Every association needs a comprehensive insurance program to protect itself from casualty losses, personal injury and property damage claims, as well as miscellaneous areas of liability exposure, such as officers and directors liability for the HOA's board of directors. An adequate insurance program should consider how the units are situated or connected. A condominium building will have different needs than a subdivision with a clubhouse and a pool.
Even though a condominium is required to obtain a blanket fire and casualty insurance policy covering all units, as well as all common areas, a planned unit development has the option of either obtaining such a policy or insuring only the common areas. A developer usually prefers to have the PUD association insure only the common areas, since that eliminates the cost of fire insurance on individual units.
An HOA needs to have insurance but what is right for one community may not be right for another. Coverage needs to be appropriate for the association involved. The following coverages should be considered when determining what is right for your HOA:
Property insurance covers buildings, structures and personal property owned by the association. This type of insurance typically includes common property, parkland, woods, open spaces, recreational facilities, buildings and sometimes portions of residential areas.
Property insurance provides protection for loss of or damage to community association property. A HOA needs to determine the areas to be insured and should have a professional appraisal done to determine the value of the property. Replacement cost plus coverage, which assures full value replacement, without regard to a coverage dollar limit and the actual cash value of the property is also a wise choice.
An open perils policy is preferable to a named perils policy because the coverage provided under the open perils policy is much broader. Under the named perils coverage, it is up to the association to prove the cause of loss is covered by the policy. With open perils policies, all causes of loss are covered, unless specifically excluded or limited, and the burden of proving that a cause of loss is not covered or limited rests with the insurer.
Homeowners' Associations must have commercial general liability insurance, which is designed to protect the HOA from a wide variety of liability exposures.
Unlike property damage, which can frequently be measured in dollar amounts, liability claims have no limits, other than those imposed by the courts. Commercial general liability insurance covers four types of claims:
With commercial general liability insurance, the insurer typically pays damages, legal defense fees and case settlement charges.
Comprehensive general liability insurance extends liability coverage to any location where association business is taking place. For example, this type of policy will extend liability coverage to an off-property location if that's where a meeting or HOA-sponsored picnic is being held.
Automobile insurance is needed whenever a HOA has employees who drive cars, trucks or maintenance vehicles on association property or while they are carrying out association business. Hired car liability protects the association against liability from the operation of automobiles that it hires, rents, leases, or borrows. Non-owned automobile coverage protects against liability for operation of autos that the association does not own or hire. Also, any vehicle owned by the association should be insured.
Director's and officer's liability insurance (D&O) is necessary when mismanagement of funds or policies results due to negligence by the HOA's board. Typical claims include wrongful termination, sexual harassment, discrimination and mismanagement of funds. It should also protect employees and any committee members or volunteers.
Employee dishonesty insurance, also known as a fidelity bond, indemnifies the community association for the loss of money, securities or any property because of acts of fraud, dishonesty, forgery, theft, larceny, embezzlement, wrongful abstraction, willful misapplication, misappropriation or any criminal act on the part of directors, officers, committee members, association employees, board members and volunteers. Coverage can protect the association against criminal acts by an independent managing agent.
Comprehensive equipment (boiler and machinery) insurance is a form of property insurance that protects against financial loss from property damage, business interruption and spoilage that is the result of sudden and accidental mechanical breakdown. It fills the gaps left by property insurance policies. Coverage can be written for a specific item such as an air conditioner, or it can be written to cover a number of items on a blanket basis.
Workers' compensation insurance provides coverage required by state law for injuries to association employees and volunteers that occur on the job. Workers' compensation laws incorporate four types of benefits: disability (loss of income), medical benefits, survivor (death) benefits and rehabilitation benefits.
Umbrella liability insurance closes the gap between underlying limits of coverage and possible claims in excess of that coverage. Umbrella liability insurance is tailored to each HOA and the risks covered are generally negotiated. No "standard" umbrella policy exists, so a HOA need to work closely with an insurance agent to get a policy that fits their needs.
Residents will still need to provide their own personal insurance protection. Many community associations carry master policy coverage on basic structures and common property; however, association insurance usually does not cover personal possessions. Personal insurance protection provides coverage for personal property, unit improvements, betterments, additions and alterations, additional living expenses and personal liability. If you're a property owner, check with your HOA and find out whether HOA insurance will cover any of these items. Coverage can vary-some HOA policies may cover the original unit improvements, or may cover upgrades, like hardwood flooring or new carpet if you pay for the additional premiums allocated to your improvements. Some policies will cover damage to a unit owner's property if the loss was due to a failure of a common element, like a leaky roof.
An association must keep its owners informed of the current status of its liability insurance coverage. In addition, it is a good practice for the association's governing body to review the project's insurance coverage at periodic intervals.
Source: Lawyers.comsm
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