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Navigating the Insurance Liability Claim Minefield

02/01/2021 12:21 PM | CAI Rocky Mountain Chapter (Administrator)

By Nicole Hernandez, PCAM, CB Insurance

We have faced a lot of new frontiers as a community this year—Zoom meetings, increased digital sharing of information, how to safely open community common areas, how to allow business partners to complete their work at the community without disrupting concerned residents—all while handling the additional influx of action items and working in a new environment and social culture.  


Through all of these experiences, exposure to liability has been fresh on the minds of those who serve the HOA community.  It seems that every adjustment we make to this new world brings with it the question of liability, and adjoining that, the question of “Do I have insurance coverage for this?”


Every action we take inadvertently contains some potential liability. It is important that we focus not on avoiding liability all together but on taking proper action to limit the most common forms of liability currently found in Community Associations.


General Liability 

One of the biggest exposures Community Associations experience is slip and falls. We are fortunate to live in such a beautiful state that allows us to experience a wide array of weather, but with that comes the need for ice treatment. A proper snow removal contract directing that snow removal be performed at a specific threshold is essential, but so is proper ice treatment. Things like ensuring good lighting and railings near any stairs or steps in the community and keeping up with maintenance, and correcting drainage or grading issues, will also help manage exposure to potential liability.  


However, there are more property exposures that could give rise to a general liability claim. One of the most interesting claims I experienced in my prior role as a community manager was a gutter leak that ended up triggering response under the general liability portion of the package policy. Although the physical repair was related to the gutter, the circumstances of the situation provided for response under the general liability portion of the policy. This is one of the big reasons why we encourage insureds to hold all of their policies with one agent—the agent can handle the claim with all carriers and coverages that may provide response.


It is important to keep this in mind when addressing maintenance items such as a burned-out light bulb or a raised sidewalk that has become a trip hazard. Safety items that sit too long without being addressed properly could potentially impact the Association’s liability. Of course, weather delays and scheduling are taken into consideration, but this is where strong relationships with your contractors become valuable. Maintenance checks (especially related to potential hazards) should be completed regularly, and the more eyes on the property, the better.


Directors & Officers Liability (D&O)

It always surprises me when HOA’s choose not to carry D&O coverage. This is the coverage that protects the Board of Directors from actions and decisions that are made within their scope of duties as a board member. Most of the claims we see under D&O coverage are non-monetary allegations of wrongdoing. Common examples of these claims are: Discrimination, Breach of Fiduciary Duty, and Breach of Contract. These types of claims can often be limited or excluded all together, so it is important to review each policy to ensure that coverage is included.


It seems so simple, but the best way a Board can avoid these types of liability claims is to implement proper and reasonable policies and enforce them fairly and consistently. Collection policies, Covenant Enforcement policies, and Conduct of Meeting policies (among others) are all required by CCIOA. Now is a great time to pull out those policies, review them, and work with your attorney to provide relevant updates. Most importantly, be sure to follow them equally. 


Worker’s Compensation

As we know, when things go wrong, they can be catastrophic. That is certainly the case when we are talking about workers’ compensation. An executed contract that clearly specifies the scope of work is essential. Ensuring that contractors have proper insurance and implementing a code of conduct are additional steps that can be taken to protect the Association from claims. Indemnification provisions should also be discussed and written to ensure the Association is not unknowingly taking on liability for the contractor and the contractor’s employees. Regular evaluations and open communication will ensure that all parties stay on the same page as the contract progresses. 


Data Breach Response

This is currently a hot button issue. With more people than ever working in alternate environments, we are utilizing technology and sharing information digitally more than ever. Although I know we are all diligent about personal information (especially relating to finance), it can be easy to let your guard down or simply forget. Staying alert and verifying requests will help protect HOAs from potential exposure by anyone wishing to harm the Association. Protecting passwords and keeping security software up to date are simple steps that anyone can take to protect themselves.


Potential issues can be overwhelming. If the Association is dedicated to ensuring smart business practices, the liability minefield will be much less of a danger. 


Nicole Hernandez is a specialty insurance professional in the Denver Metro area focused on helping Community Associations build highly effective risk management programs. With 19 years of HOA experience, Nicole uses her results-oriented personality to provide knowledge and expertise to her role. 


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