Don Davis
HOA Insurance Specialist
Providing Community Associations with Insurance Solutions
We understand that choosing your association's insurance coverages is never easy. That is where we can help. We specialize in maximizing insurance protection and minimizing costs for homeowner associations. We help identify the right policy as per potential risk and provide you with affordable and suitable insurance. The following coverages must be a part of your association's master policy.
Property Coverage
A community association's property insurance policy is worthless if it does not provide sufficient coverage to rebuild every dwelling in the complex. The stories you hear about unhappy property owners fighting with their insurance company are typically due to the complex being under insured. Current replacement costs are a key component to replacing your complex in the event of a total loss.
Extended Replacement Coverage
While is it important to insure your
complex to 100% of its replacement value, sometimes market
conditions are such that the cost of materials and labor rise
significantly above the general rate of inflation. Extended
replacement coverage is a specified additional amount of coverage
that provides a cushion during these quickly changing market
conditions.
Building Ordinance
The concept of insurance is to
rebuild or replace your property exactly the way it was. A
problem arises when your building is older and new building codes
prohibit it from being rebuilt as it once was. A replaced
building may now require more insulation, double-paned windows, an
interior fire sprinkler system, hard wired smoke
detectors, etc.
If your building was converted from an apartment project, or is more than fifteen years old, building code changes could be substantial. We can consult with your community's Department of Building and Safety to determine what changes might be necessary if your building needs to be brought up to current building codes.
Liability Coverage
Without a doubt, master policy general liability insurance is vital. Liability insurance protects an association in situations where it may be negligent for bodily injury and/or property damage. In most circumstances, liability insurance also pays for the legal costs to defend your association. If structured correctly, general liability insurance can keep potentially large settlements away from the personal assets of unit owners and board members. As you might suspect, there are as many ways an association can be held legally liable as there are people who dwell in, or visit, the complex and use its facilities. Among these areas of risk could be:
Fidelity Bond Coverage
Fidelity bond insurance protects an association's operating and reserve funds from inappropriate use, embezzlement, or stealing on the part of board members and/or property managers. Associations with 20 or more units are required by law to have fidelity bond coverage.
There are two ways to calculate the required fidelity bond amount for an association:
Most
associations are subject to the fidelity bond coverage amount
described in #1 above. If your highest bank balance is
$150,000 and your fidelity bond coverage amount is $125,000 your
association will not comply and may be required by a lender to
increase the coverage amount. It is easy for an
association to be in non-compliance as their bond coverage
amount may not have been checked in a few years.
Property Manager Liability Insurance
Property management professional liability insurance (also known as property manager errors & omissions insurance, or property management E&O) protects all types of property management professionals if a client alleges that you were professionally negligent, failed to perform professional duties, or in the case of the failure of your work to perform as promised in your contract.
We offer complete coverages that property managers need most. Consider the following:
Errors & ommisions coverage offers the following:
Directors and Officers Insurance
Directors and officers insurance povides financial protection for the directors and officers of your association in the event they are sued in conjunction with the performance of their duties as they relate to the association.
Directors and officers liability insurance can usually include employment practices liability and sometimes fiduciary liability. The former involves harassment and discrimination suits, and is where the majority of your exposure will be.
Directors and officers insurance is often confused with errors and ommissions liability. However, the two are not synonymous; errors & omissions is concerned with performance failures and negligence with respect to your products and services, not the performance and duties of management. Generally it is a good idea to carry both directors and officers liability insurance and errors and omissions liability insurance.
Workers' Compensation Insurance
A logical question is: Why would an association need workers compensation insurance?
While all of the above points may be true under the eyes of California law, community associations have been treated as commercial enterprises. When outsourcing for service providers, even when done through a property management company, associations may be held partially or fully liable for work related injuries sustained by service providers. Injuries to association board members and volunteers who are working at the direction of the board may also be the responsibility of the association if sustained while carrying out association business.
Most Covenants, Conditions & Restrictions (CC&R) documents require community associations to carry workers compensation coverage. Given the potential for significant financial losses, board members who ignore this provision run the risk of depletion of association reserve funds.
Here are the issues:
Any association that uses an uninsured service provider of any kind (handyman, painter, roofer, landscaper, etc.) does so at enormous financial risk. In hiring a service provider, the association is the “employer” and will be held responsible for work related injuries, which may include costs for hospitalization, rehabilitation, loss of wages, etc.
Most associations and property management companies require that only licensed and insured service providers be used. Although a service provider supplies the association with a certificate of insurance, that insurance policy may be expired or no longer valid. Additionally, if the service provider's certificate of insurance indicates general liability coverage, but doesn’t specifically state workers compensation coverage, then they don’t have it. A person unfamiliar with insurance coverages and documents can easily make this mistake.
