Workers’ Compensation Coverage for Communities: Your Questions Answered

Homeowners’ associations (HOAs) perform a unique blend of functions that involve governance, business, and resident engagement, opening them up to a unique set of risks. Risk management involves identifying, analyzing, and evaluating those potential areas for loss and then implementing methods for mitigating them. Workers’ compensation insurance coverage is designed to address a common area of risk for associations: contracted personnel. Read on to find frequently asked questions about workers’ compensation for HOAs and the answers from the experts at Associations Insurance Agency, Inc.

Why do associations with no employees need workers’ compensation coverage?

While governing documents may identify the basic insurance requirements for an association, workers’ compensation coverage is essential for three primary reasons.

1. Some boards knowingly hire uninsured contractors. While you may save money short term, it can be a costly risk in the long run.
2. A contractor’s insurance can lapse. Even though a contractor gives you a certificate of insurance, it doesn’t mean they’re paying the premium. The certificate confirms coverage for the day you receive it, but a month later, the contractor’s carrier can cancel them for nonpayment, even if they’re still working for your association.  In most cases, a carrier will inform all certificate holders that the contractor’s coverage has lapsed, but many times that notification can come weeks after the policy’s been canceled.
3. A contractor’s injured employee can sue the association. That employee can bring a lawsuit against all parties involved in a project. However, an association’s workers’ compensation policy can keep any employee or contractor’s employee from filing a tort suit against the association.

What are the biggest misconceptions about workers’ compensation insurance?

Many people assume a certain level of coverage protects them from all liability, but that’s simply not the case. These are the biggest misconceptions about workers’ compensation coverage.

• A hold harmless agreement will protect the association. A hold harmless agreement is designed to protect business owners from being sued when someone suffers damage or bodily injury while a service is being provided. However, this never eliminates an injured party from suing and collecting from an association. A hold harmless agreement may not always protect you if the contractor’s insolvent or in financial duress, and a contractor’s attorney will work to find inaccuracies and inconsistencies in the agreement, regardless of how well-crafted it is.
• The general liability policy will protect the association. Most liability policies contain a specific exclusion for any type of workers’ compensation claim or loss. If there’s no workers’ compensation policy in place, and the general liability policy can’t be triggered, then the association is left unprotected.
• These situations won’t happen to the association. What happens if a committee member, volunteer, or board member pays a neighborhood child, friend, or retired owner to perform small jobs around the community, and that paid person gets injured while working on behalf of the association? Those are just a few of the many injury scenarios that could occur, and workers’ compensation coverage is designed to protect your association from those situational risks.

Are volunteers covered by a community’s workers’ compensation policy?

In most cases, volunteers are not covered by a workers’ compensation policy. Workers’ compensation is intended to cover actual employees of a business who are paid for their work and recognized on the company’s payroll. Volunteers aren’t being paid for their services, and thus aren’t considered employees. Because most associations have no employees, workers’ compensation (although still important to any association) isn’t the most pressing issue.

What becomes more of a concern is coverage for volunteers who give their free time and efforts to the association. If you can’t find a workers’ compensation insurance carrier that will include coverage for volunteers under the policy, then look for a separate volunteer-only policy. Premiums are usually driven by the total number of potential volunteers and the type of work the volunteers would be performing. 

An association’s liability policy typically covers a volunteer, but coverage amounts and types of injury vary by association and insurance provider. Consult your community manager, insurance representative, and attorney to identify your community’s areas of risk and the appropriate insurance coverage for your unique needs.

4 Steps to Ensure Comprehensive Community Insurance Coverage

To help you ensure that your association is fully protected, our experts outline the specific actions your board should take to create a complete community association insurance plan. Download our ebook, “The Blueprint for Board Member Success: 4 Steps to Ensure Comprehensive Community Insurance Coverage,” to learn more.