My firm and I are fortunate to work with many HOAs, and one of the most common questions we receive from new clients after our initial consultation: Our HOA doesn't have any employees, so why do we need a worker's compensation policy?
A very good, understandable question. If I wasn't in the insurance industry or served on an HOA board, I'd ask the same of my insurance broker. After all, don't worker's compensation policies cover employees injured on the job? If my HOA doesn't have any employees, why would it need a worker's compensation policy? Most clients are partly correct in pushing back here. HOAs do not need a full form worker's compensation policy if they do not have employees, but they do all need a non-payroll worker's compensation policy.
So why DO all HOAs need a non-payroll worker's compensation policy? The reason lies in how the insurance industry approaches claims against two classes of people commonly working around HOA properties: outside contractors and volunteers. Perhaps this sounds familiar: Has your HOA ever hired an outside contractor to perform work on the property? Sprinkler system maintenance? Pool work? Maybe the foliage surrounding the property needed trimming? Has anyone ever volunteered to do some work around the property on behalf of your HOA, even to simply help move a few things or pick up trash? For most HOAs, the answer to these questions is "yes."
Let's look at how the insurance industry approaches outside contractors and volunteers:
Outside Contractors: Most HOA boards do their best to hire outside contractors that can provide proof of insurance. HOAs do not want to shoulder liability for an injury sustained by an employee of a contractor while performing work around the property. But what happens if a contractor lets their insurance lapse halfway into their policy year (even though they provided a certificate of insurance from the beginning of the policy year)? Or what if a contractor is not carrying the proper insurance coverage or not enough coverage?
How the insurance industry/labor board may see it (not a direct quote, but a summation):
*If an employee of an uninsured or improperly insured contractor is injured while performing work on behalf of the HOA, the HOA may need to step in as the "employer" in this case to provide benefits to treat the injured employee, per the labor code.
Whether or not this is fair, it does happen, more frequently than anticipated, as the insurance industry does not give the HOA a free 'hall pass' in this situation.
Volunteers: It's not uncommon for volunteers to perform small tasks and help around the HOA property, whether they are HOA members, family, or friends. What happens if one of those volunteers is injured while working on behalf of the HOA? How the insurance industry/labor board may see it (not a direct quote, but a summation):
*If any volunteer is working on behalf of the association and is injured during the course of their duties, the association may be required to treat that injury as 'work-related,'and may be required to provide benefits owed under the labor code.
Even though the HOA is not technically responsible in either of these cases, it still may be required to provide appropriate benefits for "work related injuries" to "employees." At this point, or at any point above, you may be thinking: Yes, but why wouldn't my general liability policy cover these volunteers or outside contractors? Another good question. While general liability does provide coverage for "bodily injury," it excludes "bodily injury to an employee." A serious injury to a volunteer or to an employee of an uninsured or improperly insured outside contractor could be viewed as an injury to an "employee" by your general liability carrier, and they may deny the claim. Cited below are recent, real life examples where an HOAs non-payroll worker's compensation policy provided coverage:
- Illinois - Amount Paid: $62,972. Volunteer fell off a ladder and injured their knee.
- California - Amount Paid: $19,264. Volunteer injured their back lifting a stove in the clubhouse.
- Georgia - Amount Paid: $15,710. Maintenance worker fell while picking up trash.
- New Jersey - Amount Paid: $11,677. Manager developed a hernia while pushing a dumpster
- California - Amount Paid: $24,500. Volunteer fell of a wall ledge and landed on their head
- Illinois - Amount Paid: $24,000. Maintenance worker fell from a ladder and broke both ankles
In all these cases, the HOA's non-payroll worker's compensation policy provided coverage. What would have happened without a policy in place?
Without the protection of a non-payroll worker's compensation policy, each respective HOA may have had to pay these claims out in cash or out of their reserves. Replacing this unforeseen expenditure may have required each HOA to levy higher assessment fees against association members. Should that happen, association members may not be too happy about the situation, and this could trigger a potential lawsuit from the association members against the HOA board. If this happens, now the HOA board has a D&O claim to deal with, on top of the requirement that they provide benefits to any injured 'employees.'
Here is the good news: Non-payroll worker's compensation policies are cost effective. Depending on the company, they will run about $500/year in premium and will provide $1,000,000 in coverage for bodily injury by accident or disease for a volunteer or an employee of an outside contractor, if needed. A premium of $500/year is well worth the investment when compared to the costs of potential claims.
A non-payroll worker's compensation policy will help your HOA avoid costly claims for injuries to volunteers or employees of outside contractors, prevent potential increased assessments to association members, and mitigate potential D&O claims against the HOA board.
Stay healthy, stay well.
California License #0D94511