Page 6 - New England Condominium November 2021

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-