Although homeowners associations bring many benefits for occupants to share a larger property, they can come with some risks.
Brokers and agents writing homeowners association insurance policies should work with these boards of directors to ensure they have implemented the proper policies to accurately assess the potential risks to the HOAs. In addition, it’s crucial to have the protections in place, such as community association insurance, in the event one of these risks becomes a liability issue.
Potential risks to HOAs
Due to the design of HOAs, they are exposed to a variety of risks. These run the gamut from property damage to failure to disclose important information to new owners. If found liable for the aftermath or fallout that arises in the common areas or property under the jurisdiction of a HOA, it can lead to a lawsuit and a judgment against the board.
Risks come in all shapes and sizes, and each one threatens an HOA in different ways, some of the more common risks include:
Building defects
Boards of directors are responsible for repairing damage or fixing problems that arise in common areas. Issues with staircases, elevators, cracks in the sidewalk or with another aspect of the building can cause injuries and pose health hazards. In addition, certain issues may arise in individual units or homes from problems originating in the common areas. For instance, a backed-up drain can cause mold or other issues.
Natural disasters
Floods and quakes are a regular threat to condominiums, master-planned communities and other forms of HOAs in areas where these disasters are frequent.
Criminal activity
Criminal acts such as vandalism, break-ins, muggings, theft and other violent crimes are all major risks for unit owners, guests, maintenance workers and other individuals on the property. HOAs can be held liable for crimes that occur on their grounds.
Cybercrimes
Many HOAs store some of the sensitive financial information of their members. If not properly secured, cybercriminals can hack into networks and steal this data.
Disclosures
Most states have statutes that require the disclosure of pertinent documents, which may include, among other types:
- The HOAs bylaws
- Pro forma operating budget
- Any past repair work on the unit or grounds
- All previous and present lawsuits
Members have a right to this information and failure to disclose it can lead to litigation.
The board of directors can be held liable for a crime that occurs on the grounds of an HOA.
Overcoming risks at HOAs
Due to their fiduciary duty to their members, boards of directors must respond quickly to reported risks. Agents and brokers can work with these boards to ensure they are assessing risks and implementing the policies and procedures necessary to avoid a potentially dangerous or hazardous situation. Consider these steps for overcoming risk at HOAs:
Perform an on-site risk inspection
Going on a thorough walk-through of all the common areas, exterior grounds and other property held by the HOA allows the board to identify potential exposures and vulnerabilities that need to be addressed.
Some things to keep an eye out for include:
- Faulty or damaged door jambs or locks
- Broken or unsecured windows
- Lighting in the both the exterior and interior of any property
- Cracks in any sidewalks
- Fire stairway access, including whether these are locked from the outside but open on the inside
Conduct a security audit
It may even be wise to hire the services of a security audit conducted by a specialist. These professional assessments provide more granular insight into potential security threats to the HOAs.
“Boards of directors must respond quickly to reported risks.”
Request feedback from owners
Boards should convene a forum or pass out a survey to either a sample of the tenants or homeowners or all members of the association. Hearing what its members have to say can pinpoint problems that might not have even been on the board’s radar. This provides an opportunity to get out in front of risks before they become an issue.
HOAs should not boast about their security measures, since this can provide potential fodder for attorneys suing the association for an assault, rape or other violent crime occurring on the property. While security is paramount, it should be invisible and effective.
Who can help?
Despite the best intentions, it can be difficult to effectively protect against exposure to threats and risks at HOAs. Sometimes a problem occurs that was not only unexpected, but unforeseen as well. When a situation arises that leads to property damage or a criminal act, the HOA and its board of directors can face lawsuits, investigations, tarnished reputations or even the dissolution of the association.
With years of experience insuring HOAs, McGowan Program Administrators has the industry knowledge necessary to work with brokers and agents providing coverage to HOAs. Whether its community association crime insurance or community association directors & officers insurance, McGowan Program Administrators has all the solutions needed to address HOAs risk.
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