Insurance Solutions

(00:00) INTRO: It's time for HOA Solutions Today. This is where you'll find news, tools and trends for condominium and association leaders.

There are so many things that are out of our control in the association industry where it's either hard or difficult or sometimes impossible to be able to do the right thing.

And now here's your host, Paul K. Mengert.

(00:24) PAUL K. MENGERT: Our topic today is HOA Insurance Solutions, and I'm very pleased to have my good friend: Andrew Bateman with me today. Andrew is a nationally recognized independent commercial insurance agent at TriSure Insurance. Andrew focuses on protecting homeowner and condominium associations as well as their leaders. Andrew, welcome to the show.

(00:49) ANDREW BATEMAN: Paul, thank you very much for having me today.

(00:52) PAUL K. MENGERT: This is going to be great to have an opportunity to talk about the kinds of insurance that associations and condominiums should have, and just to give association managers and leaders kind of an outline of things they would want to discuss with you or their insurance agent when they meet with them. Andrew, tell me, how did you get involved in providing association insurance?

(01:18) ANDREW BATEMAN: Well, I'm a 20 plus year veteran of insurance, but 12 years ago I joined an agency that only works with homeowner’s associations, and I've been an active member of CAI ever since. And as history would have it, I ended up buying the agency, and the rest is history.

(01:40) PAUL K. MENGERT: Well, we're certainly glad to have you, and we thank you for all you have done for the industry. Let me get started today by asking you to tell us about a time an association didn't have the right insurance or enough insurance. I can't imagine what that might look like. Can you tell us?

(02:03) ANDREW BATEMAN: Well, of course, unfortunately, I do have examples of that. And it is the most costly mistake an association can make. We work with an association now that before they came to us, had a discrimination claim, had a year donor go through HUD, FHA and present a lawsuit against the Association for discrimination that this person was being treated differently. Well, the association presented it to their insurance company. They didn't have coverage for discrimination claims, and well, when that happens, the association and pay it out of their pocket, it came out of the operating reserve accounts. That is their full defense, and damages were paid out of their pocket after it was settled, the court also mandated that each board member have sensitivity training. They had to pay that out of their own pockets. It's extremely, painful, expensive, not to have the proper insurance. You pay a premium. You want to transfer the risk to the insurance company.

(03:25) PAUL K. MENGERT: There are so many things that are out of our control in the association industry where it's either hard or difficult or sometimes impossible to be able to do the right thing. When it comes to insurance, we've got the governing documents to look to, as well as the state laws that will give us a guidepost of what kind of insurance, we ought to make sure is included, and beyond that, we also have the ability to have insurance professionals that can recommend a set of coverages that associations should consider. I sure would hate to be the manager or director that has to stand before a group of homeowners and tell them that in the effort to save a few hundred or few thousand dollars, we've incurred thousands of thousands of dollars of liability. I understand sometimes these discrimination issues can range even into the hundreds of thousands of dollars.

(04:33) ANDREW BATEMAN: The average lawsuit when it comes to discrimination, the average, is 80,000. The largest I've seen in North Carolina is $1.2 million.

(04:45) PAUL K. MENGERT: So that will get people's attention. And a lot of these problems can be avoided if the association board and managers will have a good review with their insurance agent once a year and discuss the different coverage.

(05:01) SPEAKER: And now it's time for your HOA Solutions Today Newsbreak.

(05:04) NEWSBREAK: The Community Association Institute finds that nearly 80% of community members and managers prefer online meetings. Virtual meetings, increase member participation and widens the pool of available directors. Many states are implementing laws which authorize online membership meetings. Visit HOAsolutionstoday.com for more information. This has been your HOA Solutions today newsbreak.

(05:33) PAUL K. MENGERT: We're back. I'm Paul Mengert, and we're here with Andrew Bateman discussing HOA solution insurance today. Andrew, particularly with CAI is finding of greater participation, it's pretty easy to have a meeting with your insurance agent online, isn't it?

(05:51) ANDREW BATEMAN: Well, just as that news break just said, those virtual meetings are the most important since during COVID. I have attended four times the amount of board meetings than I have in previous years, just because of the virtual meetings. Just absolutely take this advantage. Ask your agent to participate in their board meetings. Why not? They have a duty to your association.

(06:23) PAUL K. MENGERT: I know you highlighted discrimination insurance and certainly is a good question everyone should ask about their directors’ and officers’ insurances is does it include discrimination actions? And I think similarly, most managers and board members know that they need liability and property insurance, but tell me about some of the details of liability and property coverage that an association should think about when they meet with their insurance professional.

