Homeowners associations face a lot of potential liability, and the best way to protect themselves is to purchase the proper insurance policies. One of these is HOA workers' comp insurance.
Homeowners associations face a lot of potential liability, and the best way to protect themselves is to purchase the proper insurance policies. One of these is HOA workers’ comp insurance.
Workers’ compensation insurance, or workers’ comp for short, is a type of insurance that provides wage replacement and medical benefits to employees that injure themselves while on the job. In exchange, employees waive their right to sue their employer for the tort of negligence.
Homeowners association workers’ comp insurance is pretty much the same thing, only the employer in the scenario is the HOA. Some might think that HOAs don’t need workers’ comp because it doesn’t employ workers. But, even an HOA with just a functioning board and a management company will need this form of insurance.
Why is HOA workers’ comp insurance important?
For one thing, homeowners associations often work with vendors. These vendors employ workers who can get injured while performing a job. And although they are technically employed under the vendor, injured workers can also sue the HOA for the injury. This usually happens if the vendor doesn’t have appropriate worker’s comp or allows their policy to lapse.
Another reason workers’ comp is vital to an HOA is it can cover volunteers, too. There is a common misconception that workers’ comp can only apply to paid workers. And while a majority of standard policies follow this format, there are workers’ comp policies that also cover unpaid or volunteer employees. This includes board members and committee members. To ensure the HOA’s workers’ comp policy covers volunteers, too, it is imperative to work closely with the insurance provider.
It is widely known that many states require businesses to have workers’ comp. In some states, workers’ comp becomes mandatory when a business reaches a certain number of employees. In others, workers’ comp becomes mandatory when a business hires their first employee. For example, California law requires all employers to purchase no-fault workers’ comp for all employees, even if there is only one employee. In North Carolina, workers’ comp is mandatory if an organization employs three employees.
But, do these laws apply to homeowners associations as well?
Although HOAs operate much like a business, they are not usually treated like one. As such, workers’ comp is an optional form of coverage for HOA and condo communities. That being said, every homeowners association should have sufficient workers’ comp coverage to protect itself from liability.
There is no state-mandated coverage amount for workers’ comp. The coverage amount will depend on the size of the community, how many vendors the HOA employs, and how many workers or volunteers HOAs have. It is a good idea that HOAs talk to their insurance provider to determine the best HOA workers’ compensation insurance coverage for their community.
Many homeowners associations hire HOA management companies to help maintain the community. And, these HOAs often skip workers’ comp because they mistakenly believe their management company’s policy extends to them as well. After all, isn’t the HOA management company the one responsible for hiring and handling vendors, contractors, and all association employees?
But, the fact of the matter is that an HOA management company’s workers’ comp only applies to the entity or company itself. In other words, the company’s workers’ comp doesn’t cover the HOA or the board that hired them. This is true in most states. As a result, associations will still need to purchase their own HOA workers’ comp insurance.
Homeowners associations usually can’t operate alone. They need the help of contractors and vendors to perform different jobs, such as landscaping, pressure washing, repairs, and the like. There is always a risk, though, associated with hiring vendors.
If they are not insured with workers’ comp and an employee of theirs becomes injured, most states will consider the injured worker as an employee of the HOA. Thus, there is essentially a transfer of liability.
When this happens, the injured worker can sue the HOA for damages. And, if the HOA doesn’t have proper coverage, it can suffer serious financial loss. This will often force associations to tap into their reserves or levy special assessments to cover the cost of liability. Neither scenario is favorable.
People often hear about the importance of hiring a licensed and insured vendor. But, what if a vendor is only licensed but not insured?
Typically, licensed vendors retain the injured worker as an employee. This means that the homeowners association will not suddenly become their employer. The injured worker can then bring action against their employer (the vendor).
Sometimes, though, a court may find that the injured worker has dual employment. In this case, both the vendor and the HOA share liability. Having proper HOA workers’ comp insurance limits the injured employee’s legal options.
Unfortunately, some HOAs fail to properly screen vendors. Other times, vendors will blatantly lie about having insurance just so they land the job. These HOAs can end up hiring vendors who lack proper insurance, including workers’ comp.
To protect themselves from liability, HOAs must do their due diligence when hiring contractors and vendors. It is important to ask for a Certificate of Insurance that also proves the vendor has workers’ comp coverage. If a vendor fails to provide this certificate, an HOA should not hire them.
Sometimes, a vendor will have workers’ comp insurance at the time of hiring but allow their policy to lapse. When a policy lapses, it is no longer in effect. As such, if something happens, the vendor will not have the proper insurance to cover workers’ compensation. Thus, it is best to ask vendors to show proof of insurance on an annual basis. Homeowners associations should also make sure they have HOA workers’ comp insurance.
Some vendors hire subcontractors to carry out other jobs. Uninsured subcontractors, though, can result in the same problem for HOAs. As such, associations should require vendors to inform them first if they intend to hire subcontractors. Then, the HOA should perform the same due diligence.
Standard workers’ compensation insurance provides coverage for General Liability. However, this type of coverage usually does not cover the damages for bodily injury to an employee. If the industrial commission recognizes a contractor’s employee to be the HOA’s employee, the HOA may not have sufficient protection. As such, it is a good idea to take out an “If Any” Worker’s Comp policy that also includes a Voluntary Compensation (VC) Endorsement.
The National WC Program, designed specifically for community associations, offers a variety of coverage for risk states. In Virginia, for instance, it has paid $102,972 for a board member who fell walking the grounds and broke their knee and shoulder. In Illinois, it has paid $24,000 for a maintenance worker who fell from a ladder and broke both ankles.
Associations should expect to pay around $570 in annual premiums for the “If Any” coverage. Considering the amount the program paid in the scenarios above, the cost is well worth it.
It is also worth noting that most states legally require employers to get a coverage limit of at least $100,000 per occurrence for bodily injury and $500,000 for bodily injuries by disease. Make sure to check your state laws to find out your minimum requirements.
Clearly, HOA workers’ comp insurance is an essential form of protection that every homeowners association should have in their arsenal. Without it, HOAs can face costly liabilities, which can cripple their financial health.
Understanding what types of insurance an HOA needs is not always easy. HOA boards who need professional assistance can turn to an HOA management company for help. Start your search for the best one in your area using our online directory.
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