Community associations need to monitor their vendors’ insurance closely to avoid legal peril
It is the job of community managers or HOA boards to hire vendors who will provide services to residents and maintain their property. Part of the process includes vetting these vendors to make sure they have adequate insurance protection. All businesses are required by law to have certain kinds of commercial insurance. VendorSmart℠ discusses what types of insurance a company should have and provides a checklist for verifying coverage.
The importance of vendor insurance
A vendor is any company an HOA hires to provide a service to residents or perform maintenance on the property. The service could be for a one-time project such as painting or constructing a building, or ongoing service such as landscaping, pool maintenance, or providing cable service.
Making sure vendors have the right insurance is actually meant to protect the interests of HOAs. If anything were to happen while that vendor is on the property, and the vendor does not have insurance, the HOA board could wind up in legal jeopardy.
If a vendor commits any wrongful act, community associations can face lawsuits or even become liable themselves – even if the HOA is not directly at fault, according to RealManage.com. So it is important for any homeowners association to make sure the right insurance is in place.
Vendor insurance checklist
1. General liability insurance
This type of coverage is meant to protect a business from lawsuits over accidental injury of a third party or damage to property. Liability insurance covers legal fees and any judgments against the business.
Davis HOA Insurance Solutions recommends that contractors who make building improvements such as construction projects, roofing, and painting should have their general liability policy specifically endorsed to work on condominium or townhouse homeowner associations and planned development common interest developments.
2. Workers compensation
This type of insurance is meant to pay the medical bills and/or lost wages of employees who are injured on the job. Any vendor should have workers compensation insurance. Every state has a different minimum coverage level, so the HOA should research state regulations.
Note: If a vendor brings a “helper” to work on the property, management should ask for a certificate of insurance to prove they have workers compensation insurance. If the company does not have workers comp, the HOA could wind up being responsible for medical bills if that helper is injured on the property.
3. Commercial auto/vehicle liability insurance
Commercial auto/vehicle liability insurance is similar to general liability, except that it covers injuries or property damage caused by someone driving a commercial vehicle. Without this type of insurance, the HOA could be held liable if a vendor drives a company vehicle onto the property and causes an accident. The community association might also be legally liable if a vendor gets into an at-fault accident while driving to or from an HOA job.
4. “Additional insured” provision
Having a certificate of insurance is not enough protection. All vendors should be required to endorse the HOA as “additional insured” on their general liability and auto/vehicle policies. Having the “additional insured” endorsement will give the HOA legal rights in the eyes of the vendor’s insurance company. It will also protect the HOA from being sued over the actions of a vendor.
Verifying insurance coverage
There are several things an HOA board or community manager should do to confirm that a vendor has the proper insurance.
- Ask for annual proof of insurance and keep it on file.
- Obtain and file a copy of the “additional insured” endorsement.
- Obtain a certificate of proof of general liability with a $1 million minimum limit.
- Ask for proof of endorsement of general liability and auto/vehicle liability from the vendor’s insurance company.
- Call and confirm that all insurance certificates and policies are paid up and in force. To confirm the actual insurance coverage of a vendor, you need the following information:
- Insurance company
- Policy number
- Insured name (to see that it covers the vendor in question)
- HOA named as “additional insured”
- Policy period
- Liability limits and deductibles
- Certificate holder identification
Verifying insurance coverage of vendors is essential in order to protect HOAs and community managers. If a business doesn’t have adequate insurance coverage, or if they have let a policy lapse, the association could be liable for their actions and wind up facing a lawsuit. Use this checklist to be sure you have verified all vendors. VendorSmart℠ can help you vet vendors and provide ongoing risk/compliance management by monitoring compliance documents such as the certificate of liability insurance, workers comp, and business licensing. If you are looking to hire a vendor or manage the certifications of current vendors, contact us to get started.