(06:56) ANDREW BATEMAN: Well, two questions there are liability and property. First, with the liability. You want to make sure that you have enough coverage. If you do not feel that you have enough coverage that you need to utilize an umbrella, this increases the amount of liability coverage for two areas for the general liability. Those are lawsuits against an association for allegations of physical injury or property damage that was caused by the association or the responsibility of the association. The second part is the coverage that you want to make sure and the liability is that it covers over the directors and officers policy also. Well, then. The other question is regards to property. Well, property, you need to make sure that you have the correct replacement cost for that piece of property, whether it's a townhome with property, whether it's a condominium, whether it's a clubhouse, you want to make sure that you're getting first, and insured value report, which is an estimation from your agent that gives you a per square foot replacement cost. The second is to look into an insurance appraisal. Well, the insurance appraisal is completed by an engineer. A lot of times it's the same one that does the reserve study. This is the only exact way to get the replacement cost for the building. The insured value reports from CoreLogic estimates the insurance appraisal is precise. That is one of the most important things that a board of directors can do is gather that information on the replacement cost. Because the bottom line is the board of directors is responsible for that replacement cost.

(08:46) PAUL K. MENGERT: Excellent points. And unfortunately, I think we are at a time when the replacement costs are basically skyrocketing because of labor and building materials. So not only do I understand insurance is becoming more expensive for the same amount of coverage, but many people are finding the value of their property is going up by 10, 20, even 30% from what it might have been rated as the value a few years ago. Andrew, reflecting back on the liability coverage, because the property value should be a finite number, you just have to determine that, but with the liability coverage, what kind of numbers are you seeing associations look for? And of course, there's no one size fits all and I know you can't make a, you know, a dollar recommendation, but give me a range of what you're seeing and what might impact how much liability coverage on an umbrella that an association might look to.

(09:48) ANDREW BATEMAN: Well, that's a great question, because when I get asked that question, I get to stand up on my soapbox. I stand on my soapbox, and I tell every association that has a pool, park, Pond or Playground, the four P’s that they minimally need to have a $5 million umbrella to cover over their general liability. We have associations that go from 5 million to 25 million on a regular basis. Associations that have a lot of amenities can get larger umbrellas also. You just have to ask for it from your agent for them to provide you the information. It helps boards make a business decision to see if they can afford it or can't afford it, and if they can, they should get the biggest umbrella that they can afford.

(10:37) PAUL K. MENGERT: I think that's super helpful information. Speaking of agents, Andrew, what qualifications might an association or a manager look to when selecting an insurance agent before you ever get to the policy, what are some of the credentials that would let a community leader know they're dealing with a person who's going to be knowledgeable in this area of insurance?

(11:05) ANDREW BATEMAN: In the insurance industry, the certified insurance counselor or CIC, is one of the most prestigious certifications that an agent can get. It is five tests over five years. It is very difficult to get. But when it comes to working with homeowners associations, townhomes and condominiums, you want to try and find a community insurance and risk management specialist that is your serves, that is somebody that just like if you had a knee problem, you would want to go to an ortho. Well, with HOA’s you want to make sure you're working with a specialist also and you want to make sure that they do have the CAI certifications, which is serves. And if they have a long term knowledge and have very vested interest in the industry, you may find an agent that also their CMCA, that's just a little frosting on the cake.

(12:05) PAUL K. MENGERT: Excellent. Excellent. Well, one of the things is, having worked in this area for over the last three decades, I have found, just like managers and attorneys, the insurance agents are not all created equally in this industry, and there may be agents on your local corner that are very good at insuring your house or car or boat, but make sure you're dealing with one that really has experience with associations, because this is a fast moving industry where things are happening that if you don't keep up with them literally every couple months, you can really fall behind some of the important trends.

(12:48) SPEAKER: And here's another HOA solutions today news break.

(12:53) NEWSBREAK: Corporate and Wall Street landlords are snapping up properties in community associations across the country. Some associations are taking action to prevent corporate rentals, causing some homeowners to protest that they should be able to sell their property for the highest amount to any willing buyer. Courts and state legislatures across the country are looking into this. Let us know your opinion by leaving a comment at HOAsolutionstoday.com. Need more information? Check out our related articles. This has been your HOA Solutions today newsbreak.

(13:24) PAUL K. MENGERT: Welcome back, folks. I'm Paul K. Mengert here discussing HOA solutions with nationally recognized TriSure insurance agent Andrew Bateman. Andrew, I know you've given some guidance on the type of credentials that an insurance agent that an association would want to look to in their insurance agent. How often do you recommend the community leaders meet with the agent?

