Every homeowners association will need to hire vendors to maintain common areas. However, one thing that board members don’t always think about is vendor insurance for HOA communities. Is it necessary? How much coverage should vendors have? Let’s find out.
What is Vendor Insurance for HOA Communities?
Homeowners associations work with various vendors. They hire vendors for landscaping, janitorial, and even security work. While these vendors provide essential community services, they expose the HOA to potential risks. Their jobs could damage property or cause accidents. As a result, the HOA may be held liable for any bodily injuries or property damage, even when they’re not at fault.
However, if a vendor has adequate vendor insurance, the HOA and the homeowners do not need to be held responsible for the damages. Vendor insurance protects liability from lawsuits arising from a contractor’s mistakes or negligence.
Should Vendor Insurance for HOA Communities Be Required?
Contractor insurance is certainly important, but should HOAs require it? Certain states prohibit HOAs from working with vendors without insurance. For example, California law requires HOAs to ensure that contractors have a license and the necessary insurance policies before they’re allowed to work in the common areas. The state even requires vendors to have more than one type of insurance. Apart from state law, some governing documents may require the HOA to hire only insured vendors.
It’s still a good idea to only hire vendors with insurance, even if state law or the governing documents don’t require it. Accidents happen, and even licensed professionals make mistakes. Without insurance, the HOA might be liable if the vendor damages property or causes bodily injuries. Lawsuits are not only time-consuming but also expensive. Everybody in the community will end up shouldering the cost of litigation.
In addition, hiring uninsured vendors could be a breach of fiduciary duty. The homeowners might accuse the board of not doing their job properly. This could lead to disputes and potential lawsuits.
Vendor Insurance Requirements
What types of insurance should the HOA require? Different vendors will require different types of policies. Some vendors need more coverage, while others need very little because of their size and scope of work. Thus, the HOA must carefully determine the requirements for each type of vendor.
Nonetheless, certain insurance policies are considered standard in the industry. Here are the most important vendor insurance policies to look for in a contractor.
1. Vendor Liability Insurance
Liability insurance is the equivalent of regular HOA insurance but for contractors. It protects the HOA from liability in case the vendor causes bodily or property damage to third parties. For example, if the landscaper damages a homeowner’s car while trimming tree branches, the vendor’s liability coverage would pay for the damages. It would also pay for medical expenses if a fallen tree branch injures a homeowner or guest.
2. Worker’s Compensation Insurance
Vendors insurance coverage should also include worker’s compensation insurance. This policy covers an employee’s lost wages and medical bills in case of injury or if they contract a disease while on the job. The association will not be responsible for compensation expenses or large medical costs.
3. Commercial Auto Insurance
Some vendors drive company cars or vehicles to fulfill their duties in homeowners associations. For example, construction workers building a new clubhouse might use forklifts and excavators to do their job. Commercial auto insurance will cover damage and injuries to third parties caused by the vendor operating the vehicle.
4. Non-Owned Auto Insurance
A vendor’s employees may drive personal vehicles to the site to complete the work. However, this also comes with risks, as their vehicle might damage property or cause injuries. For instance, the employee might crash into the HOA’s main gate as they head out to purchase supplies for the project. Non-owned auto insurance covers the cost of these accidents, so the association does not have to pay large expenses.
5. Commercial Crime Policy
Professional vendors will always do their best to keep their employees in check. However, even with the best practices, some employees remain dishonest and commit crimes. A commercial crime policy covering employee dishonesty will protect the contractor if the employee steals property or money from the vendor.
However, remember that this policy will not protect the association if the employee steals from the HOA. To stay protected, the HOA must purchase separate crime insurance.
6. Completed Operations Policy
Completed work doesn’t always mean good work. Sometimes, damages only happen after the vendor finishes the job. For instance, imagine that a vendor completed the electrical wiring for the community clubhouse, but it later caught fire because of improper installation. A completed operations policy will protect as it covers the cost of damages after the work is accomplished.
What Proof of Insurance Should HOAs Ask For?
The HOA board should select vendors that have ample insurance coverage. They should ask for a copy of the vendor’s certificates of insurance that indicate the following information:
- Insurance Company
- Policy Number
- Insured Name
- Policy Period
- Additional Insured (HOA Name)
- Deductibles and Liability Limits
- Certificate Holder Identification
In addition, it’s best to hire only the vendors with $1,000,000 comprehensive general liability coverage (per location), fidelity bond coverage, and worker’s compensation insurance. This may reduce the pool of vendors that submit bids, but it ensures the HOA is free from financial and legal liabilities.
A Note on Employment Status
Vendors may sometimes argue that they’re association employees and are, therefore, entitled to employee benefits. This also exposes the HOA to liability, as the association will be directly responsible for the vendor’s negligence or mistakes.
To prevent this from happening, make sure the contract expressly states that there is no employment relationship. The vendor is strictly an independent contractor and nothing more. Work with an experienced HOA attorney to ensure no loopholes in the contract.
Necessary Vendor Insurance for HOA Communities
Homeowners associations need vendors to do all the maintenance and repairs for the community. Otherwise, they will have to hire employees which isn’t always ideal for every type of job. To protect the community from liability, ensure every contractor has ample vendor insurance coverage.
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