Insurance and Your Community

Insurance is a necessary protection for many different aspects of our lives. From our cars to our health, insurance is there to mitigate the potential financial damage caused by the unpredictability of life — unpredictability that Community Associations are not immune to. But even though Associations are made up of residences, these special organizations require insurance protections that go beyond the typical homeowner’s insurance.

A responsible, functioning Association board with its community’s best interests in mind will surely want to protect both itself and its residents from any liability issues, and one of the best ways to do so is to make sure that your Association is properly insured.

The Basics

The first step in protecting your Community Association involves assessing whether or not you already have measures in place to do so, as only about half of Associations have any kind of coverage and, of that half, only 25 percent have adequate coverage. All Community Associations should have three types of insurance to cover the basics: general liability insurance, directors & officers liability insurance, and fidelity coverage. Although these three types certainly will not cover all issues facing an Association, they are a good place to start.

General liability insurance helps protect your Association from liability for any kind of damages or injuries that might occur on the community’s property. This is especially important if your community has high-risk common amenities, such as a swimming pool. It’s important to note, however, that though this type of insurance acts as a safeguard against damage or injury caused by the Association’s negligence, its leadership, and other staff, it does not cover the cost of defending individual board members — only the Association itself.

Directors & officers liability insurance, on the other hand, will cover the costs when a specific board member is named in a lawsuit. It also provides vital protections should someone take legal action against the Association board for its management decisions, specifically those that resulted in undesirable financial circumstances.

Fidelity coverage is important to have in order to financially protect your Association should someone embezzle or misuse the funds intended to keep the community functioning. Natural disasters or even something as simple as maintenance issues can occur unexpectedly. Therefore, an Association needs to have a flush reserve fund in order to keep the community safe and thriving for all its residents.

Finally, although not listed in the three essential types of Association insurance, an Association should always have property insurance. This type of insurance protects an Association’s property from any damage caused by vandalism or theft, but will also safeguard the community should a natural disaster, like a hurricane or violent snowstorm, cause significant destruction.

Insuring Your Community

While the types of insurance listed above will certainly provide adequate protection for just about any Community Association, each Association is different. The geographical location, common amenities, and even the size of each Association can all dictate the types of insurance that specific Associations might need.

Amenities, for example, should always have proper insurance coverage, seeing as they are resources for the entire community to enjoy. This is especially true as luxury buildings continue to add more and more amenities — like rock walls, wine cellars, and saunas — that each carry their own slew of risks to community safety and well-being. Sometimes, basic liability coverage will not be enough for these unique amenities and additional coverage, with sufficient limits, will be necessary.

There are other case-by-case considerations to keep in mind, too. Larger Associations with an extensive staff, for example, might want to consider worker’s compensation insurance and make sure that it covers both paid and volunteer employees. To be absolutely certain that your insurance policy is right for your Association, consult with a real estate lawyer and don’t be afraid to ask questions, like “Are there any gaps in my Association’s coverage?” and “What are the limits of my Association’s coverage?”

No matter the specifics of your Community Association, insurance is a necessity for keeping the community functioning properly and for keeping all residents safe and content. Engaging in a reliable, transparent relationship with your Association’s insurance provider — and maintaining that relationship rather than constantly trying to find a better bargain — will ensure that your Community Association is reliably covered.