When a community association hires outside vendors to complete services for the community, such as landscaping or janitorial services, it is exposing the association to potential risks. If a hired vendor does not have adequate insurance, then the association could be held liable for the actions or inactions of that vendor. This is why we’re going to explain the types of insurance an association’s vendor should carry and how to determine adequate coverage amounts for vendor insurance policies.
Why Insurance Matters
Community association boards are responsible for maintaining and protecting their association and its assets. If a disaster or accident occurs, such as a fire that destroys the clubhouse or an injury at the pool, the association will need insurance to cover the damages so that homeowners are not charged large special assessments to correct the issue.
Furthermore, if someone is injured at the community pool due to a lifeguard’s negligence or the common area greenery is damaged due to a mistake made by the landscaper, the vendor will need insurance so that the association, and by connection, its homeowners, will not be held fiscally responsible for damages.
Basic Insurance Coverages Explained
While there is no standard insurance policy with standard coverage limits that will work for all vendors the association may hire, there are several types of policies that are important for vendors to carry.
Workers’ Compensation Insurance
A workers’ compensation policy is used to provide an employee with some of their lost wages and to help cover their medical bills if they are injured or contract an illness while working. It is very important that all vendors hired by the association carry this type of coverage so that the association is not made responsible for large medical and wage expenses for its vendors.
Commercial General Liability Insurance
Commercial general liability insurance, another extremely important type of coverage for association vendors to carry, provides protection if the vendor causes injury or damage to third parties or their property.
If a vendor damages the association’s monument or a homeowner’s car while replacing a fence, or injures a homeowner, a resident, or a resident’s guest while resurfacing roads, a general liability policy would be used to pay for ensuing damages or medical bills.
Commercial Auto Insurance
If the vendor drives company vehicles to complete work in the association, commercial vehicle insurance will provide coverage for injury and damage to third parties and their property caused by the vendor’s operation of its owned company vehicles.
Non-owned Auto Insurance
A non-owned auto insurance policy helps cover any damages or injuries a vendor’s employee causes to third parties while operating his or her personal vehicle to complete work for the vendor. So, if a vendor’s employee crashes their pickup truck into the association’s entry gate on the way to purchase more paint for the clubhouse renovation project, the non-owned auto policy should apply to the resulting insurance claim.
Commercial Crime Policy
A commercial crime policy with employee dishonesty coverage will protect the vendor if its employees steal money or property from it. However, to protect the association if a vendor’s employees steal from the association, such as a managing agent’s accountant embezzling community association funds or a landscaper’s employee submitting an invoice for work that was never completed, the association should retain its own crime insurance.
Determining Appropriate Coverage Limits
Appropriate coverage limits vary depending on the type of vendor, the number of clients that vendor has, the size of the vendor’s company, and the inherent risks of the vendor’s business, among other items. While state law may fix minimum coverage requirements for certain types of insurance, there is no standard coverage amount that will work for all association vendors.
For instance, a lifeguard company with twenty different community association clients will need much more insurance coverage than a vendor with three clients. This is because most insurance policies have an aggregate limit, or a cap on the total amount the vendor can be awarded over the term of the policy. Imagine that a claim occurs at one client’s community pool. The lifeguard contractor needs to have enough of its aggregate limit remaining to cover claims that may occur at other clients’ pools. If the lifeguard company uses all its policy’s funds on one claim, and then a claim occurs in another community, that association and its insurance would be responsible for the claim.
An association can consult with its legal counsel and insurance provider to help determine how much and what kinds of coverage its vendors should carry to maintain adequate protection for the association and the vendor itself. If you have any questions about association insurance and vendor coverages, please reach out to a Blue Lime agent. We would be happy to assist you.