Thousands of American homeowners live in a neighborhood with a homeowners association (HOA). These small, governing bodies within a community of homes or condos are established to maintain the community’s finances, utilities, grounds, and amenities. When run well, these organizations can help the value of homes within the community. However, they can also face a number of disputes from homeowners.
What Type of Insurance Does An HOA Need?
Directors and officers insurance for HOA is a necessity to protect the board members, who are usually residents of the community.
Homeowners Associations: What’s There to Dispute?
Sometimes, there’s quite a bit to dispute. The role of an HOA varies greatly, depending on the type and location of the community. A high-end condo in New York City may have a gym, common space for gatherings, and a movie theater for tenants. A large neighborhood of single-family homes in the suburbs may have larger amenities like clubhouses, pools, tennis courts, or more. These two communities have very different needs from their HOA. However, when property owners don’t agree with an HOA and a dispute arises, things can get messy which is why directors and officers insurance for an HOA is so important.
In some cases, members end up suing the HOA board of directors. Since the board of directors is often made up of community volunteers, they may suddenly be wondering, “Are HOA board members personally liable?” They could be, which is why HOA D&O insurance is a necessity.
What Type of Insurance Does an HOA Need?
When serving on an HOA, no board member should take on this responsibility and liability without a D&O policy in effect. We live in a litigious society and lawsuits are often filed in order to resolve a dispute.
A D&O insurance policy, or Directors and Officers Liability policy, provides coverage to the organization and the individual directors and officers from any liability resulting from the management of the company. We’re often asked, “Is management liability the same as directors and officers insurance?” It is, there are just different names for the same type of coverage.
As HOAs are often volunteer-run, it can be fairly common for mistakes, blunders, and disagreements to occur. Here are some examples of disputes that could lead to litigation:
- Breach of Contract
This type of dispute can occur if the homeowners association doesn’t uphold their end of the contract, such as failure to maintain a common area or plow the streets on a snowy day.
- Misappropriation of Funds
Not every HOA board is made up of financial planners. Sometimes the funds the HOA collects from property owners are not put to good use. If there is an emergency repair needed on the common amenities and the HOA doesn’t have enough in the bank to cover the expenses, they may look to property owners to pitch in for the repair. Depending on the situation, it could be discovered that the HOA mismanaged the property owners’ funds.
- Remodeling or Repair Disputes
When homeowners purchase a piece of property within a community that has an HOA, their agreement may include certain provisions on the look of both their home and land. If they want to paint their home lime green, there may be a rule against that. There may also be situations in which a home is in poor condition with a broken window and falling gutters. Many HOAs have standards that require homeowners to maintain their homes.
- Harassment or Discrimination
There are a number of more personal provisions that an HOA may enforce. Some have restrictions on pets or the type of dog breed allowed. Others have limitations on the number of people allowed in a household. If a property owner feels they have been treated differently or unfairly in this regard, a lawsuit may be filed.
So what does HOA D&O insurance cover? These potential disputes and more. From fiduciary liability to internal theft, a homeowners association could face a number of unexpected issues and board members should not proceed unprotected.
Get Started With ProWriters
Do you have clients who need directors and officers insurance for HOA needs? They should be aware of their potential liability and ensure they have the right protection secured.
With ProWriters, we work to make brokers’ jobs easier. We’ve streamlined the process of buying and selling insurance to reduce unnecessary steps and save you time. Just ask some of our clients.
To get started, schedule a call with a ProWriters expert at (484) 321-2335 or contact us with any questions.