Michael Hunter

Workers’ comp insurance no longer required for HOA directors and officers

Note: this week’s column was written by my law partner, Cynthia Jones.

About a year ago a firestorm erupted in the community association arena when some North Carolina attorneys expressed concerns that HOA officers and directors who failed to obtain workers’ compensation insurance for themselves might be subject to civil or criminal penalties.

HOAs are typically organized as nonprofit corporations. At the time, the laws in North Carolina basically required all corporations to carry workers’ compensation insurance, and there was no exemption for HOAs or other nonprofit corporations and their officers, directors and committee members, even if they were unpaid volunteers.

Insurance brokers and state insurance administrators were puzzled by this sudden interest in workers’ comp. It had never occurred to the state administrators that they should pursue nonprofits and HOAs. And the insurance carriers didn’t really have a policy to sell that was designed to provide workers’ comp benefits for officers or directors who don’t even get paid for serving their communities.

Members of the N.C. General Assembly listened to concerns of the community and this year passed House Bill 765 which addresses this concern. The definition of “employee” under the Workers’ Compensation Act has been revised and now specifically excludes “any person elected or appointed and empowered as an executive officer, director, or committee member under the charter, articles, or bylaws of a nonprofit corporation subject to Chapter 47A, 47C, 47F, 55A, or 59B of the General Statutes (these are the laws that govern HOAs) . . . who performs only voluntary service for the nonprofit corporation, provided that the person receives no remuneration (compensation) for the voluntary service other than reasonable reimbursement for expenses incurred in connection with the voluntary service.” See N.C.G.S. § 97-2, which is part of North Carolina’s Workers’ Compensation Act.

If the nonprofit corporation employs a person who receives compensation, then that person would be considered an employee and would not qualify for the exemption. Currently employers that have at least three employees are required to carry workers’ comp coverage. Of course, this does not prohibit homeowners’ associations from choosing to obtain workers’ compensation insurance for their directors, officers and committee members, but now there is no requirement to do so.

Charlotte attorney Michael Hunter represents community and condominium associations for the firm of Horack Talley. Email questions to home@charlotteobserver.com. Not every question receives a reply. Find his blog at www.CarolinaCommonElements.com.