Underinsured or Overinsured…That is the Question!

More recently, our office received numerous inquiries surrounding what type of insurance coverage is appropriate for Community Associations, what risks should the Associations be aware of and insure against, and whether Associations must carry liability insurance on their respective units and common areas. Unfortunately, these questions generally arise when a catastrophic event occurs, such as a fire or flood. 

Community Associations must first remember the risks associated with operating and governing an Association. Keep in mind that only property that is owned by a Community Association can be protected by the insurance policies that it carries. Board negligence, equipment maintenance malfunction, staff injuries, liquor liability, and inadequate coverage are just a few of the risks that we see Associations forget about when insuring their respective Community Association.   

It is important to note that a Community Association is under no statutory obligation to require owners to purchase insurance coverage for their respective unit beyond what the Association provides. However, keep in mind that owners must look to the governing documents as the documents may require each unit owner to purchase insurance, at his or her own expense for coverage upon his or her personal property and his or her liability. 

Generally, Community Association policies do not cover damage to personal property or personal units (unless the governing documents say otherwise) and certain instances of liability or property damages caused by Community Association Board Members. 

Of course, there are ways for Community Associations to reduce risks and liability moving forward. The recommendations to do so include the following: 

  • Discuss Community Association Insurance Options. Meet with the Community Association’s insurance carrier to ensure all risks are covered by adequate policies and to educate the Board on coverage options. All too often Community Associations are underinsuring their risks which causes greater headaches and issues later. Ensuring adequate coverage is essential in continuing to reduce risks and potential exposure. 
  • Educate and Accept Risks. Accepting risks that are not worth insuring is a delicate balance. It is important to note that some Community Associations over-insure their property and Board Members. For example, an Association in Ohio generally would not carry insurance coverage for Hurricane Damage to common elements. Education is key here in that Community Associations need to know their options. Community Associations must accept certain risks and understand that they may have to deal with consequences should said events occur, even if it is extremely unlikely. 
  • Monitor the Community Association’s Governing Documents. Continuing to monitor and update the Community Association’s governing documents is paramount to ensure that said documents remain up to date with statutory changes that may impact Associations. 

Before a catastrophic event occurring, our Office recommends meeting with your insurance carrier to ensure adequate coverage. Additionally, it is recommended that you have your Association’s legal team conduct a thorough review of your Association’s governing documents to verify that the documents adequately reflect the wishes of the Board and the Association when it comes to insurance coverage. 

By Matthew Kearney,

Attorney Managing Partner

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