Insurance and Legal Review of Contracts: Association Left Without Coverage

The vast majority of community association rely on third-party vendors for upkeep, such as lawncare and snow removal. Each vendor will have their own contract as each type of work presents different challenges and risks. As it can be administratively burdensome for a volunteer board to manage the numerous vendors and contractors (and to help with other tasks), many associations will retain a management company. While not universal, many management companies have a vendor management program to ensure best practices and fulfill the goals of  complying with any insurance requirements, bring a degree of uniformity across different contracts, and retain documents.

A breakdown in vendor management can create substantial risk because most commercial general liability policies obtained by a community association will not defend the association against personal injury claims related to the acts or omissions of a contractor. This approach should not be a surprise. After all, why should an association accept the risks of a personal injury claim resulting from the contractor when the contractor should have insurance for such risks? An additional layer of protection is to have an attorney review the contract as well. While this may increase the cost of the overall project, it would be nominal compared to the risks as an association recently discovered.

A person was injured from alleged negligence from a contractor retained by the association. The contract requires the association to indemnify and hold harmless the contractor even if the contractor was negligent.  The association submitted the matter for coverage under its general liability policy and coverage was denied. The result is that this association is now facing defending itself in the lawsuit at its own cost and, potentially, any judgment.

This serves as a reminder to all community associations throughout Kansas City area, St. Louis, Lake of the Ozarks, Columbia, or other parts of Missouri that vendor management programs and legal review of contracts cannot be disregarded and ignored because the risks are substantial if someone is hurt.