Could Your HOA Survive the Theft of $150,000?

A recent 9NEWS story reported that a former Colorado HOA president is accused of stealing nearly $150,000 from his neighborhood association.

For HOA boards, this is a good reminder of exactly why Fidelity Insurance exists.

Fidelity coverage is designed to protect an association when someone entrusted with association funds steals or dishonestly takes that money. Depending on the specific policy wording and facts of the loss, a properly structured Fidelity policy could reimburse an association for a loss like the one alleged in this case, up to the policy limit. That can make an enormous difference for a community.

Without adequate coverage, money stolen from the association may ultimately have to be replaced through reserves, increased assessments or a special assessment to homeowners.

Colorado Requires Fidelity Coverage for Many Associations

Colorado law specifically addresses this exposure. Under C.R.S. § 38-33.3-313, an association with 30 or more units must obtain and maintain Fidelity Insurance, to the extent reasonably available, when a unit owner or employee controls or disburses association funds.

The required coverage cannot be less than two months of current assessments plus reserves, calculated from the association's current budget. Colorado law also permits associations to purchase limits greater than the statutory minimum and the associations CC&R's may require an even higher limit.

The Takeaway for HOA Boards

This Colorado case is a real-world example of an exposure that can sometimes be overlooked when boards review their insurance.

Property insurance protects the buildings.

Liability insurance protects the association from lawsuits.

Fidelity Insurance helps protect the association's money.

Boards should review their Fidelity limit annually and make sure the amount of coverage reflects the funds the association is actually responsible for protecting. The goal is simple: if the association ever finds itself facing a theft like the one recently reported in Colorado, it should have insurance in place to help put that money back!