How Much For Professional Officers' Insurance

Started by LeonardM2 • 8 replies • 1486 views

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LeonardM2 (Virginia)
Posts: 3

Posted:

We are in the middle of a debate over officers' insurance within my HOA. We are currently in the process of procuring a policy for the board members and cannot settle on an amount of coverage. While the majority of the board is determined on a policy of 1 million, we have one member who will not budge off his stance of 500,000. I am just interested in finding out how much coverage is average or recommended.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By LeonardM2 on 07/15/2011 7:09 AM
We are in the middle of a debate over officers' insurance within my HOA. We are currently in the process of procuring a policy for the board members and cannot settle on an amount of coverage. While the majority of the board is determined on a policy of 1 million, we have one member who will not budge off his stance of 500,000. I am just interested in finding out how much coverage is average or recommended.

My opinion is make sure you have enough. If a judgement exceeds the limit of the policy, the difference may have to be made up from the funds of the association (means special assessment?) or from the indviduals themselves if a judgement is made against any individual (but most likely still the association because your bylaws probably indemnify the individual).

Besides. It doesn't matter what one individual wants. Majority rules. Unanimity is nice, but not necessary. Make a motion for the $1M amount; he can vote no or abstain. Motion carries and you got your $1M policy.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Check your CC&R's. Our documentation tells us to have a 1Million dollar policy at all times. It also requested that lawncare contractors carry a 1 Million dollar policy as well. 1 Million dollar policies are the typical amount for the minimum for a HOA. It covers more things than just officer liabilities. I wouldn't go with anything less than the 1 Million.

If the concern is affordability, you can make payment arrangements with the insurer. We couldn't afford to pay the premium in one lump sum so we paid it for 10 months out of the year. Which was about 2K a month. We have a pool, clubhouse, and common area covered by our policy. The officer liability was just another part of the policy and paid out differently.

Check with your agent and have them discuss the options. They can tell you what you may need and what you can do without.

Former HOA President

BruceF1 (Connecticut)
Posts: 2,535

Posted:

If this helps, our D&O policy is $1 million, which includes defense costs. We are an association of fewer than 100 homes with a 5-member board.

LeonardM2 (Virginia)
Posts: 3

Posted:

Thanks for the suggestions. We are a very small community, only 10 homes, and most of us rent our homes for summer vacations. We figured 1 million would protect against just about anything and it was the best number. Affording that policy shouldn't be a problem.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Leonard,

Which insurance are you talking about?

D&O (Directors and Officers) covers law suites - logically that should be around $1 mil
(unless you know some cheap attorneys).

Liability covers common area incidents (injury, falling trees, etc.) - This will depend on how high of a risk your Association has. Our Association only has two playgrounds, the roads and sidewalks - we have a $1 mil policy.

Crime (aka Fidelity) covers embezzlement type issues - wich is covered by VA § 55-514.2 which says the lesser of $1 million or an amount equal to your reserve balance + 1/4 of the annual assessments. The amount may not be below $10,000

Obviously condominiums would have additional insurance needs.

Tim

LeonardM2 (Virginia)
Posts: 3

Posted:

Tim

Mostly I was asking about the D&O insurance. Everything else is covered. Our association is very small, only 9 homes with 2 common areas.

I have one additional question about capital improvement funds, which our state requires HOAs to have. We just started the fund so the balance is quite low. What is an average amount to have in a fund like this? One of our main concerns is the fact that our homes are on a septic system. The homes are 20-25 years old, so we are looking at the possibility of replacing or fixing in the not too distant future. Estimates for this job range $35,000-$45,000. We are concerned about the possibility of a new homeowner coming in to the community and encountering a problem with the septic system, and in turn suing the officers for allowing an underfunded capital improvements fund. Any help with this problem as well would be greatly appreciated.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Leonard,

I am also in VA, so I understand the requirements. There is no magic number that says you have enough in Reserves or not. It depends on your Associations Reserve Study and what your Association has responsibility for.

Here is a link to a tread in this forum about Reserve Studies and Reserve Funds.

When we completed our study we discovered the need to raise assessments 20%. With banks looking at the financial health of HOAs as part of the loan process, it's best if your Reserves are 100% funded. In addition to Reserves to pay for maintenance and replacement of various items, your Association should also have a contingency fund.

A contingency fund helps make up the difference between expenses and receipt of assessments, extra heavy snow falls or unexpected storm damage. A general rule of thumb for contingencies would be 1/12 of the annual assessments. However, that can vary depending where you are. We live in Fairfax County and to make sure we have enough to cover extra heavy snow falls, our Contingency funds is actually 2/12 of our annual assessments.

Tim

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

D&O insurance is normally $1,000,000. $500,000 is low.

PS. D&O insurance does not cover fraud or negligence which is usually the case. Hence why it is so cheap to buy the insurance.

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