We promised to take deeper dives into insurance policies required for common interest developments, this year, and one we haven’t talked about yet is fidelity. Also referred to as “crime” or “employee dishonesty” insurance, this type of policy protects the monetary assets of the association and is required by most governing documents as well as California state law.

While it has always been a best practice to have this type of coverage, the state added this into the civil code in 2021 in response to several cases of embezzlement and misappropriation of funds. They also added the requirement of computer fraud and wire transfer fraud coverage, as well as having the manager or management company named in the policy.

So how much do you need? The civil code provides a calculation which is three times your monthly assessments plus reserves. Hopefully, your association is making regular transfers of money to your reserve account, so that number is a bit of a moving target. To provide for that, we recommend adding your budgeted reserve transfers for the year to the calculation.

However, if your governing documents require a HIGHER level of fidelity bond (often 150% of the operating budget, or something similar), you will need to go with the most conservative number.

Many associations are having to increase their member assessments to cover the rising costs of insurance. If your association is experiencing this, double check that you still have enough fidelity coverage to meet the civil code requirements. As your agent if you need assistance in determining what level is appropriate for your community, we are always here to help.

Terri Guest, CIRMS, CMCA, EBP, is the Northern California Sales & Marketing Representative for Berg Insurance Agency and can be reached at terri@berginsurance.com.