A condo association's board hired a renovation contractor without requiring insurance documentation. When the contractor's worker was injured during the project, the worker sued the association. The association's attorney looked at the master deed and bylaws. The bylaws required the association to require contractor insurance. The board hadn't.
The court found the board in breach of its own governing documents. The association was held partially liable for the worker's injuries. The master policy paid the defense and indemnity costs. The board was named in a derivative lawsuit by unit owners.
The master deed and bylaws are not suggestions. They are the legal foundation of the condominium. They define what the association must do-including what insurance requirements it must impose.
What Governing Documents Control
A condominium's legal structure consists of three primary documents:
Master Deed (or Declaration of Condominium): The foundational document that creates the condominium, defines the common elements, and establishes the association's legal authority. May include provisions about insurance requirements for contractors, minimum association insurance obligations, and unit owner responsibilities.
Bylaws: The operational rules governing how the association functions-board structure, voting procedures, officer duties, and management authority. Often includes specific provisions about the association's obligation to maintain insurance, insure common elements, and require insurance from contractors and service providers.
Rules and Regulations: Board-adopted operational policies that can be modified without a member vote. Insurance requirements for contractors and vendors are often implemented at this level, providing flexibility to update minimums without amending the bylaws.
What Governing Documents Typically Require Regarding Insurance
Association-Level Insurance Obligations
Most master deeds and bylaws require the association to maintain:
- Commercial General Liability: Coverage for common area liability, typically $1-$5 million depending on building size and value
- Property Insurance: Coverage for the common elements; may specify "original construction" or "all-in" coverage that includes unit interiors
- Directors and Officers Liability (D&O): Coverage for board member actions and decisions
- Workers' Compensation: If the association has any employees (maintenance staff, front desk)
- Fidelity/Crime Insurance: Coverage for financial dishonesty by board members or management
Some governing documents specify minimum limits. Others specify that the association shall "maintain adequate insurance" without specifying limits-which requires the board to make reasoned coverage decisions with their broker.
Contractor Insurance Obligations
Many bylaws require the association to mandate insurance from contractors:
Common language example:
"The Board of Directors shall require all contractors and vendors performing work on the Common Elements to maintain commercial general liability insurance with limits of not less than $1,000,000 per occurrence, workers' compensation insurance as required by law, and shall name the Association as an additional insured on such policies prior to commencing any work."
This language makes contractor insurance compliance a legal obligation-not just good practice. When the board fails to enforce it, they breach their own governing documents.
Some governing documents go further, specifying:
- Minimum coverage amounts for specific contractor categories
- Required endorsement types (additional insured, waiver of subrogation)
- Carrier quality requirements
- Requirements for the board to verify compliance before authorizing work
How Governing Documents Interact with Contractor Insurance Requirements
There are three ways governing document provisions affect contractor compliance:
Direct specification: The governing documents state specific insurance requirements. The board is obligated to enforce exactly those requirements. If the specified limits are outdated, the board may need to amend the bylaws or rules (depending on which document contains the requirement) to increase them.
Delegation to board rules: The governing documents require contractor insurance but leave the specific limits to board-adopted rules and regulations. The board can update requirements by resolution without a full membership vote-providing flexibility as risk and litigation trends evolve.
General authority with no specifics: Some older governing documents simply authorize the board to contract for services without specifying insurance requirements. In this case, the board's fiduciary duty is the standard: the board must implement reasonable insurance requirements appropriate to the scope of work.
Reading Your Master Deed and Bylaws for Insurance Provisions
Finding the insurance requirements in your governing documents:
In the Master Deed/Declaration:
- Look for articles titled "Insurance," "Association Insurance," or "Maintenance and Repair"
- Key terms to search: "insurance," "liability," "contractor," "vendor," "additional insured"
In the Bylaws:
- Look for articles on "Insurance," "Powers and Duties of the Board," and "Maintenance Obligations"
- The board's powers section often includes authority to require contractor insurance; the insurance section may specify obligations
In the Rules and Regulations:
- If your governing documents delegate specifics to rules, the board's adopted rules are where current requirements live
- Make sure the rules have actually been adopted by board resolution and are in writing
Keeping Your Requirements Current
Governing documents are often drafted once and not updated for decades. Insurance limits that were appropriate in 2000 may be dangerously low today. Construction cost inflation, litigation trends, and building value appreciation all erode the adequacy of fixed-dollar requirements.
For requirements in bylaws: Updating typically requires a membership vote (check your amendment procedures). This is appropriate for significant changes to the association's structure.
For requirements in board-adopted rules: The board can amend by resolution at any meeting. Annual review of contractor insurance minimums and adjustment by board resolution is a best practice.
Work with your attorney and your insurance broker together: The attorney can advise on what the governing documents require and how to amend them. The broker can advise on what coverage levels are appropriate for your building's current risk profile.
Creating a Compliance Framework That Aligns with Governing Documents
Once you understand what your governing documents require, build the compliance framework around it:
Document the requirements. Create a written summary of all governing document insurance obligations-association insurance, unit owner obligations, and contractor requirements.
Implement a standard contractor agreement. The agreement should specifically reference the governing document requirements and implement them with the specificity needed for enforcement.
Establish a board-adopted policy for contractor insurance verification. Even if the bylaws authorize the board to require insurance, a specific board-adopted policy for how that requirement is verified creates an enforceable internal standard.
Confirm management agreement alignment. If a management company manages your association, their management agreement should explicitly require them to collect and verify contractor insurance per the governing document requirements.
Frequently Asked Questions
Q: Our master deed was written in 1978 and doesn't mention contractor insurance at all. What authority do we have to require it? A: The board's general authority to manage common areas and contract for services typically provides sufficient authority to impose reasonable insurance requirements. Additionally, the board's fiduciary duty independently requires reasonable risk management-which includes contractor insurance requirements. Have your association attorney confirm the legal basis in your specific jurisdiction.
Q: A unit owner wants to do renovation work in their unit. Do our governing documents give us the right to require their contractor to carry insurance? A: Almost certainly yes. Association governing documents typically give the board the right to approve any work in units that could affect common elements (plumbing, electrical, walls), and conditioning that approval on the owner's contractor carrying adequate insurance is standard practice.
Q: Our management company says they've "always handled" contractor insurance compliance. How do we confirm what they're actually doing? A: Request a compliance report showing every active vendor and contractor with their current COI status. Ask to see several specific contractor files-the agreement, the COI, and evidence of comparison to the agreement requirements. "We handle it" without documentation is not compliance.
Q: What happens if the association fails to enforce its own governing document insurance requirements and a loss occurs? A: The association may face liability for breach of its own governing documents. Unit owners affected by the loss may sue the association and individual board members for failing to fulfill the obligations established in the documents everyone agreed to when they purchased their units. D&O coverage may provide some protection for board members, but it doesn't eliminate the association's liability.
Bramble gives condo associations the tools to fulfill their governing document insurance compliance obligations-reading contractor agreements, comparing them to COIs, and maintaining the documentation that demonstrates the board did its job.