Condominium, homeowner (HOA), and townhome associations carry insurance coverage designed to protect the common areas and shared spaces of the community.

While individual homeowners are responsible for purchasing their own insurance to protect their personal property and dwelling, the association’s insurance policy may cover:

• Damage to the common areas caused by events or weather (ex. fire, frozen plumbing, smoke, theft, vandalism, water damage, wind)
• Accidents that occur on the common areas (ex. slip and fall)
• Liability coverage in the event of a lawsuit, judgments, settlements, or other legal claims for bodily harm or property damage

The association’s governing documents and the terms of the insurance policy will define the specific types of property that are covered.

The specific types of association insurance that board members should consider depends on various factors, including the size of the association, the types of amenities offered, and potential association risks.

Types of Community Association Insurance

Property insurance – This type of insurance covers damage to common areas, buildings, and structures, within the community. Types of property covered under this insurance can include clubhouses, playgrounds, swimming pools, and parking garages.

Liability insurance – This type of insurance covers the association in the event someone is injured or their property is damaged while on the association’s property.

Directors and Officers (D&O) insurance – This type of insurance covers the board members in the event of legal claims related to their decisions or actions while serving on the board. Claims may include alleged breach of fiduciary duty, errors, mismanagement of funds, negligence, omissions, or wrongful acts while acting in their capacity as association directors or officers.

Umbrella insurance – Also known as “excess liability insurance,” this type of policy provides additional coverage beyond the limits of the association’s primary liability insurance. It can also provide additional coverage to help cover the costs of judgments, legal fees, or settlements. Umbrella insurance is designed to provide an extra layer of protection against catastrophic events or large lawsuits, protecting the association’s assets and mitigating against catastrophic financial risk.

Workers’ compensation insurance – This type of insurance policy provides benefits to association employees who sustain a work-related injury or illness. Workers’ compensation insurance can provide benefits such as lost wages, medical expenses, and rehabilitation costs. Most states require this insurance for businesses that have employees, including community associations. It’s important to note that workers’ compensation insurance typically only covers employees of the association and may not provide coverage for independent contractors or volunteers.

Navigating Community Association Insurance

Being underinsured, missing coverage, or violating insurance provisions outlined in the association’s governing documents can open the community to potential issues.

Working with an insurance agent – It’s important for property managers, board members, and community leaders to work with an experienced insurance professional that can:

• Identify the specific coverage needs, liabilities, and risks of their association,
• Obtain appropriate insurance coverage, and
• Adjust insurance coverage mid-policy when appropriate.

Appropriate coverage – After the tragic Champlain Towers South condominium collapse in Surfside, FL, there has been higher scrutiny of community association deferred maintenance, financial stability, and construction projects. Additionally, appropriate insurance coverage has come under review as insurers evaluate risks and potential pay outs in the event of liability exposure.

What is additionally insured? – The association might require a contractor to provide proof of insurance and to name the association as an additionally insured on the contractor’s liability insurance policy. In the event the contractor causes property damage or injury while working on association property, the association would be covered under the contractor’s liability insurance policy as an additionally insured.

Buying, selling, and refinancing – Mortgage lenders including Fannie Mae and Freddie Mac review the association’s finances before they approve a loan to a new buyer, a unit sale, or refinance within the community. Insurance coverage red flags can potentially impact lending and financing, impacting property values and potentially constraining or preventing owners from selling their units.

Governing documents – The association’s governing documents may outline insurance provisions and requirements including coverage types and minimum coverage amounts. The association’s attorney can assist in drafting or revising governing documents to ensure insurance language is not only compliant with the law but also easy to understand. Vague and unclear language can cause confusion leading to potential disputes or legal issues.

Legal Resource

Appropriate insurance coverage is as unique as each community association. States also have different legal constraints regarding the association’s insurance versus homeowner insurance. Board members and property managers need to be proactive, consult with professionals, balance potential liabilities, and evaluate protection against unexpected events.

Insurance can help cover the costs of property damage, personal injury, and legal expenses related to disputes or lawsuits. Without insurance or the correct types and levels of coverage, associations may have to bear these costs themselves, potentially resulting in significant financial losses.

Do not hesitate to contact our law firm if your condominium, homeowner (HOA), and townhome community association has questions regarding insurance coverage, insurance provisions in your governing documents, legal requirements, or other legal concerns.

Please call 855-537-0500 or visit www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.

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