Fidelity insurance coverage is also known as “employee dishonesty” coverage. It is an insurance policy meant to protect associations from loss of funds resulting from dishonest acts of its employees, directors, officers, and/or management company affiliates. In plain English, this type of policy protects associations from getting its money stolen by “one of its own”.
What kinds of claims should be covered under fidelity insurance? Fidelity policies should cover associations in cases of embezzlement, forgery, fund transfer fraud, computer fraud, and counterfeit currency fraud. In addition to covering the actual monetary loss, the fidelity policy should cover any costs associated with investigation of the theft. In our article :What Is Fidelity Insurance and Why Your Association Needs It” we explore additional reasons why fidelity insurance is beneficial.
Is fidelity insurance required? It depends on when your community was created. For communities created after July 1, 1992, the Colorado Common Interest Ownership Act (“CCIOA”) requires fidelity coverage in the amount of two months of assessments plus everything the association has in reserves.
Do you need fidelity insurance to obtain FHA certification? For a condominium community (regardless of when it was created), to qualify for FHA certification or recertification the association needs fidelity coverage in the minimum amount equal to three months of assessments plus everything in reserves. In our article FHA Condominium Certifications: The Requirements and Prohibitions you can read about all other FHA eligibility requirements.
Finally, remember that fidelity coverage is only one of many types of required and recommended insurance coverage for associations. For additional information on all types of homeowner association insurance, read our article "Understanding Homeowner Association Insurance".