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HOA Should Buy Flood Insurance

Question: I have recently been elected to the board at our condo association, The previous board was informed that because of a revision by FEMA in May of 2007, we now have 5-6 Buildings located in an AE flood zone. Some of our residents found out about this when we were notified by lenders (banks) that, because we had a mortgage, we were required to have flood insurance. Our board refuses to help by saying that we should pay off our mortgage, and it was not a concern for them and they didn't have to provide insurance. I informed the board that I wanted it on record that they were liable if in fact any buildings in this zone were damaged. Because I needed insurance for the bank, I was required to pay for a Flood Elevation Certificate for my building, which is 12 units, and then purchase an insurance policy. My question is, should the association pay for flood elevation certificates? What is the liability of the board and the association on providing insurance for the buildings in the flood zone? Please note an AE flood zone is based on the fact there could be a flood one time in 100 years. I believe that the association is at risk.

Answer: The Condominium Act requires a unit owner-controlled association to use its best efforts to obtain and maintain adequate insurance to protect the association, the association property, the common elements and the condominium property required to be insured by the act. An argument could have been made that this includes the obligation to obtain flood insurance for condominiums in a flood zone. Under the FEMA guidelines, the association is the correct party for acquiring flood insurance, not the individual unit owners. I have personal knowledge of a condominium in the Florida Panhandle which was washed away by an hurricane; there was no flood insurance. The board didn't want to spend the money. While there is case law holding that the board is not liable for the exercise of its business judgment, so long as the individual board members are not guilty of self-dealing, the absence of flood insurance will impact the ability of individual unit owners to obtain financing on their units. Personally, I feel the board is not acting in the best interests of the unit owners.

Q: We enjoy your weekly column and hope you can give us an opinion on the duties of our board of directors. First, some background: We are a small (37 lots) association with a three-member board. The president has been in place for the last four years. She has determined that she is the treasurer as well as the president. Several of the homeowners feel that this is not the best business decision and does not provide the necessary checks and balances for sound business practices. We would like to bring this up at our annual meeting, but before we can bring it up, we would like to present some reasoning for a change. What is your opinion of this practice?

A: While not favored, without a provision in the articles of incorporation or the bylaws prohibiting same, the president can serve as a dual office holder (e.g., president and secretary, president and treasurer). This is expressly provided for in the Not-for-profit Corporate Act (Chapter 617, Florida Statutes).

Q: Where would it say what the exemptions are, since our declaration that refers to mortgagees being involved in any declaration changes only says "No amendment shall be passed which shall materially affect the rights or interests of any mortgagee without the written prior consent of such mortgagee."

A: The Condominium Act provides that, as to any mortgage recorded AFTER Oct. 1, 2007, the requirement of mortgagee consent only applies to amendments which change the proportionate share of ownership and sharing of the common expenses, and amendments which permit time sharing in a condominium which previously did not, and amendments which adversely affect the rights and interests of unit mortgagees.


Condo Association Insurance - Liability Areas

Community associations are non-profit organizations created to manage the community for its members. A board of directors is elected by the members to provide this management through the collection of dues, enforcement of deed restrictions, and other duties necessary to provide association services and protect property values. Despite an association's role as a non-profit organization and the board's volunteer status, management of an association includes legally-accountable duties and responsibilities.

The normal operation of a community association exposes it to risk of accidental loss. There are five basic types of loss faced by an association:

Property-buildings, land, inventory of equipment, supplies, furniture, signs, outdoor property and records

Commercial General Liability-third party property damage, bodily injury, or personal injury due to negligence

Income-loss of dues, maintenance fees

Workers Compensation-actions taken by an employee of the association resulting in bodily injury or uninsured/underinsured subcontractors hired by an association

Directors and Officers-providing coverage for "wrongful acts" by D&O's.


Despite these risks, a condo association's board of directors can take certain actions to minimize the exposure to loss through:

Reserve studies that will provide them with exact replacement cost values for all property, examining financial statements, maintaining accurate records, routinely inspecting property to ensure safety and maintenance issues, and hiring a professional manager and other industry experts.

Analysis of association policies and procedures to identify unsafe practices, which if changed, can reduce exposure and loss.

Transfer their risk for service-related tasks by hiring reputable, fully insured contractors for certain projects. While implementation of safety controls can reduce risk procedurally, an association may find that risk is best limited through financing.


