A new law took effect in 2019 that requires all homeowners associations (HOAs) to carry what’s called Fidelity Bond insurance. This policy basically protects the HOA from actions taken by board directors and officers, such as transferring money in and out of HOA accounts.
Most large HOAs already have Fidelity Bond insurance in place, but this new law extends to small HOAs in two- to four-unit buildings. The good news, says Roger Larson of TWFG Larson Family Insurance Brokers, is that the Fidelity Bond limit of insurance required is based on the size of the HOA. So smaller HOAs only have to purchase and maintain coverage that’s at least equal to the combined amount of reserves in the HOA account and total assessments for three months.
Most insurance companies in California that specialize in HOA commercial package policies already offer the coverage as an endorsement (rider) to the existing package policy, says Larson. So the majority of the smaller HOAs should be able to just update/add the Fidelity Bond to the existing property/liability package. This also makes it much more cost effective and can range as low as $300 a year depending on the required limit.
If you haven’t yet added the Fidelity Bond insurance to your HOA policy, it’s best to get in touch with your insurance agent and put that policy in place.