Boards shouldn't skimp on insurance

Since our office serves as the Registered Agent for most of our clients, we have the opportunity to review most of the lawsuits filed against our association clients.

Most common in frequency are simple personal injury actions, i.e. slip and falls. Second are the homeowners grievances that are usually filed in the Pro-Se division of Small Claims Court (these are the cases people file themselves over a dispute with the association over a towed vehicle or perceived lack of maintenance) Lastly, are the more serious claims such as Breach of Fiduciary Duty or a more serious personal injury.

This does not even take into account the growing number of foreclosures being filed, but that is a topic for another day.

It is surprising how many Boards gloss over the most important expense they have by routinely accepting the lowest bid when it comes to insurance.

This is absolutely the worst case of penny-wise, dollar foolish.

If you are currently sitting on a board or you are a property manager, are you aware, not so much what is covered, but what is expressly excluded?

Lawsuits that are filed against associations frequently have the correct name, but sometimes the board members are named personally and other times the manager is sued. Certainly, there are indemnification provisions built into the declaration and the not-for-profit corporation act, but every company has different coverage for different claims.

Here are some standard inquiries when reviewing an insurance proposal:

Are you covered for:

• Alleged race, age, family status or handicapped/disabled discrimination claims.

• Failure to provide essential services causing damage to a unit.

• Wrongful removal of a resident's personal property from the common elements.

• Towing an owner's vehicle.

• Liability when a dog attacks another resident or guest.

• Damages for a crime committed against another person or their property.

• Mold claims.

• Failure to obtain or maintain proper insurance coverage or timely file a claim.

• Damage to a vehicle parked in the garage from leaking water, or being struck by the garage door or security gate.

• For failure to diligently respond for a request for records or closing documents.

• Wrongful eviction.

• Sexual harassment.

• Actions by local government for code/ordinance enforcement.

• Theft, embezzlement, misappropriation of funds, abuse of discretion.

• Not following proper procedure such as collecting a special assessment or running an election.

• Non-monetary actions such as injunctions.

• Liable, slander, invasion of privacy.

• Failure to provide essential maintenance to the common areas.

• Vandalism or property damage caused by outsiders or trespassers.

• Permitting a sex offender or other felon from residing on the property.

• Injury of a volunteer while performing a service for the association.

• Injury to a self-employed sole proprietor performing services for the association.

These are common types of claims and some of them test the limits of both the board's authority as well as the extent of insurance coverage in the event of a claim. Typically, homeowners associations have little if any guidelines in their operating documents as many HOAs require each owner to insure their own dwelling.

In these instances, except for the obvious requirement that owners provide updated proof of insurance, an HOA board actually has a bigger problem than a condominium since their is not statutory guidelines for minimum insurance coverage.

Condominiums are governed by Section 12 of the Illinois Condominium Act, so even minimum property damage coverage is spelled out.

However, the above-referenced list are the typical claims not spelled out in any statute or association documents.

The board and the manager should be fully familiar with the procedure to file a claim; what gets filed, what does not; what if the association does not want to file a claim and self-insure it; time limits; and documentary requirements.

More importantly, just like a board would ask its attorney for legal advice and its accountant for tax advice, so too should the board and the manager consult with its designated insurance professional on coverage questions.

A board must be conscientious about the scope and extent of coverage in the vent a common type of claim is not covered, so proper amounts can be reserved to cover defense costs and possible settlement. the insurance professional can advise the board on how to save money on premiums, appropriate deductible levels, risk management (in conjunction with legal counsel) and how to distinguish between homeowner and association responsibility on claims.

Tens of thousands of dollars can be needlessly spent when a board calls for its insurance out of the telephone director, never meets their agent and pays the lowest premium to save a few hundred dollars. This is one of the most important jobs the board has in protecting the assets of the association and property values.