This is a good question and one I have received more than a few times lately. To frame the question let’s first look at what an E&O policy covers. An E&O policy is a form of “professional” liability insurance designed to protect Directors & Officers from the results of their actions, activities, suggestions, and decisions while acting in their capacity as authorized representatives of the Association members. The purpose of an E&O policy is to legally insulate and protect these representatives from personal responsibility resulting from their actions.
Chances are that the reason an HOA was established in the first place is for the purpose of managing commonly owned property. All property is legally owned by someone (including the Municipality or State). This commonly owned, association property could include subdivision entrances, streets, lakes, parks, walkways, alleys, bridges or greenspace.
Since E&O insurance is professional liability coverage, the policy is designed to protect decision’s, actions or failure to take prudent actions. It does not protect the HOA from liability for bodily injury or property damage caused or sustained on commonly owned property.
The association’s officer’s failure to protect the HOA from the premises liability as the owner of the commonly owned property could in itself constitute an E&O exposure. I am sure you can imagine the association members would be upset and consider failure to secure available insurance as irresponsible if they were to receive a special assessment for the cost of legal action to defend the association not to mention a potential judgement from a resulting lawsuit.
A helpful real-life example to explain this involves a recent interaction with an HOA shopping for coverage. We proposed a package to this HOA and in following up with them I was surprised to learn our proposal was slightly higher than the current package. Upon digging further, it was determined the difference between the two proposals was ours accounted for the four (4) owned lakes and described these in the proposal (with the insurance company charging a small fee for the exposure of each lake). The other proposal was less expensive because it did not list or protect the association from any liability connected to the ownership of their lakes. We made them aware of this discrepancy, but the lower cost proposal prevailed. The cost was lower, but the exposure still exists, so they really were not getting the protection they required. Should a loss occur involving any of these lakes, the losses suffered by the association involving this oversight may constitute an E&O exposure. What is worse, is that since failure to carry protection on these lakes is “intentional”, it could be that all the HOA insurance companies and policies decline to defend or protect the association in the event a loss occurs. Intentional acts are not covered.
Additionally, as of now the State of Florida has also since mandated that a HOA must also secure a Crime policy to protect members from malfeasance or the theft of paid funds to a Treasurer or professional management company.
Clearly an HOA has the need for at least a General Liability, and Crime policy in addition to an E&O Professional Liability policy in order to properly protect a conventional HOA. If you’re concerned that your HOA carries all the necessary coverage needed, it is important you work with a professional insurance agent knowledgeable in protecting HOA’s and COA’s. Harris Insurance insures and protects hundreds of associations all over Florida. We would be happy to offer you our services and can be reached at Service@HarrisInsurance.com
LEGAL DISCLAIMER
Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