Despite careful planning and management, associations must prepare for inevitable losses. Risk management can be either self-financed or transferred to a third party:

Self-financed-an association can finance risk by maintaining a reserve account to pay for damages or loss suffered or caused by the association and its employees.

Transferred to Third Party-an association can transfer the financial burden of damage and loss to an insurance company through purchase of a commercial insurance policy(s).


As most associations operate with limited funding and reserves, purchase of an insurance policy can provide the greatest risk protection at limited cost. Often, most associations' governing documents require the purchase of certain insurance coverage. Federal regulations, state laws, and local ordinances can also establish insurance requirements for a community association. It is important for the board of directors to  understand the coverage required and to assess the exposure of the association in order to determine the proper insurance policies as reflected above.

It is also recommended that a board develop a bid request form in order to review bids uniformly. Determining what insurance policies to purchase and from whom is an important and necessary duty for protecting the association and its assets.

Source: Association Times

What is an Association Master Insurance Policy?


Why Review Your Condo Association Insurance?

All too, often some accident or casualty occurs, a claim is submitted to the Condo Associations insurance agent for forwarding to the carrier, and a response is received informing the Board and its Manager that this is not covered, or some obtusely worded exclusion applies.  Likewise, all too often these letters go on for pages quoting provisions from the policy which, in all candor, even we lawyers are hard pressed to follow.  Considering recent trends in court decisions holding Condo Associations liable not just to third parties, but to unit owners upon ever expanding bases, this presents a particularly troublesome issue.  And the problem can be particularly acute where a Unit Owner suffers property damage as a result of some negligence on the part of the Condo Association.

            One situation we faced involved a claim of smoke damage.  As part of its winterization of a predominantly second home, summer condominium complex, the Association capped the fireplace flues - that is, they sealed them with plastic, Unfortunately they failed to inform the owners of this and someone came down for a nice winter weekend, lit the fire in the fireplace, layed back on the couch with a fine brandy and a good book, only to have smoke pour back into the unit.

            The Condo Association filed a claim under its master casualty policy.  However, as in common, it excluded the personal property of the Unit Owner and, as is becoming common, it continued a large deductible.  As is equally often common the Unit Owner had no Condominium Owners Policy (an HO-6) and, thus, demanded that the Association pay for the cost of cleaning his expensive living room furniture, drapes, etc. 

            The Insurer took the position that since the Unit Owner was a named insured under the policy, a claim could not be made under the liability portion of the policy.  Rather, the Association could only collect under the casualty loss portion.  However, that only covered the Unit and not the Unit Owners personal property and was, as mentioned,  subject to substantial deductible.

            Fortunately, in that situation we were able to negotiate a resolution with the Insurer.  However, another similar situation has arisen with another of our clients and this time the Insurer isnt flinching yet.

            All this points to the need by Boards and their Managers to carefully review insurance proposals.  It also, unfortunately really points to the need to bring in qualified, independent insurance advisors to develop specifications for the Associations insurance needs and/or for the Association to have its counsel thoroughly review policies.  Many insurance policies, though seeming the same on the surface, are materially different when their terms are peeled back.  Facing this problem after a loss is not a pleasant experience. Rather, making the extra effort in obtaining the policies can avoid unpleasant surprises.

Source: Marcus, Errico, Emmer & Brooks, P.C.

What is an HOA Master Insurance Policy?


HOA Insurance - Directors and Officers (D&O) Liability Insurance

Every director and officer of a homeowner association board has personal responsibility for HOA business. The basic purpose of Directors and Officers insurance is to protect directors and officers from claims made because of wrongful (or allegedly wrongful) acts or omissions made while acting in their individual or collective capacity on behalf of the homeowners association.

General liability insurance will not protect directors and officers in the same way. This insurance is to cover against third party bodily injury and property damage. Directors and Officers insurance covers against third party financial damages and other claims not covered under General liability.

