Our HOA Does Not Have Insurance

I moved into a single family HOA community in Salisbury, Maryland last year. The neighborhood had an older section that they let the HOA go inactive. Two years ago, D.R. Horton started building homes in the new section of the neighorhood where I bought. During that time, D.R. Horton was going to revieve the HOA if the community didn't do so first. So the community stepped in and revieved the HOA.

I have since gone to my first HOA meeting and from my previous experience of being on an HOA board I am aware that we need to have D&O, General Liability, Fidelty, and Workman's Comp. insurance. We are a simply HOA with no ammenties but do have common grounds with a detention pond and a few neighborhood signs.

The Board said they got D&O insurance but I am not sure of that. They said they don't think it is not necessary to get the other insurance because they do not want to raise our $50 annual dues. There is no insurance requirement of indemification clause in our governing documents.

And to make matters worse, they hired a retired homeowner to use his riding mower to cut the common area lawn.

They see nothing wrong with this. I am panicked with the amount of liability we are currently facing. The Board is very uneducated and do not see the problem in all this. In addition to pointing out all the problems with this at the HOA meeting, I did send a follow-up email to the HOA President pointing out all of this to her again. She simply responded with "thank you for the information." I wanted to have something in writing showing that she was made aware of the Board negligence in the matter and chose to ignore it.

Maryland state law does not require any of this insurance with the exception of the Fidelty insurance once 3 months of our gross dues is greater than $2,500 which won't be until next year once the rest of the neighborhood is build out.

Sorry for the long email. I just want to know if there any suggestions as what I can do to make sure the community is legally protected?

Thanks.

First, be careful of using names of real people or communities- the posting rules prohibit that and you used the name of a real developer.

Anyway, if you have a retention pond, you definitely need master insurance for the association because if someone were to fall in it and get seriously injured or drown, the association homeowners could be at risk for being financially responsible. If the person or his/her family were to due and get a verdict with a judgment of several hundred thousand dollars or more, all of you would be on the hook for that.

The same could apply to the guy mowing the common area, although he means well. For him, talk to your association attorney about risk - if the man is willing to sign a waiver absolving the association of liability, that might help- the attorney should draft it. If not, he should stop doing this and the association will need to hire someone who has insurance.

Actually, the association attorney would be a good person to convince the board they need to spend the money to get the insurance. I'd challenge the president to consult one and have him or her speak at an open board meeting. You and your neighbors could attend and listen to the proceedings- it could enlighten the people who don't want assessments to increase for any reason (you know the president isn't the only one thinking this way).

So, not raising a $50 annual assessment vs. everyone being responsible for paying, say, $100k each for a lawsuit and then $150k more for the judgment? Yep, that makes good sense.

Since the board (the president, anyway) doesn't seem to want to listen, the next thing to do is educate your neighbors because you and they elect and reelect these people. You can Google
"why HOAs need association insurance" for more information - pay close attention to information about retention ponds.

In fact in my state, a HOAgot sued several years ago when three kids fell in a retention pond - two died and I think the third (they were all brothers) came away with permanent injuries. The HOA was sued, and I don't remember what the settlement was, but it was a lot.

There are also old conversations on this website about insurance and what might happen if you don't have enough or the right kind. Don't ask questions on those conversations because they're old, but bring them to this conversation to get updated information. You could ask about arguments you can make to educate your neighbors- how they react is up to them

No that is the problem. Our governing documents and bylaws were very poorly written. Only about 4 pages long. So neither require the HOA to have insurance.

I was figuring my only solution is to try to find other residents that understand the need for this and get them to run for the Board.

In the meantime, if any lawsuits occur, I am not sure if the residents would have a cause to sue the Board or not for their inaction on getting insurance for the community once it was pointed out to them why it was the prudent thing to do for the community.

I am just trying to cover our bases in the meantime.

Workman's Comp is necessary for an HOA. Too many HOAs assume that the vendor would be the only one held responsible for their own injured employee, but the law still allows the employee to sue the HOA. This is particularly likely if the vendor company did not have the proper workers’ comp insurance in place, leaving the employee nowhere else to turn. Even in cases where the HOA did its due diligence and required the vendor to prove its insurance status, this can end up problematic if the vendor allows the insurance to lapse or if they provided falsified information to begin with.

The second reason community associations must have workers’ comp insurance is for volunteers. In this case, the association needs to work with a specialist in HOA policies to ensure volunteers, and board members in particular, are covered under workers’ comp.

A possible scenario here would involve a board member becoming injured while committing a board duty, such as driving to file paperwork with the city. Other times, a regular, non-board volunteer may file under workers’ comp if they are injured during their monthly clean-up efforts.