A board member who is injured during the execution of his/her duties may be eligible for compensation. For example, a board member who is conducting a monthly safety inspection of the complex, trips on a sprinkler head and breaks his/her knee cap during the fall. The injured board member could pursue compensation, as the injury was sustained while he/she was working on behalf of the association.
Volunteers working at the direction of the board may also be eligible for compensation if injured as a result of carrying out those responsibilities. For example, the board directs a volunteer to purchase poster paper from a local office supply store to make signs for a community event. While driving back from the store the volunteer is involved in an auto accident and is seriously injured. The injured volunteer could pursue compensation as the injury was sustained while involved with duties on behalf of the association.
Conclusion:
As
asset protection professionals it is our experience that every
community association should have workers compensation insurance,
whether the CC&Rs require it or not. A property
management company may carry workers compensation insurance, but
that policy will not cover your community association. Our
agency has considerable experience providing general liability and
workers compensation insurance to contractors of all types.
While most are responsible business people there are a fair number
that have policies lapse for a number of reasons. A community
association depends on various service providers to maintain the
quality of living and value of the complex. For the small
premium a workers compensation policy would cost it simply makes
good sense to avoid a pay-out that could ultimately cost the
association hundreds of thousands of dollars.
Earthquake Insurance
Earthquake insurance is an essential purchase for associations because board members have a fiduciary duty to act in the best interest of the association and its membership as a whole. This means that the board has to consider the needs of all owners rather than the desires or personal agendas of one or more individuals.
For example, an association's building or complex is substantially damaged from a 7.1 magnitude earthquake. Chances are every unit owner will face repair and replacement costs running into the six figures for their share (pro rata) of the special assessment.
As an association manager and/or board member question you need to ask is:
Will all owners in your association be able to write a check for $100,000? Will some owners, lacking the financial resources needed, be forced to walk away from their properties?
If there is any doubt that even a small minority of owners will be unable to come up with the money to pay the emergency assessment, it is necessary for the association to purchase coverage to protect all unit owners' interests.
If the association’s board fails to purchase earthquake insurance, they could be sued by those owners who cannot pay the assessment. The lawsuit would be for failure to act in the association’s best interest. D&O contracts typically exclude coverage for this type of lawsuit, so the board is going to need to pay for their own defense. If the board loses, not only will they be out thousands in legal fees, but also quite possibly hundreds of thousands more for payments of earthquake damage assessments for the plaintiffs. This risk is entirely unnecessary and can easily be by avoided by obtaining an adequate earthquake policy.
Flood Insurance
The HOA, not the individual unit owner, is responsible for acquiring and maintaining flood insurance on a condominium project located within a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA). The statutory requirements for flood insurance on associations can be found in FEMA's Mandatory Purchase of Flood Insurance Guidance Handbook, which explains the National Flood Insurance Program (NFIP) policies for various property types.
According to FEMA, the HOA must obtain a residential condominium building association policy, which is designed for condo projects that are owned as real estate. "Flood insurance coverage must protect the interest of borrowers who hold title to individual units as well as the common areas of the condominium project," advises the FHA Handbook. Common areas include, but are not limited to, parking areas, recreational facilities and common corridors.
A unit owner's (HO6) policy is an essential component for the security of your condominium, possessions, and interior walls. Unit owner's coverage also protects flooring, furniture, and fixtures. Many unit owners believe that their association's master policy provides adequate protection. However, an association master policy that protects the building does not protect the interior region of individual units.
The cost of condominium insurance is fairly inexpensive, yet provides excellent protection against unexpected events. We take the time to read your association's master policy and customize your unit owner's coverage to breach the gap between the association's policy and your own. If you own a condominium, or plan on owning one, an HO6 policy can save you a great deal of money and should not be neglected.
Enjoy a light mid-day meal at your office during one of our lunch and learn seminars. We provide the food and answer your questions about HOA insurance. We also attend homeowners' association meetings and offer a board essentials course, which helps you understand the nuances of association insurance.
Our annual insurance review gives you a comprehensive report on your existing HOA insurance and indicates whether it is in keeping with your CC&Rs, current building cost estimators, the Davis-Sterling Act, and California State Laws. We realize the importance of a “line by line” comparison of the coverages and benefits being offered by various insurance companies. Therefore, we show the merits and deficiencies of each company, and help you to decide which company offers the coverages that your association needs at the most competitive rate.
You can always count on us for quick and affordable quotes, but you will find our personal service and education invaluable.
Contact Us
Phone: (800) 826-6212 or (925) 684-4804
Fax: (925) 684-4806 or (949) 951-9342
Email: dondavis@solomonins.com
Copyright 2012 Don Davis Insurance Agency, Inc.