Here's a list of scenarios in which directors and officers have liability:

  • Continuing a wrongful practice after learning it's wrong

  • Libel or slander

  • Failing to pay HOA debts in a timely manner

  • Improper management resulting in losses

  • Receiving personal gain while performing as director or officer

  • Making decisions based on adequate information and advised judgment

  • Ignorance of HOA books and records

  • Verifying content of official documents before signing

  • Obedience to the governing documents

  • Self dealing

  • Aiding and abetting illegal actions of others

  • Conflict of interest

  • Carelessness in conducting business or legal matters

  • Failing to see what could be seen by merely looking

  • Inducing intentional or careless wrongdoing

  • Ignoring statutory or regulatory requirements

  • Insufficient oversight of officers or employees

  • Nondisclosure of questionable or unlawful actions

  • Willful wrongdoing

Because of all these traps and pitfalls a director or officer could fall into, D&O insurance should never be optional. No one should serve on a board without it unless, of course, you have absolutely nothing to lose. I personally don't know one person that doesn't. Do D&O.

What is a condo association master insurance policy?


Steps to buying HOA Insurance or Condo Association Insurance

HOA or Condo Association insurance is provided by the board of directors. This is known as a Master Insurance Policy to cover all common areas of the HOA or Condo Association's property.

  • Survey all areas to be covered under the homeowners association insurance policy. As a precautionary measure, explain to all association members exactly what grounds are covered under the HOA and what is covered under homeowners insurance. The standard HOA policies cover damage caused by wind, fire, rain, flood and lightning.
  • Consult an agent who specializes in HOA insurance or condo association insurance. An agent will guide you in the right direction, explain what is covered and advise what coverage limits would be appropriate for your housing plan. In addition to structure coverage, the HOA insurance policy also covers employee dishonesty, theft errors and omissions.
  • Calculate each portion to be covered under HOA insurance and how much it would cost to replace that portion of all the buildings and property maintenance. Establish a reserve for funding when it comes time to replace roofs, gutters and downspouts, pool/spa maintenance and concrete repair. Whether short term or long term, there are always maintenance and repairs that need to be done. Ensure you have adequate funds to cover these. If there is not enough funding available, it could result in lawsuits from the homeowners for negligence or injury. Funds are normally established by homeowners paying the homeowners association fees.
  • Ask insurance agents what types of insurance other homeowners associations of similar size and shape to yours typically buy and what is recommended for your particular homeowners association.
  • Talk with the officers of your homeowners association to get their views of what types of insurance are needed. No one knows your homeowners group better than the officers and those who live there.
  • Identify all board of directors as employees for the HOA insurance only. This way they are covered under the theft and dishonesty portions of the HOA.

What is a condo association master insurance policy?


What is a Condo Association Master Insurance Policy?


Minimize Your Community Association Risk Against Current Housing Trends

When the housing market encounters a downward trend, and most recently accelerated by the rapid decline of the mortgage industry, cash-strapped homeowners must balance whom to pay, whom not to pay, and what to pay for. Sadly, many have decided to relinquish the maintenance on their homes.

In some cases, owners are abandoning their home, awaiting foreclosure. An abandoned home can directly impact the condo association and its members. Owners with no means of financial support are not able or willing to spend money on what they consider low priority - maintenance on their homes, which they do no expect to own much longer. Homes with pools are left without regular services, resulting in major health issues. Unkept lawns can result in brown grass, overgrown shrubbery, and trees untrimmed for many months. At times newspapers and junk mail accumulate on the property. A home in foreclosure can mean an empty house, which can then be a target for vandals. Owners, hoping to keep their property, may consider renters, who may not not have the same sense of ownership and pride in the community. Some renters can make it harder to enforce the rules and comply with community standards. Not only are maintenance problems an issue, but association dues may drop low on the priority ladder, maybe even being totally ignored.

Onsite owners are affected, too. Neighbors may continue to pay their association dues, but feel frustrated that nothing can be done thei neighbors' delinquency and the low rate of maintenance. To them, a foreclosed home is still private property owned by someone, and problems at that property should be addressed by the association. At times, these owners may take upon themselves the task of completing maintenance at neighboring property, just to protect their own property value. Or these owners stop paying their dues in retaliation of what the association is not doing to protect the community.

And what happens if an association and its management firm attempts to maintain the property? Can they run into legal trouble if they turn on water or mow the lawn? Are they expending association funds that may never be recovered from the delinquent owner? Add to the problem the fact that the association may not have enough funds to maintain its own assets, much less maintain an owner's property. Should the association hire a maintenance service to handle extreme cases of health risk or potential extreme hazards, such as patrols to fend off vandals?

