$5M Professional Liability (E&O) Insurance for Community Association Managers

For community association managers whose client requires $5M: Professional Liability (E&O) is usually a primary policy plus follow-form excess layers, and it almost always needs a broker. Morrow can help you find it.

What does a $5M requirement mean for community association managers?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your services or advice caused a client a financial loss. A $5M clause might read like this:

Owners often reuse the insurance section they give architects and contractors, so it may not fit association management. Ask the client to confirm in writing that primary plus follow-form excess meets the clause.

• Per claim and aggregate: the most paid for one claim, and for all claims in a policy year.
• One aggregate for your whole book: every community you manage usually shares the same limit.
• Claims-made: Professional Liability is almost always written this way. It covers claims made and reported while the policy is active, for work on or after the retroactive date (the earliest date of work covered). See claims-made vs occurrence.
• After the contract ends: you would need to keep every layer in place for three years.

Who asks community association managers for $5M?

$5M is uncommon. It tends to come up when one contract puts a lot of money in your hands.

• Master-planned communities with thousands of homes.
• Developers who control a community before turnover to owners.
• REITs, institutional owners and investors with projects that include an association.
• Portfolio agreements that place many associations under one contract.

How is $5M built?

A primary policy pays first. An excess policy pays only after the layer below it is used up. "$3M xs $2M" means $3M above the first $2M.

Each excess layer should follow form, meaning it uses the primary policy's terms. Every layer should share the same retroactive date, policy period and named insured (the business the policy covers). Many policies pay defense costs inside the limit, which can use up part of each layer. Community association managers usually buy a property manager or community association manager E&O form. If your firm also sells or leases homes, that work may need real estate E&O.

A $3M requirement may be met with one primary policy or one excess layer. See $3M Professional Liability for community association managers. At $5M the tower often needs more layers, and each is another policy to renew. $2M is usually simpler: see $2M for community association managers.

What will underwriters ask for?

• Number of communities and units, plus budgets and reserve balances.
• Who holds association funds, who signs checks or wires, how often accounts are reconciled and whether an audit is done.
• How you handle collections, liens (legal claims on a home for unpaid dues), estoppel letters (documents stating what an owner owes at sale) and violation notices.
• Your role in capital projects and reserve studies.
• The agreement requiring $5M and any limitation of liability clause (a cap on what you owe a client).
• Three to five years of loss runs (a report listing past claims) and known incidents.

What affects the cost?

• Size of your book and controls. More units, budgets and reserves mean bigger possible claims. Dual signatures and regular reconciliation help.
• How the $5M is built. The primary layer usually costs the most per $1M. Higher excess layers usually cost less per $1M.
• Claims history. Past claims can raise price or shrink the limit offered.
• Retention and defense terms. Retention works like a deductible. A higher retention usually lowers premium. Defense outside the limit usually costs more.

Frequently asked questions

Can a small community association management company get $5M in Professional Liability?

It may be possible, but it depends on underwriting, including revenue, units, funds managed and claims. Small firms may be offered lower limits. No outcome is certain. Morrow can help you find it.

I have $1M or $2M Professional Liability as a community association manager. How do I get to $5M?

Request new quotes for a $5M primary or for excess layers. Morrow can request them and ask carriers to keep your retroactive date and prior acts coverage where the market allows. Report anything that could become a claim to your current carrier before that policy ends.

Can my commercial umbrella cover part of a $5M Professional Liability requirement?

Almost never. A commercial umbrella usually excludes professional services, so you usually need follow-form excess Professional Liability.

How do I prove $5M Professional Liability to a developer or association client?

Usually with a certificate of insurance (a one-page summary of your coverage) listing every layer. If your agreement asks for the client to be an additional insured (added to your policy for their protection), raise that early. It is not automatic on Professional Liability. Some carriers add a client, usually limited to claims arising from your services. Availability and wording vary by carrier, and each excess layer would need to match.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.