CAI-NJ July 2019UPDATED

INDEPENDENT ASSOCIATION CLUBS The Good, the Bad, and the Ugly By Michael Mezzo, CPA, MBA WilkinGuttenplan

“Since many of these clubs operate

independently from the association, there would be a gap in coverage.”

I magine a beautiful Friday afternoon in the late summer. The golf league is wrapping up their last few holes as the sun sets, while the bridge club is just arriving at the clubhouse to start their weekly tournament. Sound like a charming evening? Although these activities sound harmless, they post potential risks to the association, which could be significant. Allowing an unaffiliated group or inde- pendent club to operate on association grounds can open both the club, as well as the association, to potential legal and financial liabilities. But do not be afraid! Implementing a few simple guidelines and best practices can help mitigate these risks. As with most things, the first and most important step is to educate. Board members and club officers should gain a thorough understanding of the poten- tial implications of their activities. Clubs can fall within a wide spectrum of complexity. For example, an association may have a fitness club whose sole purpose is to gather to complete a two mile walk throughout the association every morning. The pur- pose and benefits offered by this club do not require

them to collect money or to buy goods or services. On the other side of the spectrum, an association may have a sports club that gathers once a month to attend a local sporting event. The operation of this club requires them to purchase tickets, provide transportation, and travel outside of the grounds of the association. Although these clubs find themselves on opposite ends of the spectrum, they both still post certain risks which will be discussed below. Insurance Implications: Associations typically hold multiple insurance policies ranging from general liability to workers compensation. However, it is important for indepen- dent clubs to understand that the coverage provided through the association usually only applies to the “named insured” on the policy (i.e. the association). Even though associations may communicate a list of clubs to their insurance provider, only those parties who were “acting on behalf of and at the direction of the named insured” would be covered. Since many of these clubs operate independently from the CONT I NUE S ON PAGE 16

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