As the housing crisis deepens, so can association problems. Hurt by the slump in housing sales, builders are opting not to pay their association dues. Pursuing and collecting on those dues erodes an association's resources Collection of monthly dues is critical for maintaining common areas and solidifying long-term reserves. Association dues keep the pool clean, buildings painted, and landscaping maintained. Associations are considering shutting down clubhouses or decreasing the frequency of necessary services such as trash removal, pool maintenance and grounds upkeep. Gated developments usually have an even higher monthly or annual fee ecause of the additional common elements that must be maintained Trying to collect an owner's delinquency through a lawsuit costs the association money that the association may never recover. So, the delinquency can be less than a collection lawyer's retainer fee. Officially recording a lien on a property may also cost more than the delinquent amount. It can be a struggle for the association to deal with these delinquencies that turn into foreclosures.

What happens in a foreclosure? The foreclosure process for residential mortgage loans is a lengthy ordeal in which the secured creditor (lender) sells or repossesses a parcel of real property after the owner has failed to comply with the mortgage agreement which is secured by a lien on the property. When the foreclosure lawsuit process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that "the lender has foreclosed its lien". The association has the same enforcement tool: the lien. An indebted homeowner who wants to sell or refinance his or her property would also need to satisfy the association's lien. But a lender foreclosure eliminates an association's lien, meaning the association can no longer foreclose and a lawsuit against the owner personally is often the only way for an association to possibly collect back payments. If an association begins the foreclosure process before the lender does, the association has a better chance of persuading the owner to pay delinquent maintenance fees before losing his or her home.

Many associations have already suffered through many of these financial situations. What steps can your association take to strengthen its financial position and minimize its risk?

  • Review your collection policy - tighten up the association's procedures. Are the collection notices being sent out in a timely manner and delinquencies referred to the attorney promptly? Research your governing documents and state law to verify that the all possible collection activities are taking place.

  • Evaluate the reserves - Review the status of your association's reserve accounts. Are they adequately funded to make it through a downturn in the economy? Make sure that if you are considering "borrowing" from the reserves as a means to offset a decrease in assessment revenue, that your reserves will remain well funded.

  • Look at the association's service contracts - perhaps there are discretionary services that can be temporary eliminated that will not cause long-term damage to the association's assets.

  • Cost saving ideas - eliminating necessary services obviously does not support the mission of the association to preserve and protect property values. However, you may need to implement some short-term fixes to ensure the sustainability of the association.

  • Making the most of your money - are your association funds getting the best yield while still complying with investment requirements detailed in the governing documents and state statutes?

  • Raising assessments - while this option will not be appealing to the owners, it might be required. The Board should consider all available options, and remember that they have a fiduciary duty to the association, and raising assessments may be the only remedy to offset increased costs and/or declining collections.

Being ready and prepared to make it through these financial times will greatly improve

Source: Association Times


Does Condo Association Insurance Cover Condo Unit Damage?

I live in a condo association high-rise and I pay monthly HOA fees.  My water heater leaked recently and damaged part of my carpet and walls.  Building maintenance replaced the water heater and repaired the damaged areas and have presented me with an $8,000 bill along with documentation of the work completed.  

When I bought the condo, my lender (who was working on-site in the building) told me that they didn't require separate homeowner's insurance or condo insurance because it was covered in my HOA fees.  Checking my HOA by-laws seemed to confirm that:  "....said condo association insurance policy shall cover all condo units, including but not limited to, condo insurance for such property as wall and floor coverings....".  Assuming this, I didn't purchase additional condo insurance coverage.

My Condo Association is now telling me that the condo association insurance coverage only applies to circumstances where the Condo Association is responsible for the damage and therefore I'm not covered at all. Nowhere in the condo association by-laws is this made clear. It describes an all-risk condo association insurance policy paid for from the HOA fees and names all Condo owners as insured by the condo association insurance policy.

Do I have any recourse?  Is it worth having a condo association attorney look over the condo association by-laws and condo rules?

There are more variations of HOA rules than there are playing cards in a deck.  You definitely need someone to read the HOA policy and give you a decision or at least point you in the right direction.  If you have car insurance, my first suggestion is to have your agent read the HOA insurance policy and give you his opinion.  If he sells condo insurance he may be fully qualified to be of help.  Also, he won't charge you for his help.

A Condo Association Attorney is going to charge from $350-$500 per hour for his time.


Property Inspections Reduce HOA Insurance Risks

You have seen your community manager inspecting the property and thought to yourself, "Gee, I hope she doesn't send me a letter of violation for installing a flag pole without prior board approval." Most homeowners and board members think about violations of policy when they hear the term "property inspection." They don't realize that when a community manager is inspecting a property, they are not just inspecting for violations of association policy.

