While insuring your association against potential catastrophes can be a daunting proposition for a board made up of volunteers, it’s a crucial part of the job. Fortunately, there are delineated starting points, ample resources, and industry professionals to which a board can turn for guidance. Nobody likes dwelling on worst-case scenarios, but by allocating its resources in a prudent manner, a board can be proactive in minimizing losses while protecting the best interests of its owners and shareholders.
Let’s start at the beginning: What types of insurance are essential to responsibly operating an association? There’s a magic number at play here, and it is three.
Loretta Worters, VP of communications at the Insurance Information Institute, a New York-based organization that publishes an array of resources dedicated to explaining insurance and enhancing public knowledge about the industry, describes the key coverage types as follows:
1. General Liability – Because an association bears much of the responsibility for maintaining the building and property, it faces significant liability exposure for injuries and damages that occur on the premises. This is why general liability insurance is so crucially important to have—particularly if you have a swimming pool or other high-risk amenities. If someone is injured or the property is damaged as a result of negligence on the part of the association’s leadership, management, or maintenance staff, general liability coverage will pay for any judgments or settlements (up to the policy limits).
It’s incumbent on board leadership to make sure there are adequate liability limits commensurate with the risk profile of an individual amenity. General liability coverage will also pay for the cost to defend the association itself, but not its directors or officers. How much coverage you should have depends on many factors, including the size of the building or development, and types of exposures (pool, tennis court, etc.).