Reviewing the insurance program

The four coverages worth confirming

Every association's insurance program should include four separate coverages, and each protects against a different loss. Property insurance covers damage to buildings, common areas, and equipment the association is responsible for. General liability insurance covers injury or property damage claims from owners, guests, or vendors on common property. Directors and officers (D&O) insurance covers the cost of defending board members against claims arising from decisions made while serving the association. Fidelity or crime coverage protects the association against theft or dishonest acts by the people who handle its money, including directors, officers, and employees.

These are four separate coverages, or four sections of one package policy, not a single broad policy that happens to cover everything. A new director's first task is confirming all four exist, not assuming the property policy is doing the fidelity bond's job.

Why the amounts and rules vary by state

Whether state law sets a minimum for any of these coverages, or requires them at all, depends on where the association is located. California is one state that does: it sets a formula for the minimum fidelity or crime coverage an HOA must carry, tied to the association's reserves and assessments, and it closes off one shortcut a board might otherwise consider.

"the association shall maintain crime insurance, employee dishonesty coverage, fidelity bond coverage, or their equivalent, for its directors, officers, and employees in an amount that is equal to or more than the combined amount of the reserves of the association and total assessments for three months."

Source: California Civil Code section 5806, California Legislature

The same statute rules out a cost-saving idea some boards consider.

"self-insurance does not meet the requirements of this section."

Source: California Civil Code section 5806, California Legislature

California law also requires community associations to carry directors and officers liability coverage, in a separate statute from the fidelity bond formula above. Other states set their own rules, or none at all, on whether any of these coverages is legally required and in what amount. Do not assume a figure from one state applies to yours; confirm it against your own state's statute.

What to ask before you sign off

You do not need to become an insurance expert to do this well. Ask the association's insurance agent or broker to walk the board through the current policy: what each of the four coverages actually pays for, what is excluded, what the deductible is, and when the limits were last checked against the value of what they cover. If nobody on the board can answer when that last happened, that gap is itself worth flagging.

If your state sets a minimum for any of these coverages, confirm the current policy actually meets it. If it falls short, that is not a decision for one new director to fix alone, it is something to bring to the full board and the broker together.