Insurance Terms and Coverage Limits
What do all these terms mean, and what do we really need for our community?
Michael Berg, CMCA, CIRMS Berg Insurance Agency
Insurance is often the most misunderstood and confusing topic for a community association board of directors. These volunteers spend long days handling personal matters or working hard at their own job. Community managers also struggle with the subject of insurance while handling multiple tasks from any number of communities in their care. Understanding a technical topic can be diffi cult when the mind has run out of places to store things. Hopefully what follows helps clarify some terms we insurance folks like to toss around and provides some tips to identify where your community might be under or over insured.
Insurance policies are written by type of insurance. We call these “lines” of coverage. The “policy” is the terms under which coverage is provided. Property, general liability, directors and offi cers liability, and crime/fi delity insurance are the main, required lines of coverage to purchase.
When each of these lines of coverage is purchased in a separate policy, we call this “mono-line” coverage. If a carrier includes more than one line of coverage in a single policy, that is called a “package policy.” It is quite common for carriers to include property and general liability insurance in a package policy. Carriers can include directors and offi cers and crime/fi delity insurance in the package as well. An easy way to tell if your coverage is provided on a mono-line basis, or in a package, is to look at the certifi cate of insurance provided by the insurance broker. If two different lines of coverage have the same policy number, they are written in a package. If the policy numbers are different, the coverage is written mono-line.
Most boards of directors can satisfy the bare minimum insurance requirements for their community with the purchase
30 July | August 2023
of property, general liability, directors and offi cers liability, and crime/fi delity insurance. Whether mono-line or as a package, most carriers can provide the limits to meet replacement cost needs (for property insurance), and liability insurance minimums as set forth in the CC&Rs or as part of the Davis- Stirling Common Interest Development Act (DSA).
If more protection is required or desired, additional insurance policies can be purchased. Umbrella/excess liability policies can provide additional liability insurance over the general liability and directors and offi cers liability policies. Workers Compensation insurance can be purchased as a “safety blanket” and/or “best practices” type of coverage should the association ever be deemed an employer (even when they have no employees). Earthquake and fl ood insurance can be purchased to address those specifi c exposures. Volunteer accident policies and single day event liability policies are also available.
So, now that we know about insurance policies, let’s talk about insurance limits. Regular review of insurance limits will ensure the coverage in place is accurate for the community, and will identify items that may need to be adjusted to provide the peace of mind insurance is intended to provide.
For the most part, the lion’s share of insurance premium is paid for property insurance. Carriers charge a rate of premium per $100 of insurance, known as the “cent rate.” For example, if a carrier has a 10-cent rate, the association will pay $10,000 of premium for $10,000,000 of property insurance. The limit of property insurance is also the one in the association’s portfolio that will change, or should
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