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Condo Association Insurance - Liability Areas

stephen polinsky on Feb 4, 2009 11:15:00 AM


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?


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