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6 NEW ENGLAND CONDOMINIUM   -NOVEMBER 2021    NEWENGLANDCONDO.COM   INSURANCE  Insurance Basics  Is Your Association Adequately Covered?  BY COOPER SMITH  While insuring your association  ming pool or other high-risk amenities.  from  decisions  made  in  good  faith—if  bonding for $250,000 in your association’s   against  potential  catastrophes  can  be  a  If someone is injured or the property is  funds are mismanaged because of deliber-  daunting proposition for a board made up  damaged as a result of negligence on the  ate fraud, or injuries and property damage  the association had at least the state mini-  of volunteers, it’s a crucial part of the job.  part of the association’s leadership, man-  Fortunately, there  are delineated  start-  ing points, ample resources, and industry  liability coverage will pay for any judg-  professionals to which a board can turn  ments or settlements (up to the policy   for guidance. Nobody likes dwelling on  limits).   worst-case scenarios, but by allocating its   resources in a prudent manner, a board  to make sure there are adequate liability  ty, or commits some other serious trans-  can be proactive in minimizing losses  limits commensurate with the risk profile  gression that ends up costing the HOA.   while protecting the best interests of its  of an individual amenity. General liabil-  owners and shareholders.  The Basics  Let’s start at the beginning: What types  directors or officers. How much cover-  of  insurance  are  essential  to  responsibly  age you should have depends on many  tem. Maintenance and repairs need to be  buy an inexpensive $200 or $300 D&O   operating an association? There’s a magic  factors, including the size of the building  done on a timely, sometimes urgent basis,  policy,”  notes  Sean  Daly,  CPCU,  with   number at play here, and it is three.  Loretta  Worters,  VP  of  communica-  tions at the Insurance Information Insti-  tute, a New York-based organization that  protects board members against claims  erage pays to reimburse these embezzled  and get the real policy that automatically   publishes an array of resources dedicated  of damage resulting from decisions made  monies.  to  explaining  insurance  and  enhancing  by the board. It’s hard enough to get resi-  public knowledge about the industry, de-  scribes the key coverage types as follows:  1. General Liability – Because an as-  sociation bears much of the responsibility  ally sued by any resident claiming to have  means the extent of the battle. A board  the line.”  for maintaining the building and prop-  erty, it faces significant liability exposure  cision.  ‘D&O,’  as  it’s  often  called,  puts  a  of its finances it should allocate toward  not be dazzled by the lowest price. “More   for injuries and damages that occur on  layer of legal protection between board  a policy, assessing all of the variables at  often than not, boards gravitate toward a   the premises. This is why general liabil-  ity insurance is so crucially important to  dents, but there are conditions for cover-  have—particularly if you have a swim-  agement, or maintenance staff, general  parties are on their own when it comes  I wouldn’t err toward just having direc-  It’s incumbent on board leadership  employ absconds with money or proper-  ity coverage will also pay for the cost to  there is enough long-term revenue to pay  ance purchase in terms of what you may   defend  the  association  itself,  but not  its  for  major  capital  improvements  for  the  be saving down the line, as opposed to   or development, and types of exposures  so if an association’s funds have been mis-  (pool, tennis court, etc.).  2. Directors & Officers Liability – This  cant assessments to owners. Fidelity cov-  dents to run for and serve on the board   as it is—imagine how impossible it would  surance options available to your asso-  be if board members could be individu-  been negatively impacted by a board de-  members and potentially litigious resi-  age: D&O only covers damages resulting  hood of an accident, etc. Also, insurance  ard  Resnick, a senior account executive   are caused by negligence, the responsible  mum, and I’d probably go over the top.   time to pay fines, fees, and court costs.   3. Fidelity Coverage – This protects the  that the treasurer is bonded such that the   association in the event that anyone in its  board isn’t held liable in the case that it   Reserves are accumulated to ensure that  ny-pinching, so it helps to frame an insur-  building, like to a roof or an HVAC sys-  appropriated, that could result in signifi-  The Less Basics  While being aware of the various in-  ciation is certainly important, it’s by no  yourself from losing literal millions down   must carefully ponder exactly how much   play, including the size of the association,  bargain, and depend on the seller to tell   number of units, reserve capital, likeli-  isn’t a one-time purchase; thus a board   must be aware as to when, why, and how   often it should reevaluate its coverage.  And of course the cost of coverage   is a huge factor. A board must find that   happy medium between indemnifying   itself and not breaking the bank. “In any   financial advisory role, the question aris-  es as to what level insurance is required   and how much you should buy,” explains   Tom Neis, owner of Neis Insurance Agen-  cy in Crystal Lake, Illinois. “It’s partially   determined by the number of units at   your  property,  but  it’s  also  determined   by litigation. I personally suppose that I   wouldn’t sit on a board unless it had at   least $2-$5 million for protection against   any mistake or perceived mistake that a   director might make, like, say they bring   in a roofing contractor to re-do the condo   roof,  they opt for the low-cost bid,  and   it causes them nothing but trouble with   leaks and whatnot.”  It’s also important to see that your trea-  surer is  appropriately  bonded.  “Bonding   isn’t that costly,” says Neis. “Let’s say that   checkbook costs $500. I’d make sure that   tors and officers insurance; I’d make sure   didn’t place definitive enough guidelines   as to how and where money is spent.”  Associations are often focused on pen-  what you’re spending now. “A board can   Affiliated Insurance Managers in War-  wick, Rhode Island. “But it’s much more   prudent to spend an extra few hundred   includes the property manager as an in-  sured, and gives you full prior acts. Yes,   you’re spending several hundred more up   front, but you’re potentially protecting   The imperative thing is that a board   them what’s covered and isn’t,” says Rich-

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