. She’s a great writer and knows her stuff.
Just a suggestion — If you are a member of CAI in West Virginia, you may want to contact the Chair of the Education Committee to let them know about the “snow plow contractors’ ” information you discovered! Your CAI chapter may want add it to their insurance curriculum (if one exists).
Thank you for taking the time to read the blogs that Sterling et al put together. It is our pleasure to write, and to help. It is with appreciation I receive your Tip ‘O compliment.
Thanx Victoria – there’s no CAI in WV – however many homeowners and Boards have become members of the Baltimore or Md/DC Chapters of CAI – we are learning a tremendous amount on handling the business of an association. I certainly will contact them on this insurance issue – it’s pretty difficult here in WV without legislative oversight.