Guide
Risk Management review for Community Associations
Risk Management review for Community Associations
Insurance is just one part of a community association's risk management plan. Here's how condo and HOA boards reduce hazards before a claim ever happens.
Insurance is just one part of a community association's risk management plan. Here's how condo and HOA boards reduce hazards before a claim ever happens.
When people talk about risk management, the conversation turns to insurance pretty quickly. That makes sense, because insurance is a big part of protecting any community association. The trouble starts when a board leans on insurance to do all the work and overlooks everything else that goes into a real risk management plan.
Here is the key thing to understand: insurance does not eliminate a hazard or make it smaller. It pays for the damage after something goes wrong. The hazard is still sitting there. A good plan works on the hazard first and uses insurance to cover whatever risk is left over.
Why Insurance Alone Won't Reduce Your Risk
A policy transfers the financial cost of a loss to your carrier. It does nothing to stop the loss from happening in the first place. When a board treats insurance as the whole strategy, two things tend to follow: hazards go unaddressed, and over time claims pile up. More claims mean higher premiums and fewer carriers willing to write the account.
The boards that handle this well treat insurance as the last line of defense, not the first. They identify a hazard, work to reduce or remove it, and then insure what they cannot fully control.
A Step-by-Step Example: Handling a Trespassing Problem
Say a board identifies people regularly cutting across association property. They see it as both a nuisance and a liability, since someone could get hurt and hold the association responsible. Here is how a layered approach might play out.
Start with simple prevention
The board posts "no trespassing" signs. It is the cheapest first step. After a while, though, the signs alone do not change much. People keep cutting through.
Bring in outside help
Next the board contacts the local police for help with the ongoing trespassing. That cuts the foot traffic by roughly half. Progress, but not a fix.
Involve the community
The board forms a homeowners committee to help spot and identify trespassers. Now the people cutting through can be approached in person or sent a letter explaining that the association does not permit trespassing and asking them to find another route. Between all three steps, the traffic drops by about 80 percent.
Transfer what's left to insurance
The board has done what it reasonably can to stop the problem, but it cannot eliminate every risk. To protect the association financially and legally if a trespasser is ever injured on the property, the board purchases general liability insurance. That coverage shifts the responsibility to the carrier if a lawsuit follows an injury on association grounds.
By working through every option before reaching for a policy, the association removed most of the hazard and lowered the odds of ever needing to file a claim. Do that consistently across every risk you identify, and over time it shows up in both the cost and the availability of your insurance. Risk management rewards the long view, and that is where a board really sees the payoff from the work.
Hold Contractors to the Right Coverage Standards
Another area every association needs to handle is coverage for contractors working on association property. A contractor who is underinsured can become the association's problem fast.
Each contractor should be required to:
Carry both general liability and workers compensation coverage
List the association as an additional insured on those policies
Sign a contract agreeing to indemnify and hold the association harmless for any injuries they cause
Some associations take it a step further and ask that every contractor follow these same requirements, including contractors hired directly by individual unit owners.
Have your attorney review the contract
With any contract, have the association's attorney review it. A good attorney will explain what each provision actually means and how to protect the association through contractual transfer of risk. This is not the place to rely on a template you found online.
Know the Most Common Directors and Officers Claims
Plenty of associations have never filed a Directors and Officers (D&O) liability claim, which is exactly why boards tend to underestimate the risk. It helps to know the situations that have historically turned into D&O claims for other boards. The most common include:
Failure to follow the by-laws
Failure to properly notice elections
Failure to properly count votes and proxies
Member challenges to the power granted the board by the by-laws
Improper removal of board members
Board decisions that result in physical damage to association property
Challenges to assessments
Approval of variances, often by an architectural committee
Breach of fiduciary duty
Challenges to decisions of the Architectural Review Board
Questions or challenges over easements
Failure to maintain common areas
Failure to properly disburse funds, such as insurance proceeds
Defamation of a member by the board
Recognizing the scenarios that have tripped up other boards puts yours in a much stronger position as you review and tighten your overall risk management strategy.
Take the Long View
No board eliminates risk entirely. The goal is to reduce what you can, transfer what you cannot, and document the whole thing so the plan holds up year after year. Handle hazards before they become claims, hold your contractors to a real standard, and stay aware of where boards tend to get into trouble. Do that, and you protect both the association's finances and the people who serve on the board.
