In many states in the Midwest, villa and townhome association boards do not have state laws that dictate the types of insurance the association must purchase. The association’s governing documents are usually the only guide for the types of coverages that the board is legally obligated to procure. Therefore, it’s important to work with insurance professionals who understand how to read your documents and make recommendations for your insurance obligations.
Common coverage considerations for townhome and villa communities may include:
Master Property Policy
Some townhome and villa communities act more like a homeowners association or planned unit development (PUD) while others operate more like a condominium association. Master property policies may cover as little as an entrance monument and as much as all residential buildings, including the interior of the units. It’s critical that the board, your insurance broker, and your attorney align on the association’s property insurance responsibilities.
General Liability and Umbrella Liability Insurance
General liability insurance protects townhome and villa associations against claims of bodily injury or property damage occurring on common property. This coverage is vital in mitigating financial losses from lawsuits, including legal defense costs and settlements. Evaluate the need for additional liability coverage, such as umbrella insurance, to provide additional protection beyond the limits of primary policies, especially for associations with high-risk amenities or extensive common areas.
Directors & Officers (D&O) Insurance
D&O insurance protects board members and officers from personal financial losses resulting from alleged wrongful acts or decisions made in their official capacities. This coverage is crucial in safeguarding the personal assets of volunteers serving on the board. There is wide variation between D&O policies, and it’s critical that your association has broad coverage that picks up a variety of claims—from non-monetary damages to third-party discrimination.
Crime / Fidelity Bond Coverage
This coverage safeguards associations against financial losses resulting from fraudulent or dishonest acts committed by employees, board members, volunteers, and managers while handling association funds. Please note that most governing documents require this coverage, and nearly all lenders mandate that associations carry a crime limit no less than three months’ of dues, plus the total amount in your reserve accounts.
Worker’s Compensation Insurance
Worker’s compensation insurance will provide coverage for employees of the association as well as potentially protect against workplace injuries, financial support, and medical expense coverage in the event of an occurrence involving an employee or a contractor carrying inadequate or no worker’s compensation insurance. Even if you have no employees, the association may also consider implementing an “if any” type of policy to cover the acts of association volunteers and uninsured subcontractors.
Unit Owner Insurance (HO-6 policy)
Depending on the Association’s governing documents, Owners may need to either obtain a Unit Owner Insurance Policy (HO-6) or possibly a homeowners policy (HO-3 or HO-5). If the Association insures the residential buildings, it’s critical to work with your insurance broker and attorney to clearly define all parties’ insurance obligations. For those communities that insure the residential buildings, our team assists associations with coordinating coverage between the association’s master policies and the unit owners’ policies.
In many states in the Midwest, villa and townhome association boards do not have state laws that dictate the types of insurance the association must purchase. The association’s governing documents are usually the only guide for the types of coverages that the board is legally obligated to procure. Therefore, it’s important to work with insurance professionals who understand how to read your documents and make recommendations for your insurance obligations.
Common coverage considerations for townhome and villa communities may include:
Master Property Policy
Some townhome and villa communities act more like a homeowners association or planned unit development (PUD) while others operate more like a condominium association. Master property policies may cover as little as an entrance monument and as much as all residential buildings, including the interior of the units. It’s critical that the board, your insurance broker, and your attorney align on the association’s property insurance responsibilities.
General Liability and Umbrella Liability Insurance
General liability insurance protects townhome and villa associations against claims of bodily injury or property damage occurring on common property. This coverage is vital in mitigating financial losses from lawsuits, including legal defense costs and settlements. Evaluate the need for additional liability coverage, such as umbrella insurance, to provide additional protection beyond the limits of primary policies, especially for associations with high-risk amenities or extensive common areas.
Directors & Officers (D&O) Insurance
D&O insurance protects board members and officers from personal financial losses resulting from alleged wrongful acts or decisions made in their official capacities. This coverage is crucial in safeguarding the personal assets of volunteers serving on the board. There is wide variation between D&O policies, and it’s critical that your association has broad coverage that picks up a variety of claims—from non-monetary damages to third-party discrimination.
Crime / Fidelity Bond Coverage
This coverage safeguards associations against financial losses resulting from fraudulent or dishonest acts committed by employees, board members, volunteers, and managers while handling association funds. Please note that most governing documents require this coverage, and nearly all lenders mandate that associations carry a crime limit no less than three months’ of dues, plus the total amount in your reserve accounts.
Worker’s Compensation Insurance
Worker’s compensation insurance will provide coverage for employees of the association as well as potentially protect against workplace injuries, financial support, and medical expense coverage in the event of an occurrence involving an employee or a contractor carrying inadequate or no worker’s compensation insurance. Even if you have no employees, the association may also consider implementing an “if any” type of policy to cover the acts of association volunteers and uninsured subcontractors.
Unit Owner Insurance (HO-6 policy)
Depending on the Association’s governing documents, Owners may need to either obtain a Unit Owner Insurance Policy (HO-6) or possibly a homeowners policy (HO-3 or HO-5). If the Association insures the residential buildings, it’s critical to work with your insurance broker and attorney to clearly define all parties’ insurance obligations. For those communities that insure the residential buildings, our team assists associations with coordinating coverage between the association’s master policies and the unit owners’ policies.
