What kind of insurance does a condo board have?

Real Estate

Before purchasing a condo, it is important to ensure that both you and the condo board are protected. A condo board is a group of elected and volunteer individuals responsible for handling disputes and regulations within a condominium community. Despite not engaging in risky behavior, many condo boards invest in insurance policies.

The job of a condo board is to mediate and resolve disputes within the community. This includes issues such as a resident not cleaning up after their pet or painting their front door a bright purple. Though these may not seem like major issues, with the rise of litigation in the US, unhappy residents (often on the losing side of board rulings) have resulted in an increase in lawsuits against condo boards. Therefore, many boards invest in Directors and Officers liability insurance, or D&O insurance, as it is commonly known. D&O insurance protects directors, such as board members, from liabilities related to their positions.

One key component of a D&O policy is a duty to defend clause. This means that the insurer is required to take ownership of the entire defense, ranging from selecting legal counsel to footing the bills. Another variation is the duty to pay clause, whereby the insured does the legwork, but the insurer reimburses for all costs. However, when a board files a claim on its D&O policy, it may be met with a reservation of rights clause, which outlines potential reasons the claim may not be covered. Commonly reserved rights include the right to deny coverage for ultimate judgments, the right to seek reimbursement for settlements, and the right to withdraw from defense.

Though faced with sue-happy residents, members of a condo board are not alone. A community association institute (CAI) provides resources to large groups of individual condo boards, including support for those facing legal issues. If you’re curious about more resources available to condo boards, there is lots of information available.

Author’s Note

Not having lived in a condo myself, I learned a lot during the research process for this article. Insurance to protect directors and officers is an important resource, particularly given the amount of litigation many condo boards must face. D&O insurance is primarily used by corporations and their boards, but it is also relevant for condo boards, particularly when faced with events like the mortgage crisis.

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• Exploring Liability Insurance

More Useful Links

• Condo and Co-Op Boards Face Increased Risks
• Dealing with Your Condo Board: A Guide for Homeowners
• The Disadvantages of Condo Board Membership

Sources

• Community Associations Institute. “About Us.” (July 14, 2012) http://www.gmsr.com/article/The%20Meaning%20of%20An%20Insurance%20Carrier’s%20Reservation%20of%20Rights%20-%20Part%20I.pdf
• Gische, David M. “Directors and Officers Liability Insurance.” Troutman Sanders LLP. (July 14, 2012) http://library.findlaw.com/2000/Jan/1/241472.html
• IRMI.com. “Duty to Defend.” (July 14, 2012) http://www.irmi.com/online/insurance-glossary/terms/d/duty-to-defend.aspx
• Lending Tree. “Condominium Association (Definition).” (July 14, 2012) http://www.lendingtree.com/smartborrower/glossary/c/condominium-association/
• Olson, Robert A. “The Meaning of an Insurance Carrier’s Reservation of Rights — Part 1]. Association of Business Trial Lawyers. (July 14, 2012) http://www.gmsr.com/article/The%20Meaning%20of%20An%20Insurance%20Carrier’s%20Reservation%20of%20Rights%20-%20Part%20I.pdf
• Passante, William G. “D&O Liability Insurance Basics.” Anderson Kill & Olick. (July 14, 2012) http://www.andersonkill.com/webpdfext/BP-200404CorpCnsl.pdf

FAQ

1. What is condo board insurance?

Condo board insurance, also known as master policy insurance, is a type of insurance policy that covers common areas and shared spaces in a condominium complex. It is purchased by the condo board or homeowners association to protect the community against unexpected events that could cause damage to the property.

2. What does condo board insurance cover?

Condo board insurance typically covers the building’s exterior, common areas such as hallways and elevators, and shared amenities like pools and fitness centers. It may also provide liability coverage in case someone is injured on the property or if the association is sued for negligence.

3. Do I need to purchase condo board insurance as a condo owner?

No, as a condo owner, you are not required to purchase condo board insurance. However, it is important to understand what the policy covers so that you can purchase your own insurance policy to cover your personal belongings and any damages that may occur within your unit.

4. Does condo board insurance cover my personal belongings?

No, condo board insurance does not cover your personal belongings. You will need to purchase your own insurance policy, known as a condo unit owner’s policy or HO-6 policy, to cover your personal possessions and any improvements made to your unit.

5. What happens if there is damage to my unit?

If there is damage to your unit, you will need to file a claim with your own insurance company. Your insurance company will work with the condo board’s insurance company to determine who is responsible for covering the damages.

6. Can I make changes to the condo board’s insurance policy?

No, as a condo owner, you cannot make changes to the condo board’s insurance policy. However, if you have concerns about the coverage or the policy itself, you can bring them up with the board and work together to find a solution.

7. How is condo board insurance paid for?

Condo board insurance is typically paid for through the monthly HOA fees that condo owners pay. The cost of the insurance policy is divided among all of the owners in the complex.

8. What should I do if I have questions about the condo board’s insurance policy?

If you have questions about the condo board’s insurance policy, you should contact a member of the board or the property management company. They will be able to provide you with more information and help you understand the coverage that is in place.