(13:49) ANDREW BATEMAN: They should be minimally meeting with the agent every year. Don't ever hesitate to meet with them more often. I have boards that call me on a very regular basis with questions and I have boards just meet me once a year. But it is absolutely, if boards are not meeting with their agent, then they're saying that the insurance is correct and without a review they don't know that it is or not. So at least once a year.

(14:18) PAUL K. MENGERT: And you know, of course, we have so many associations across the country and they range in size from just a few homes to literally thousands of homes. Does this same guidance apply to the smaller associations also?

(14:46) ANDREW BATEMAN: Absolutely. Because as we talked about earlier, about claims that are not covered by insurance, that is divided equally by the number of homes in the community. So smaller associations actually carry a larger risk because there's less homes to divide the missed insurance on. So, yes, you're already paying for the insurance. There's no cost additionally to the association to have your agent come to the board meeting.

(15:09) PAUL K. MENGERT: Yeah, as you pointed out, now, using platforms like Zoom, it's pretty easy to hop on a call and have this kind of conversation or it can even be done on a conference call over the telephone.

(15:22) ANDREW BATEMAN: Yes sir.

(15:23) PAUL K. MENGERT: Yeah. Not to mention, there's nothing wrong with sitting together in person and sharing a good old cup of coffee together.

(15:29) ANDREW BATEMAN: That's right. Shaking somebody’s hand.

(15:31) PAUL K. MENGERT: We can do it the old way, too. Well, well, I know you've worked with me, along with some others, to put together a checklist for association leaders over the past couple of months, which gives some guidance to association leaders, both managers and board members. Kind of an outline of some of the discussion. You might want to have mentioned a few of the other things on our checklist that we haven't touched on yet.

(15:59) ANDREW BATEMAN: Well, the biggest thing I would say is two things: Is the property coverage. You need to make sure that you have all the simplest things checked off like the address, number of homes, number of ponds and things that are a liability to the association are listed on there. With the property, with the address, you want to make sure that you have all the underwriting, you know, when the roof is replaced. Any updates to the electrical or plumbing or AC? These are things that every association needs know every year and continuing on into the future. The second is, you know, we touched on it is the directors and officers policy. If any one serving on any board, whether it's an HOA board or a non regular nonprofit board. I would not serve on that board if you do not have a standalone directors and officers policy.

(16:56) PAUL K. MENGERT: Interesting thought and certainly something that we want to encourage everybody to discuss with their agent. Tell me about how, what does Fidelity Insurance look like for associations and why is that so critical?

(17:13) ANDREW BATEMAN: Well, the crime in fidelity for an association, this is what protects the operating reserve accounts from crimes, theft, stealing, embezzlement, check fraud, wire fraud. When an association works with a professional management company like AMG, that removes about 95% of the risk, because AMG is a professional management company. They don't have checks in their drawers anymore. Everything is done electronically through lock boxes and through online banks. But where the risk still lies is outside the management firm with the board of directors. You can’t interview the board of directors for their criminal history, you don't know who's going to be getting on the board in the future. There could be potential of access to the operating reserve accounts outside the management firm that would fall strictly on the board of directors, and that association would need this insurance to protect that.

(18:24) PAUL K. MENGERT: And you've mentioned the known parties, the people that we know might potentially be handling things. What about unknown people that are either out there in the community or that might claim to be a board member, even though they're not or somebody's in some faraway continent that's, you know, sending a wire transfer to the bank that might appear real and not be.

(18:50) ANDREW BATEMAN: That's right. There's the cyber crimes and then there's the social engineering. The cyber crimes are technical in nature, where they come in through emails, they hack computer, or just imagine a board members laptop being stolen, and they access confidential information. Well, in the state of North Carolina. Two pieces of confidential information are considered a breach. That is a name and an address, name and an email, name and or phone number. Those are things that they could have access to name, address, phone number, email and a list that would be, you know, just of the HOA. Well, the second is, is social engineering. This is when somebody is tricked into sending a payment. You receive an email from one board member reaching out to another board member stating, hey, we're going to have an event coming up. I need you to go buy some gift cards for the association to give away at the holiday party. You buy them, we’ll reimburse you. Well, they send them to the other email. That is a fake email, and then they turn it into sending another invoice. It's truly the social engineering is the part is being tricked into sending money. That is covered by insurance.