When a community manager conducts an inspection, there is a lot more thought that goes into the process than just remembering what the governing documents dictate about pets, curb appeal, or usage.

Community Managers should develop a detailed site inspection chart for risk management and use this chart for each inspection. This chart should take into consideration what should be noted on a site inspection; all governing document requirements of a physical nature; interviews with various contractors, homeowners, and board members; board practices; rules and regulations; and insurance coverage.

That sounds like a lot of information to obtain initially, and it is, but it is information that is necessary to ensure that the association and manager are, at all times, fully aware of any potential hazards and able to take corrective measures. Also, as corrective actions occur, this chart will vary, just as it will vary as the community ages, board members change, and new risk situations arise.

By using a chart and documenting all site inspections, continually updating the chart with corrective measures, and filing this chart as a permanent record of the association, the community reduces the risk of loss, and indicates to its insurance carriers that it has a proactive means of ensuring that the community is always on the look out for potential issues, takes corrective action, and promotes the health, safety, and welfare of all who visit the community.

As an example, if a community had a clubhouse for the use of owners and guests, the following items might be considered during the weekly inspection (in addition to the owner who violated policy by working out in his street shoes!):

      1. Floor covering free of slip and fall hazards
      2. Furniture in good condition
      3. Kitchen area clean
      4. Lighting operational in all areas
      5. Rules and regulations posted
      6. Ground fault interrupter push button tested (semi-annually)
      7. Doors secured/all exterior door locks operational
      8. Exercise and weight room equipment in good repair
      9. Bathroom areas clean, clear, and dry
      10. Changing area clean and clear of debris
      11. Balcony area stable, wood in good condition
      12. All handrails secure
      13. Plate glass marked for protection
      14. Fixtures and wall mountings secure
      15. All exterior walking surfaces clear of debris
      16. All emergency lighting operational
      17. Smoke detectors operational
      18. Emergency evacuation procedures posted
      19. Communications systems operational
      20. Office area clean, clear, and secured

Community managers need to think proactively while conducting inspections; situations change daily in every community. A grate that was secure over an inlet to a water retention area one week may not be the following week due to a storm that promoted severe ground erosion. This would be an immediate corrective action item, as loss of life could occur should a child enter into that grated area.

The community manager's role while conducting routine inspections should always include continually updating the inventory of an association's risk situations; recognizing and responding to exposures to possible loss that require immediate attention, and using appropriate resources to identify an association's exposure (i.e., vendors, contractors, homeowners, board members, engineers, and insurance risk specialists); in addition to reviewing alternative risk management techniques such as risk control through exposure avoidance.

Additionally, creating and using this type of inspection chart can take phased maintenance to a whole new level for the community, allowing for long term planning by being proactive and using avoidance techniques. An example of this type of avoidance technique with long term planning might be a case where the community manager noted that balcony support beams were showing signs of deterioration; the manager brought the situation to the attention of the board through her weekly chart reporting; the board then directed the manager to have a contractor review and recommend corrective action. Because this was all brought to light in the beginning stages of the deterioration, no balconies collapsed, a long range plan was incorporated for replacement or corrective measure, the association was not financially strapped because there was no "surprise element" involved, and damage from the risk was completely avoided.

So the next time you see a community manager inspecting the property, you now know that although he or she may be writing violations of general policy, this person is also continually looking for potential hazard and safety situations to promote the welfare, ensure the safety, and possibly save the lives of the homeowners in your community.

Source: Association Times


Condo Association Insurance or HOA Insurance Gaps are Common and Costly

By Stephen Marcus


Ask an audience of condo association board members if their communities are "fully insured," and you will almost certainly receive a unanimous and confident show of hands.  Ask if they have reviewed their HOA insurance policies in recent memory, or have ever read them at all, and the hands will begin to waiver.  If participants are honest, the show of hands should all but disappear. 

That's not surprising.  Condo Assocation Insurance is complicated, dry, and unlikely to be a favorite topic of conversation for anyone, with the possible exception of insurance professionals and their close relatives.  As a result, many communities have serious coverage gaps that often do not become obvious until after a disaster, when the insurer pays less than the amount of the loss, or declines to pay anything at all.

How Much Is Enough?

