Cyber Crime
Cyber attacks can severely affect an association's ability to function. Management companies increasingly rely on electronic systems, making them vulnerable to hackers gaining unauthorized access to financial accounts. They can access association accounts by intercepting email communications and creating fraudulent electronic payment requests. Hackers can impersonate board members to trick managers into transferring funds to their accounts. Cyber extortion can occur through ransomware attacks, and viruses can compromise or steal files. Losses can occur through old-fashioned theft of computers, laptops, flash drives, and smartphones.
See the 2018 Survey of Cybersecurity in Community Associations by the Foundation for Community Association Research.
Potential Liability
Associations face potential liability for data breaches if they fail to protect their funds and members' personal data. If a data breach occurs involving personal information, such as Social Security numbers, bank account information, or email addresses, Civil Code § 1798.82 requires prompt notification of the affected parties. Failure to do so exposes the association to potential fines and lawsuits to recover damages. (Civ. Code § 1798.84) Uninsured losses could result in emergency special assessments so the association can pay its bills.
Cyber Crime Insurance
Crime insurance is required by the Davis-Stirling Act (Civ. Code § 5806), but it does not specifically reference cybercrime. Even so, associations should purchase "Cyber Crime Insurance" since it covers security breaches and losses from internal or external threats to an association's internet and networks. Depending on the policy, coverage may include:
- financial losses
- costs related to notifying members of a breach
- lawsuits resulting from a data security breach
- errors and omissions by an association
- business interruption
- data restoration
- privacy liability
Insurance Review. Cyber insurance varies widely from company to company, and boards should ask about coverage to ensure it fits their needs before purchasing a policy.
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