Thus it is the case that even though most community associations do not have paid workers, they still must have workers’ comp to protect their assets.

I am not overthinking the amount of insurance our HOA needs. These are the basic coverages that all HOA's need. To have anything less would be risky at best. For all of these coverages, it would only raise our dues by a small amount per household each year. Well worth it, to have all of our finacial health protected.

Since your C&Rs/bylaws sound pretty skimpy, the next place to look is your state laws governing your type of community. Some states have different statutes for HOAs and condos, some lump them together. It may also matter when your community was built. These laws may say something about the types of insurance that are required.

If I were in your place and *really* loved my home, I'd get advice from a lawyer and my insurance agent about protecting myself from liability. That pond is worrisome, but it's not your only issue. Our association's attorney warned us about even harmless-appearing stuff such as yard sales (he'd seen communities where someone staged a slip and fall accident, sued the association, and the association's insurer said "nope, you're not insured for that)".

If the real estate market in my area was still hot, I'd probably be running for my life.

Suing the board is just one more expense that your community can't afford. If your association doesn't have the right insurance, any expenses and settlements will come out of homeowners' pockets.

(As for the workers comp insurance, some recommend insuring all volunteers including the board. If you have a board that's making stupid decisions on the basis of not wanting to raise assessments, they're sure as heck probably going to use volunteers to do physical work around the community. You need it.)

Yes our governing documents/bylaws are as ridiciously skimpy. I have checked the state laws out thoroughly and the only thing that will eventually be required is the Fidelty insurance. I honestly don't know why all states don't require HOA's to be fully insured.

I am well aware of all the various liablities including the staged slip and fall incident. Incidentally, our HOA has a community yard sale next Saturday. People think that these things won't happen here but it just takes that one incident to put us all in the poor house. I am not a gambler and do not feel comfortable with this amount of risk. It is like I tell people - think of the HOA as if it were your home... I own my home outright but I still carry insurance on it. I would be crazy not to.

And yes our Board is hosting a clean up day in our wooded "park" next month for all the residents to show up and volunteer to clean up the common wooded area of our HOA. Workman's Comp would really come in handy for things like this.

I may have to speak with an attorney to see if there is anything I can do to protect me or the other homeowners in case there is a lawsuit. That is why I have emailed the President urging her to get the necessary coverage for the HOA. I am hoping to have a paper trail to show the lack of action on the Board's part after being warned of the unnecessary risk they are putting the HOA in.

WC doesn't just cover employees as you're defining them (ie. they're paid by the HOA). The WC definition of "employee" includes volunteers. As the OP noted, it covers things like a board member getting into an accident while he's on the way to the print shop to pick up the newsletters. Or a board member bends down to pick up a piece of trash outside the clubhouse and throws his back out. Or, Lord help 'em, the HOA is dumb enough to allow 65 years olds to handle snow removal, and the guy has a heart attack.

And as I noted, boards that won't buy insurance because they don't want to raise assessments will very likely try to use volunteer labor as much as possible, none of whom will be insured for their volunteer gigs unless they're unusually savvy about this stuff. The HOA's normal liability policy won't cover injuries incurred as a result of acts done *for the HOA* and not as a result of normal activities engaged in by any other homeowner.

I don't think you read my reply as to why an HOA would need Workman's Comp. Workers’ compensation insurance provides coverage for injuries to association employees and volunteers (directors, officers and committee members) that occur on the association’s premises, no matter who is at fault. If the illness or injury is job-related, the injured person receives medical care, disability payments and job retraining, if required. In exchange, the injured person cannot sue the employer. Workers Comp. is not just for paid employees. It will cover anyone volunteering for the HOA. Here are some actual claims paid. For example, these losses were paid by the National WC Program designed specifically for Condo/HOAs:

Risk State Total Paid Description
CA $102,972 Board Member fell walking grounds – broken shoulder, knee
VA $24,500 Volunteer fell and landed on head

As I said before, our Board is paying a retired resident of our neighborhood to use his riding mower to cut all the common area grass so the Board has a very risky practice of hiring an uninsured resident, in addition to not carrying any insurance on the HOA.

You never hire anyone with out a license or insurance. Plus do not allow volunteers to do work. No need for HOA to have workman's comp.

But the work is for free if it is volunteer. Otherwise what comp going to be paid for free work?

In your opinion. Most here have said the same thing. It is not necessary.

You do need D&O insurance to protect board members. I just see no reason for workman's comp for volunteer work. I would hire no one without being insured or licensed. It's on them if they are not and the HOA.

Medical costs when the volunteer is injured while working.