Shielding Community Associations from Risk

February 15, 2024

The daily operation – the business – of most planned housing developments is managed by a community association or homeowners association (HOA). These associations offer numerous benefits to homeowners, yet the business aspects of management represent significant liability risks. In this article, we explore liability risks and insurance protections for homeowners associations and community associations. To learn more about insurance solutions, visit our Tailored Community Association Plan (TCAP) page.

What are the Risks Faced by Community Associations?

Community associations face various liability risks, which can have significant legal and financial implications. Some of the key liability risks include:

• Personal Injury Liability: Community associations are exposed to liability if someone gets hurt within the community’s premises. This includes understanding concepts of liability and negligence, where the organization can be held financially responsible for its actions or failure to act.
• Property Damage Liability: Community associations may be liable for accidental loss or damage to community property, and they need to have insurance coverage to protect against such risks.
• Legal Claims and Lawsuits: Community associations can face legal claims and lawsuits, which may result in financial and other hardships. Proper planning and effective mitigation strategies are essential to safeguard the community's interests and mitigate these risks.
• Professional Liability: Community associations may face liability claims related to professional activities, such as improper accreditation filing, defamation, or antitrust law violations.

Community associations need to be aware of and actively manage these liability risks to protect the interests of the association and its members. Expected – and unforeseen – risks can present devastating financial consequences, making insurance protection all the more valuable.

Choosing the Right Liability Insurance Solutions

Because community associations are responsible for many managerial tasks for housing developments, they may possess a wide range of assets that are critical in performing their roles. This is why community associations liability insurance typically provides a broad range of coverages, including:

• Property: This coverage in a community association liability insurance package typically includes protection for the physical assets and common areas of the community.
• General Liability: Coverage in a community association liability insurance plan provides protection against lawsuits in the event of incidents in common areas. This includes safeguarding the association against potential lawsuits and providing defense costs for incidents such as injuries or property damage occurring in the common areas of the community.
  Garagekeepers Liability: Provides protection for vehicles that are in the association’s possession but not owned by the association, such as those belonging to residents or visitors.
• Hired and Non-owned Auto: Provides liability protection when the association or its employees operate rented, hired, or borrowed vehicles for business purposes. This coverage is crucial if employees use their own cars for work tasks, and it is typically added to another policy, such as a business owners policy (BOP) or a general liability insurance policy.
• Crime: This coverage provides protection against financial losses related to business crimes. This coverage safeguards the association against various forms of criminal activities, including employee dishonesty, computer fraud, forgery, and theft.
• Directors and Officers: D&O insurance provides protection for allegations of mismanagement, failure to perform, and other management liability issues that cause economic or financial injury.
• Employee Benefits Liability: Protects the association against liability resulting from errors or omissions in the administration of employee benefits programs.

There may be additional or specialized coverages available for associations in high-risk areas (areas subject to extreme weather, high crime, etc.) or with unique risk exposures. Your insurance underwriter can help you select the components to address specific needs.

It’s essential for community and homeowners associations to work with an experienced liability insurance provider to ensure adequate and robust coverage for the risks common to this important property ownership sector. ◼