The Fannie Mae requirement for condominiums (and thus the industry standard) calls for $1 million in general liability coverage.  But in a world in which litigation is constant and multi-million-dollar awards have become the norm, a $1 million policy no longer goes very far.   It certainly wouldn't have helped the community forced to pay a $32 million judgment awarded a resident claiming damage from mold, nor would it begin to touch the claim if your building superintendent accidentally runs over and kills a child in your Condo Assocation's parking lot. 

Property damage claims are more common than liability losses, but insurance professionals will tell you that coverage in this area is also inadequate.  That is partly because some boards set insured loss caps intentionally too low to reduce their premiums, but it is also because many boards don't know how the coverage they have matches their community's needs.  What condo association boards don't know about their coverage can definitely hurt them, as the board of a Massachusetts condominium discovered after their building was destroyed by a fire.  When this board filed the association's claim, they discovered that because of a measurement error, the policy understated the size of the development by 10,000 sq. ft.  As a result, the coverage fell far short of the amount required to rebuild, and owners had to absorb a $50,000 - $70,000 per unit special assessment to close that gap. 

A condo association insurance policy offering "guaranteed replacement cost" coverage (paying whatever it costs to rebuild) would have taken care of the problem.  But that coverage, once widely available, is hard to find today.  Few carriers offer it and those that do are extremely selective about the condo associations or HOAs they will cover.  However, most policies do include an automatic inflation adjustment provision, which increases the policy limits annually to reflect increases in area building costs.  HOA boards should make sure their community's policy includes that inflation trigger and also make sure the cost benchmarks the insurer uses are reasonable.    It is also a good idea to have the property appraised periodically - at least every three or four years - to make sure the coverage limits are adequate.  Also make sure you add coverage for any additions you have built or improvements you have made since the existing policy was issued. 

Having enough coverage is critical, but allocating it properly is equally important.  A stick-built suburban town house condominium paid $11,000 annually for a policy that provided 100 percent replacement coverage for earthquake damage.  That was probably overkill, given the relatively low risk that a quake would completely destroy a complex of this type.  On the other hand, this community had a $55,000 per building deductible for wind damage - an extremely high risk for these buildings, which were located on a hill.  Having the right amount of coverage overall won't help if your policy leaves you exposed in the areas where you most need protection. 

These are the kinds of issues condo associations and HOAs should consider, but often don't, when they are obtaining assocation insurance coverage or renewing existing policies.  Most treat condo associaiton insurance or HOA insurance like a commodity and shop for it based almost entirely on price, without considering the nuances that may make one policy, even if somewhat more expensive, a more cost-effective choice than another. 

Shopping for Condo Association Insurance

The best way to shop for a condo assocation insurance policy is to issue a request for proposals and then have an insurance adviser evaluate the bids you receive, explaining the similarities and the differences and comparing the costs and coverage different companies are offering.

If you aren't working with an adviser, you should deal with an insurance agent who specializes in the coverage you need.  This is particularly important for community associations, because condominium insurance is complicated and unique; your brother-in-law or a friend of a friend who happens to be an insurance agent is not likely to be the best choice.  You want an agent who can analyze the association's coverage and make sure it dovetails properly with the unit owners' policies.  Otherwise, the association and individual owners could end up paying too much for coverage, or discover after-the-fact that no one had the coverage they needed. 

Problem Areas

Having the coverage you need in the areas in which you need it is the biggest challenge.  The areas most often overlooked or structured improperly include: 

Deductibles.  Many HOAs and condo associations have increased their deductibles from the $1,000 that used to the industry norm to $2,500, $5,000 and as much as $10,000.  Those that haven't yet made that adjustment should do so.  Higher deductibles will both reduce the association's premium cost and eliminate the small claims that can trigger future increases and may threaten future coverage.  Associations should also amend their by-laws to or adopt a rule requiring unit owners who suffer damage covered by the condominium master policy to pay the association's deductible - easy for owners to do if they have the deductible coverage that is an inexpensive addition to an owner's policy.  Tapping the owner's policy first is less costly for the community and makes the master policy do what it is supposed to do - insure the community against catastrophic losses. 

