Insurance: An Absolute Necessity for Homeowners Associations (HOA’s) in San Antonio, TX
If you’re on the Board of Directors for your Homeowners Association (HOA) or Property Owners Association (POA,) in San Antonio, TX you may be wondering why the association needs insurance. You might even think that this might be an area where the Board can cut costs and perhaps save money. Here’s some advice: Don’t cut insurance out of your association budget! One major accident on common property could bankrupt the association, the management company and you personally as a Board member.
Homeowners associations normally carry four different types of insurance: property, fidelity, general liability, and directors and officers (D&O) Insurance. Property insurance covers all of the common structures and amenities in the association. Some examples of structures that property insurance will cover include monuments, common walls and fencing, clubhouses, pools, play structures, and sport courts. For example, if a person crashes into a monument with their car and drives off, the association’s property insurance will cover the costs to repair the monument. Another scenario that often plays out is when a driver fails to negotiate a curve along the main street in the neighborhood and runs into the association’s perimeter fencing. If the driver does not have insurance to cover the damage, the association’s insurance will pay to have the fence repaired.
Another type of insurance that the association should carry is general liability insurance or “slip and fall” insurance. If a homeowner slips and falls running on the wet deck of the pool area and sues the association, the General Liability insurance will pay for a legal team to defend the association. General Liability insurance becomes even more important if the association has a pool, pond, lake, or playground. These are the places where homeowners are most likely to get hurt while on association owned property. Association’s can protect themselves somewhat, by having homeowners sign a liability release form before they are issued keys to the pool, playground area, etc. This liability release form should state that the homeowner understands that there are certain risks associated with using amenities and releases the association from liability should an accident occur. The homeowner should be required to initial certain areas of the form and sign at the bottom. It is recommended that all homeowners sign a liability release form before enjoying the association’s amenities.
The third type of insurance that an association should carry is directors and officers (D & O) insurance. This insurance protects the board members from personal liability. All associations, whether they are under developer control or homeowner control, should carry directors and officers insurance. Board members can be held personally responsible for acting on behalf of the association. For this reason, most board members demand that they be protected from claims being filed against the association and the board. Also, homeowner board members are volunteers and are not willing to serve on a board of directors if they are not personally protected from liability. Please note, however, that directors and officers insurance typically will not cover a claim of discrimination of any kind. If a homeowner files a claim of discrimination against the board of directors, typically the association will be responsible for paying any legal fees to defend the board and any judgments that may be awarded to the opposing party. Fidelity insurance covers theft of association funds.
As with most insurance policies, all homeowner’s association policies carry a deductible amount. Deductible amounts can vary greatly so be sure to check with your insurance carrier before binding any insurance policy. Also, policy amounts can vary greatly as well. Most associations carry enough property insurance to cover all damage to community property, plus at least a one million dollar policy on both general liability and directors and officers insurance. Some associations also carry an extra one to five million dollars of General Liability insurance and/or D&O insurance. These extra policy amounts are called umbrella policies. When considering insurance for your association, consult with a risk manager, attorney, and/or insurance broker that has knowledge in POA insurance in order to determine the policy amounts you should purchase and the types of insurance your project may require. There are other types of insurance you may need to purchase.
One last thing regarding insurance…..make sure the insurance is in place and bound when the association is created. In doing so, you will help protect your project from unforeseen catastrophes and liability. If you have questions contact your attorney or insurance agent/broker.