Does Your Association Need HOA Worker's Comp Insurance?
What is HOA Worker's Comp Insurance?
Workers' compensation insurance, or workers' comp for short, provides wage replacement and medical benefits to employees who 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; 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 employed under the vendor, the injured workers can also sue the HOA for the injury, which 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 because it can cover volunteers. The common misconception is that workers' comp can only apply to paid workers. And while a majority of standard policies follow this format, workers' comp policies also cover unpaid or volunteer employees, including board members and committee members. To ensure the HOA's workers' comp policy covers volunteers, the insurance provider needs to work closely with the insurance provider.
Is Worker's Compensation Insurance for HOAs Mandatory?
In some states, workers' comp becomes mandatory when a business reaches a certain number of employees. In others, workers' comp becomes compulsory when a company hires its first employee. But do these laws apply to homeowners associations as well?
Although HOAs operate like a business, they are not usually treated like one. Workers' comp is an optional form of coverage for HOA and condo communities. Every homeowner's 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.
Does the HOA Management Company's Insurance Cover the HOA?
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 also extends to them. After all, isn't the HOA management company the one responsible for hiring and handling vendors, contractors, and all association employees?
But, the fact 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, which is true in most states. As a result, associations will still need to purchase their own HOA workers' comp insurance.
Should Vendors and Contractors Also Have 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 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 severe financial loss, often forcing associations to tap into their reserves or levy special assessments to cover the cost of liability. Neither scenario is favorable.
1 Licensed but Uninsured
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, which means that the homeowners association will not suddenly become their employer. The injured worker can then bring action against their employer (the vendor).
Sometimes, a court may find that the injured worker has dual employment. In this case, both the vendor and the HOA share liability. Proper HOA workers' comp insurance limits the injured employee's legal options.
2 Lying to Get Hired
Unfortunately, some HOAs fail to screen vendors properly. Other times, vendors will blatantly lie about having insurance just to land the job. These HOAs can hire vendors without proper insurance, including workers' comp.
HOAs must do their due diligence when hiring contractors and vendors to protect themselves from liability. It is essential to ask for a Certificate of Insurance that proves the vendor has workers' comp coverage. If a vendor fails to provide this certificate, an HOA should not hire them.
3 Insured by Lapsed
Sometimes, a vendor will have workers' comp insurance when hiring, but their policy will lapse. When a policy lapses, it is no longer in effect. 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 annually. Homeowners associations should also make sure they have HOA workers' comp insurance.
4 Screening Subcontractors
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.
5 Coverage Considerations
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 as the HOA's employee, the HOA may not have sufficient protection. As such, taking out an "If Any" Worker's Comp policy that also includes a Voluntary Compensation (VC) Endorsement is a good idea.
The National WC Program, designed specifically for community associations, offers a variety of coverage for risk states. 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 physical injuries by disease. Make sure to check your state laws to find out your minimum requirements.
The Need for Professional Help
HOA workers' comp insurance is a basic form of protection that every homeowner's association should have in its 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. Contact Condominium Associates today! We can help you find what you need for your HOA!