Ordinance or law.  Even the scarce but desirable guaranteed replacement cost coverage described earlier won't pay to bring older structures into conformity with building code requirements adopted after the buildings were constructed.  If a building is damaged severely or destroyed, a standard policy might pay the cost of restoring the building to its pre-disaster condition, but it won't cover the cost of installing sprinklers, adding parking spaces, increasing setbacks, and making other changes an updated building code will require.  Association master policies typically exclude losses resulting from "governmental orders"; ordinance or law coverage, which associations can purchase as an endorsement to a standard policy, erases that exclusion and restores the coverage. 

Agreed amount endorsement.  This coverage eliminates the penalty that would apply if it turns out that your property is under-insured.  If you have only $10 million in coverage on a building that should be insured for $20 million, the insurer would be required to pay only half of any claim - $50,000 on a $100,000 loss.  An agreed amount endorsement would ensure full coverage despite that gap.

Business interruption.  If a fire or other disaster forces owners to relocate and temporarily disrupts the collection of common area fees, this insurance would enable the association to continue meeting its financial obligations until its normal income stream is restored. 

Fidelity insurance.  Condo associations are generally aware that they need this insurance against thefts by board members or staff members, but most don't have enough coverage and their policies aren't always structured properly.  The insurance should be issued in the association's name with the property manager obligated under the association's policy.  This structure will cover a theft by the management company principals as well as by the property manager.  The management company will have its own insurance, but that will typically cover the property manager only - it won't cover a theft perpetrated (as some have been in the past) by the management company's owners. 

Non-hired auto coverage.  Assume that a board member conducting association business accidentally kills someone in an automobile accident.  If his/her personal coverage isn't adequate to cover the claim, the victim's family can sue the association for the balance.  For an additional $50 to $75 a year, a community association can obtain $1 million in coverage for this risk.  Few community associations and apartment owners have this protection, but all of them need it. 

Workers' compensation. Many boards overlook this coverage, assuming they need it only if the community employs workers directly.  But associations without anyone on their payroll may still be vulnerable to claims, for example, if an employee of a contractor the association hired is injured while doing work for the community.  If the contractor does not have the appropriate coverage, the laws in many states will make the community liable for the worker's medical expenses.

Directors and officers liability coverage (D&O).  These policies typically will cover claims for fair housing discrimination, unfair employment practices, and the like.  Some policies will pay off if you lose a suit, but you will have to pay the litigation costs in the meantime.  You want a policy that includes indemnity coverage for the cost of defending actions against you, and you want to make sure the policy specifies that the coverage limit does not include the defense costs; otherwise, legal expenses could eat up most of the coverage you have, leaving little to pay any judgment levied against you.  Boards should also be aware that the D&O coverage many companies include as an endorsement in the insurance packages they offer community associations don't typically cover non-monetary claims (for board election challenges, architectural review decisions, rules enforcement, and the like, which represent the majority of the liability claims most communities are likely to file.  A mono-line or stand-alone policy is more expensive, but it will cover these non-monetary claims.

Surplus lines.  Watch out for companies writing coverage through "surplus lines," issued by subsidiaries or affiliates that are headquartered in another state and sometimes in another country.  These out-of-state entities aren't subject to state insurance regulations, which means they don't have to provide the coverage the state may require.  Monitoring the source of the insurance is especially important when you are changing carriers, because you could end up with dangerous coverage gaps of which you aren't aware.


A few more insurance tips for community association boards: 

  • Be proactive about risk management.  The best way to reduce premium costs is to limit the number of claims you file.  Use the association's reserve study to identify risks and quantify exposures.  An older roof is more likely to be damaged in a severe storm and so represents a greater risk than a newer one.

  • Shop the community's insurance periodically to compare the coverage available with the coverage you have. 
  • If you are changing carriers and/or agents, ask the agent to certify in writing what the new policy covers.  You want this statement to include an apples-to-apples comparison listing the coverage you had in the old policy, the coverage you are getting in the new policy that you did not have before, and the coverage you had previously that the new policy will not provide. 
  • Establish claims management procedures and follow them if your community has a claim.  Most policies will specify the steps boards should take after incurring a loss, but it is also a good idea to ask the carrier to specify in writing any additional measures the company requires.
  • Educate owners.  Make sure they understand why it is essential for all owners to have individual unit-owners' policies, and consider adopting a rule requiring owners to demonstrate that they have this coverage. 
  • Understand what property the association owns and what property it is responsible for insuring. 

Don't assume that your community is "fully insured."  Read the master policy to make sure it provides the coverage you think you have and the protection that your HOA or condo association needs.


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