(20:12) PAUL K. MENGERT: I would mention to our listeners that this really does happen. I know a well-known law firm that had one of their attorneys tricked into going and buying gift cards for one of their other attorneys. So, these are these are real life things that can happen, and it could often be the social engineering can be done extremely well sometimes.

(20:40) ANDREW BATEMAN: We had a pine straw, I'm sorry, we had a pine straw claim from a pine straw company. They issued an invoice the board approved the invoice, went to the management company the management company issued the check, the check was issued. The pine straw company said it's made out wrong. You need to do it a different way. We've destroyed the check. The management company went through, send us another invoice. Send us all of this. Went through all of the steps, did a stop payment on the first check, issued the second check, but before the stop payment could be handled, the check was already presented at the bank. So, it went through the first line of defense, issued the second cheque unbeknownst following every protocol. Well, that was paid for by the insurance and then they're subrogating going after and they're going to get that money back from that, that person, that criminal, that did that act.

(21:46) PAUL K. MENGERT: One of the things that a lot of times is a little hard to understand, is I understand it is really difficult for management companies to ensure monies that don't belong to it. So, when the money belonged to the association, it's really difficult for the association manager to ensure funds of the association, which is why associations need their own fidelity and cyber policies. The good news is these don't tend to be very expensive. So, this is this is something, if you think of it and discuss it in your annual review, I think most will find that it's worth paying a little bit extra for these coverages because these are probably more likely to occur than having a fire in the building. We see a lot more issues with these kinds of things that we do with the traditional property or liability insurance claims.

(22:48) SPEAKER: And now our final HOA Solutions Today Newsbreak.

(22:52) NEWSBREAK: Can employees be fired because their children are screaming in the background of a Zoom conference? Employers better think twice about taking action against those with children versus those without children. You may recall in 2020, the husband who reportedly walked through his wife's Zoom conference naked. That must be more offensive to many people than children. At any rate, children are protected class under the US discrimination laws. Employers cannot take action against employees based on them having children. Leave a comment and tell us of the weirdest thing you've seen during a Zoom meeting at HOAsolutionstoday.com. This has been your HOA Solutions today newsbreak.

(23:32) PAUL K. MENGERT: Andrew I you know, in mentioning children, I know we've seen a number of discrimination claims about children.

(23:42) ANDREW BATEMAN: Yeah. Yes. Especially out at pools. You got to watch what kind of rules that you put in on familial status. So, yes, you need to make sure that there's coverage for discrimination for all the protected classes.

(23:58) PAUL K. MENGERT: We try to open talking about discrimination claims. And I know those are some of the hardest to deal with for association leaders because they inherently seem to feel, in my experience, like we don't have anything to worry about because we don't discriminate. But sometimes they do it, unbeknownstly, not realizing that having a rule that, you know, children can't swim at Thursday night's adult swim is a discriminatory act and we don't condone it. I don't discourage every client from doing those type of things, but certainly they need to have the insurance. So, when these things accidentally happen, they're not liable at the association level or even worse yet, personally liable, which I guess is possible for a violation of discrimination laws.

(24:51) ANDREW BATEMAN: Oh, absolutely. Once that judge swings that gavel and finds you guilty of personally acting in a discriminatory manner, you may have lost your protection. And once you've been found guilty of a crime, your insurance coverage stops also.

(25:13) PAUL K. MENGERT: Well Andrew. I think we're going to leave it there today. The final thought being before that judge swings that gavel, you better have a conversation with your insurance agent to make sure you've got the right insurance coverage for your community association. This is the HOA Solutions Today Show. And we're pleased to have had special guest Andrew Bateman, a nationally recognized insurance expert with us. And what he's telling us is meet with your insurance agent, follow the checklist, make sure you have everything in the governing documents and that your insurance professional recommends. Thanks for being here, Andrew, and thanks for listening. And we'll see you guys next time.

(25:51) OUTRO: Thanks for listening to HOA Solutions Today. Find more information on today's topic online at HOASolutionsToday.com

(26:04) PROMOTIONAL: This podcast is a production of BG Ad Group. Darren Sutherland Executive Producer. Jeremy Powell Creative Director. Jacob Sutherland Director, Producers, Jason Genter, Ola and Matt Golden and Kezia May, copywriter. All rights reserved.

Key Notes:

• Be sure to meet with your insurance agent once a year, minimum.

• Follow a checklist when discussing your policy with your Insurance Agent.

• Make sure you have everything your Insurance Agent recommends in your governing documents.

To access our free Insurance Solutions worksheet, click here.

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