Insurance for Homeowners Associations

 Part of the HOA and the Board’s
financial responsibility is to maintain insurance for the community. Most
communities need general liability insurance and property damage insurance for
common areas. In condominium developments, where the property damage insurance also
typically covers the cost of repair or replacement of the actual buildings,
this single expense can dwarf the budget. Some HOAs separate out the insurance
and have a separate assessment through specific provisions in the declarations
or from the general power of special assessments. While this type of procedure
does not change the amount the homeowners pay, it does communicate to people
who don’t pay attention to the budgetary process the large expense of the
insurance.

          Insurance is also usually required under declarations for board
members. This will insure and provide a legal defense for the members of the board
for any actions against them for their actions on the board, other than willful
misconduct. Worker’s Compensation insurance should also be obtained if the HOA
has more than three employees. (Independent contractors such as community
management companies, landscape companies, exterminators, etc. do not count as
employees). Finally, some HOAs obtain fidelity bonds for theft or embezzlement.
A fidelity bond is a form of insurance protection that covers policyholders for
losses that they incur as a result of fraudulent acts by specified individuals.
Often an association will rely on a management company’s bond, but what they
may not be aware of is that this often only protects the owner of the
management company from theft by an employee. It might not protect the
association if it is the owner who is, in fact, stealing the funds, as it
appears to be in some of the above cases.

–Bradley A. Coxe is a practicing attorney in Wilmington, NC with
Hodges & Coxe PC who specializes in Personal Injury, Medical
Malpractice, Homeowner’s Associations, Contract and Real Estate disputes
and all forms of Civil Litigation.  Please contact him at (910)
772-1678.