General Liability Coverage-How Much is Enough?

All master association policies should have general liability coverage to protect the association from situations where is may have liability to injuries or property damage: a guest sustains an injury falling on a slippery driveway; someone is injured on the playground equipment; someone drowns in the pool; the possibilities are endless.

Most standard policies will come with coverage limits of $1M per occurrence and $2M in aggregate, meaning that the upper limit for a policy period is $2M. Coverage limits go up from here, I've seen them as high as $30M in aggregate. What determines which coverage limit is right for your association? The right answer is "it depends;" there is no formula that works in every situation. To start with every association with <100 units should have $2M per occurrence; $4M in aggregate as a minimum to be afforded personal liability protections for unit owners under the Davis-Stirling Act. Associations with 100 or more unit should have minimum coverage of $3M per occurrence; $5M in aggregate to have Davis-Stirling Act protections. HOWEVER these coverage limits are minimums, there a many situations where your association could need more than the minimum amount of coverage.

Association board members are best advised to seek the counsel of a qualified attorney familiar with HOA issues to determine a general liability coverage amount for a specific situation. He/she will be familiar with the type of legal actions, claims and settlements associations have had to deal with. Generally, some factors that need to be taken into consideration include: total number of units within the association; amenities within the complex - pools, hot tubs, exercise rooms, playgrounds, etc.; percentage of units rented; condition of the premises; whether or not complex is mixed use, commercial businesses and residential living; and, history of claims/losses.

General liability coverage is a key coverage area that board members need to evaluate and determine a best solution for their association.

Fidelity Bond Coverage

New Fannie Mae rules introduced in late 2009 indicate that associations with 20 or more unit are required by regulation to have fidelity bond coverage as part of the association's insurance program. While it may be tempting to omit this coverage for smaller associations I would recommend that ALL associations carry it. The reasons are simple: 1) the coverage does not cost that much; and, 2) even in good economic times volunteers responsible for the cash at all manner of non-profit organizations occasionally do clean out the treasury and head for places unknown!

Fidelity bond coverage protects your association's day-to-day and reserve funds by reimbursing the association if someone takes the money and runs. While Fannie Mae has rules about how much coverage an association should have I'll make it simple; think of the maximum amount you might accumulate in both day-to-day and reserve accounts over the years before you have a big expenditure like a re-roof - the highest total amount should be your coverage limit.

Board members should try to visualize what life would be like if the association's treasury were cleaned out and they had to start over from scratch. This is not a pretty picture for any association! All the more reason to make sure your association has fidelity bond coverage and in the right amount. Give this item some scrutiny during your annual review of the association's master insurance policy.