We took a look at the various exposures community associations face and put together a trifecta of coverages to help protect an organization’s bottom line. From the potential for a multi-million-dollar lawsuit stemming from a serious injury on the premises, to board disputes and allegations of discrimination and harassment that can jeopardize the assets of individual board members and the association itself, and employee theft that can drain the coffers of a community, our Community Association Combo insurance program is ready to respond with Umbrella, D&O and Crime insurance.
The principal purpose of an Umbrella policy is to protect the community’s assets from an unforeseen event, such as a tragic accident or loss in which it is held responsible for damages or bodily injuries. Umbrella insurance provides additional limits to supplement the insured’s primary liability policies. This is must-have coverage for associations, as without it, they can find themselves facing financial ruin. Just take a look at a couple of community association-related losses that occurred in the last several years emphasizing the need for Umbrella coverage:
- Overgrown trees and shrubbery at a community’s entryway covered up a stop sign when two vehicles collided at the intersection seriously injuring both drivers. The community association was held responsible for the accident and liable for the drivers’ medical bills, which amounted to $5 million. The association’s Umbrella policy responded after its General Liability limits were reached.
- A couple filed a lawsuit against their condo association’s board of directors alleging they were targets of threats, harassment and intimidation by an unlicensed contractor and the resident manager. According to the lawsuit, the community’s board of directors either directed or condoned the campaign of abuse. The jury found that the condominium association’s board of directors, its employees and agents violated state condominium laws and awarded the couple $4.45 million in general and punitive damages. The D&O policy’s limits were exhausted and the Umbrella insurance policy followed form and kicked in to pay the remaining amount of the judgment.
Directors & Officers Insurance
Common D&O claims for community associations include breach of fiduciary duty; failure to maintain common area(s); failure to follow the association’s bylaws or Covenants, Conditions, & Restrictions (CC&Rs); failure to give proper notice; failure to count votes or proxies; and unsuitable practices in hiring or firing of board members. D&O policies typically pay for costs that the association becomes legally obligated to pay as a result of a claim made during the policy period for “wrongful acts.” In general, a wrongful act is an actual or alleged act, breach of fiduciary duty, error, omission, misleading statement, or misstatement.
Some of the provisions to look for in a D&O insurance policy include:
- Are defense costs outside the policy limits so that these expenses don’t impact the liability limits of the policy? If defense costs are inside the limit, a costly lawsuit could eat up much (if not all) of the association’s indemnity limit.
- How is the duty to defend worded? If there is a potential claim, is the insurance carrier obligated to defend the association?
- Does coverage apply to the property manager as an employee?
The average small employer experiences $120,000 in losses due to employee theft, with fraud conspiracy typically lasting between one and two years before being discovered. More than 40% of these types of losses result in unrecovered money. Following are several claims examples you may share with your insureds to underscore the extent of this exposure and the need for Crime insurance.
- When summer ended, a trustee at a condo association did not remove the pool management firm from its payroll. Although the pool service ended, the trustee continued to write checks for the pool management business by forging signatures and cashing them for his personal use. When a new treasurer was hired and noticed the inconsistency in the payroll, the crime was identified.
- Prior to opening a credit card online on behalf of a small 8-unit HOA, the treasurer did not obtain the members’ consent. The officer used the association’s credit card for personal needs for two years amounting to $35,000.
- A former HOA manager stole $3.8 million from a Illinois condo association. She colluded with her ex to use false invoices for construction work to siphon funds from the multi-unit condo complex.
- A board member embezzled $3.9 million while serving in a New York condo association.
In each of these cases, without Crime coverage, a community association would suffer financially. How much Crime insurance an association should purchase should be equal to the amount of funds that are accessible to, or controlled by, the board. When putting this coverage into place, have the insured conduct an internal audit of the accounts not only to be assured of the accounts but to also ensure the association is free of pre-existing fraud.
Purchasing comprehensive, tailored insurance coverage is vital if a community association is to minimize the adverse consequences of accidental loss and maintain its continuity as a business organization.