Umbrella Insurance for Community Associations – Why You Need It Today

In a highly litigious environment, umbrella insurance for community associations is crucial. It can often mean the difference between financial stability and ruin. Below, we review a few exposures and recent settlements where umbrella insurance can help.

Quick 1-minute recap video of this article.

Defining Community Association

Community associations include the following:

  • Homeowners associations (HOAs)
  • Condominium owners associations (COAs)
  • Planned unit developments (PUDs)
  • Cooperatives (CO-OPs)
  • Commercial condominiums
  • Mixed-use condominiums

The Role of the Board of Directors

An association’s board of directors is responsible for enforcing the rules and regulations as outlined in the organization’s bylaws and Covenants, Conditions & Restrictions (CC&Rs). This includes:

  • maintaining common area property;
  • collecting and managing association fees;
  • communicating with residents about regulations, fees, and legal matters; and
  • obtaining insurance for the building and premises.

In purchasing liability coverage, a board should understand the extent of its association’s risks and why it’s so important to buy limits that will address their exposures, particularly when it comes to Umbrella insurance.

Next, let’s take a look at some exposures that could potentially upend an association’s financial stability without an Umbrella policy in place.

Common Exposures for Community Associations and How Umbrella Insurance Can Help

Negligent Security

Community associations are responsible for common-area security and safety. This includes:

  • properly lit common areas;
  • doors, locks, and call buttons at the front desk are functioning; and
  • security equipment is operational and well maintained.

In a gated high-end community, residents may expect an even greater level of security and safety measures from the association. If the board fails to correct an issue or make necessary repairs after receiving notice of a problem, it will most likely face legal action in the event of an incident. The bylaws will dictate the board’s liability and responsibility for common elements.

It’s important to note that even if the board is explicitly not liable, litigation against the association can and often does take place. Over the years there have been a number of associations sued for allegedly failing to implement adequate security measures. Some of these suits, particularly those involving serious injuries, have resulted in significant rulings or settlements in favor of the victims.

General Liability insurance typically provides $1 million/$2 million of coverage which is not nearly enough if a major loss occurs. This is where an Umbrella policy will step in.

Pool Drownings, Slips and Falls

Many properties have a pool, lake, or pond that residents and their guests frequent. While boosting a property’s value, these amenities also come with tremendous liability exposure for an association.

One drowning or slip and fall could result in a catastrophic lawsuit. For example, a teenager became a paraplegic after falling near a condo association’s swimming pool area. A $20 million judgment was obtained as a result of a lawsuit filed by the teen’s family.

In another case, a community association was found liable for one child’s death and another’s traumatic brain injury after they both fell through the ice on a community lake. The plaintiffs received more than $30 million in damages from the jury in the lawsuit. In both these cases, a high-value Umbrella policy would have helped to address the multi-million-dollar verdicts.

Other potential exposures for associations are often related to contingent liability risks.

For example, a homeowner may decide to throw a children’s birthday party with a bounce house in a common area. Perhaps near the clubhouse or pool. If someone is injured as a result of a mishap involving the bounce house, the association can be pulled into litigation. Yes – even though it was the owner’s party.

Associations with common areas that lend themselves to children’s events should talk to legal counsel about how best to limit liability. Homeowners typically don’t carry high liability limits on their policies, so plaintiffs look to the association for compensation.

D&O-Related Issues

Board members have a duty to act with the utmost good faith and reasonable care for the benefit of the association and its members, including:

  • the safety, security, and maintenance of the property;
  • protecting the association’s assets;
  • and collecting fees and assessments.

Directors & Officers (D&O) insurance provides protection in the event the association and board members are sued for their decisions or for failing to meet their responsibilities.

Again, as with General Liability insurance, often D&O policy limits are not enough to properly protect against a significant loss. A good example of the potential liability an association’s board can face is allegations of neglecting to implement recommended structural improvements.


Distinguished Programs provides community associations with Umbrella insurance to protect against unforeseen losses. We have a Community Association Express Umbrella program that offers limits up to $5 million, and a Real Estate Umbrella program with limits up to $150 million.

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