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Fidelity Insurance – Why Every Community Association Needs It By Magdalena E. Myers, Esq.

Marie Morgan

Virtually all community associations collect assessments to operate and maintain their property. Each community association that collects assessments likely has multiple people involved in handling the funds the association collects.  Whether it is an individual volunteer board member or a management company employee, every person handling the funds has a fiduciary duty to handle those funds in the best interest of the association.  However, what happens if one of those people handling the funds has dishonest or criminal intentions?

Fidelity insurance is coverage for the association in the event an association employee or volunteer steals or embezzles association funds.  Contact your association’s insurance agent for specific details on coverage, but in general, the coverage should apply to all board members and any people who control or disburse funds, including bookkeepers and/or management company personnel.

Our office recommends that the policy cover the maximum funds in the custody of the association at any one time plus the equivalent of 3 months operating funds.  If your association is FHA certified, the current requirement for fidelity insurance coverage is one that covers all funds in your association’s reserve account plus 3 months of operating assessments.

If your association is professionally managed, then you should also obtain a Managing Agent Rider which is an additional policy that covers specific management company theft. 

While it is impossible to prevent board members with criminal intent from cooking the books or stealing association money, a board can certainly safeguard against it.  In the event that this unfortunate situation happens to your association, the fidelity insurance coverage will replace association funds that are stolen.  Through the purchase of fidelity insurance, a board will know that in spite of the criminal intent of another, the association’s funds are safe and in the event there is a theft, the stolen funds will be reimbursed to the association.