Property Management Blog

Why does my HOA need to buy liability Insurance??

As a member of your homeowners association you may ask, "Does my HOA need insurance?" The answer is a big yes! The more pertinent inquiry would be, "What type of insurance does our HOA need?" It is vital that your organization has the proper insurance coverage for all possible types of problems. 
The fact is insurance is one of the best investments an HOA can make. It is up to you and your board to make sure your Association is properly covered for all contingencies. 
There are insurance agents and agencies that specialize in HOA coverage. These professionals can work with you to tailor a plan that fits the unique needs of your homeowner’s association. There is no better peace of mind than knowing your organization has adequate insurance coverage in force.

What types of insurance do you need?

There are several types of insurance coverage that your homeowner’s association should carry. If you maintain this coverage your Association should be protected from almost all issues that may arise. Let's take a look at some specific coverage types:

Property Insurance

If your HOA owns property, especially structures, then it should protect it. This type of coverage does just what is says; insures the property. This policy will cover against vandalism, theft and damage from fires, storms and natural disasters.

Liability Insurance

This will cover things like accidents or injuries that take place on the property. Your HOA could be liable for actions it took, or did not take. Associations should take actions to correct any safety issues, especially in today's world where lawsuits are all too common.  

Directors and Officers Liability Insurance

This is more commonly known as "D&O" coverage. This protects officers and trustees from being held liable when performing their duties for the Association. The D&O policy helps fund this requirement. It protects officers and trustees when they err accidentally and without malice. It does not cover willful acts of wrongdoing.

Fidelity Insurance

This coverage protects the organization from theft committed by employees, contractors, Association members/volunteers, or even management companies. This should be part of your Association’s overall insurance package.

Worker’s Compensation

There is also worker's compensation insurance that should be considered if your HOA does not already have it. This insurance type will cover HOA volunteers, like Board members or other members that give of their time to do something positive for the Association without pay, like changing light bulbs for instance. HOA Worker’s Compensation will not take the place of the worker’s compensation insurance that any HOA maintenance contractors should carry; it is specific to HOA non-paid volunteers.

A View From the Board Member's Perspective

When a member of your association made a decision to represent their neighbor’s common interests in their Home Owner's Association and become a Board member, they made a basic promise to the Association: To serve the association including protecting it from future risk. A Board Member has a duty to ensure that the association has properly consulted with an insurance professional and adopted the appropriate kinds of insurance products at the appropriate insurable levels to protect the association and its membership from reasonably foreseeable risk.  If you doubt your Board is serving your association’s best interests by allocating some of your HOA funds to insurance purposes, don't.  Those Board members are prudently attempting in good faith to manage tomorrow's potential unknown risks with a purchasable insurance product today.
The types of coverage listed above should protect your homeowner’s association from most insurance issues it can run into. It is better to have more coverage than not enough.  Of course, you and your Board members may not be insurance experts. It is essential that you consult and get counsel from a licensed insurance agent, or agents, to help put your insurance plan in place. There is no substitute for proper insurance coverage!

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