If you would like a second set of eyes on your association's coverage, our team works with community associations across Western New York and is glad to walk through it with you. Contact us to start the conversation.
When people talk about risk management, the conversation turns to insurance pretty quickly. That makes sense, because insurance is a big part of protecting any community association. The trouble starts when a board leans on insurance to do all the work and overlooks everything else that goes into a real risk management plan.
Here is the key thing to understand: insurance does not eliminate a hazard or make it smaller. It pays for the damage after something goes wrong. The hazard is still sitting there. A good plan works on the hazard first and uses insurance to cover whatever risk is left over.
Why Insurance Alone Won't Reduce Your Risk
A policy transfers the financial cost of a loss to your carrier. It does nothing to stop the loss from happening in the first place. When a board treats insurance as the whole strategy, two things tend to follow: hazards go unaddressed, and over time claims pile up. More claims mean higher premiums and fewer carriers willing to write the account.
The boards that handle this well treat insurance as the last line of defense, not the first. They identify a hazard, work to reduce or remove it, and then insure what they cannot fully control.
A Step-by-Step Example: Handling a Trespassing Problem
Say a board identifies people regularly cutting across association property. They see it as both a nuisance and a liability, since someone could get hurt and hold the association responsible. Here is how a layered approach might play out.
Start with simple prevention
The board posts "no trespassing" signs. It is the cheapest first step. After a while, though, the signs alone do not change much. People keep cutting through.
Bring in outside help
Next the board contacts the local police for help with the ongoing trespassing. That cuts the foot traffic by roughly half. Progress, but not a fix.
Involve the community
The board forms a homeowners committee to help spot and identify trespassers. Now the people cutting through can be approached in person or sent a letter explaining that the association does not permit trespassing and asking them to find another route. Between all three steps, the traffic drops by about 80 percent.
Transfer what's left to insurance
The board has done what it reasonably can to stop the problem, but it cannot eliminate every risk. To protect the association financially and legally if a trespasser is ever injured on the property, the board purchases general liability insurance. That coverage shifts the responsibility to the carrier if a lawsuit follows an injury on association grounds.
By working through every option before reaching for a policy, the association removed most of the hazard and lowered the odds of ever needing to file a claim. Do that consistently across every risk you identify, and over time it shows up in both the cost and the availability of your insurance. Risk management rewards the long view, and that is where a board really sees the payoff from the work.
Hold Contractors to the Right Coverage Standards
Another area every association needs to handle is coverage for contractors working on association property. A contractor who is underinsured can become the association's problem fast.
Each contractor should be required to:
Carry both general liability and workers compensation coverage
List the association as an additional insured on those policies
Sign a contract agreeing to indemnify and hold the association harmless for any injuries they cause
Some associations take it a step further and ask that every contractor follow these same requirements, including contractors hired directly by individual unit owners.
Have your attorney review the contract
With any contract, have the association's attorney review it. A good attorney will explain what each provision actually means and how to protect the association through contractual transfer of risk. This is not the place to rely on a template you found online.
Know the Most Common Directors and Officers Claims
Plenty of associations have never filed a Directors and Officers (D&O) liability claim, which is exactly why boards tend to underestimate the risk. It helps to know the situations that have historically turned into D&O claims for other boards. The most common include:
Failure to follow the by-laws
Failure to properly notice elections
Failure to properly count votes and proxies
Member challenges to the power granted the board by the by-laws
Improper removal of board members
Board decisions that result in physical damage to association property
Challenges to assessments
Approval of variances, often by an architectural committee
Breach of fiduciary duty
Challenges to decisions of the Architectural Review Board
Questions or challenges over easements
Failure to maintain common areas
Failure to properly disburse funds, such as insurance proceeds
Defamation of a member by the board
Recognizing the scenarios that have tripped up other boards puts yours in a much stronger position as you review and tighten your overall risk management strategy.
Take the Long View
No board eliminates risk entirely. The goal is to reduce what you can, transfer what you cannot, and document the whole thing so the plan holds up year after year. Handle hazards before they become claims, hold your contractors to a real standard, and stay aware of where boards tend to get into trouble. Do that, and you protect both the association's finances and the people who serve on the board.
If you would like a second set of eyes on your association's coverage, our team works with community associations across Western New York and is glad to walk through it with you. Contact us to start the conversation.
