Insurance cannot be underestimated. Operating a condo or a co-op without adequate insurance is tantamount to skydiving without a parachute – A bad idea.
The insurance industry spreads risks from the individual to the larger community and provides an important source of long-term finance for both public and private sectors. The industry may also help eliminate risks, for example, as when fire insurance underwriters demand implementation of safe practices and/or the installation of hydrants and extinguishers in high-risk areas.
In September 2012, new Federal Housing Administration (FHA) regulations were introduced that pertained to all new and established condominium projects with 20 or more units. Those properties are now required to carry fidelity bond insurance to protect their board and other building administrators; a policy may be expanded to cover the property management firm as well.
Florida Statutes 718 and 720 also require condo and HOA associations to have and maintain fidelity bond insurance, respectively, says Barry Scarr, the president of SCARR Insurance Group, which has offices in Seminole, Ft. Lauderdale and Sarasota.
Lee Burke, the president of Burke, Bogart & Brownell, Inc., an independent insurance agency in Boca Raton, explains that fidelity bond is a form of crime insurance. “It is intended to protect against financial losses caused by the dishonest acts of employees, or those running a business,” he says. “Depending upon the wording of the bond, it may cover or be extended to cover non-compensated officers and directors, as well as volunteers. It protects or reimburses for the dishonest acts of employees.”
In addition to fidelity bond insurance, associations need to add Directors and Officers insurance (D&O) to provide coverage for the decisions the board of directors make on behalf of the shareholders and unity owners. If homeowners file a suit against the board, this insurance will protect them.
For claims for branch of fiduciary duty, violation of the conditions, covenants and restrictions (CC&R’s) and breach of contract are all claims that are driven by emotions and usually, no financial loss is alleged, states Davis.
“Non-monetary damage claims have been the number one source of claims for community associations over my 30 years in this business. Fighting over the right to have a pet, your parking space, or the right to hang a flag in your front yard is a major problem and continues to be. This coverage is critical and must never be excluded or silent.”