Every homeowners association must have comprehensive insurance coverage to protect itself, its members, and its employees. But, with several different HOA insurance policies available, it can be difficult to make a choice. No matter the size of your HOA, though, there are some essential policies to keep in mind.
What Does an HOA Insurance Policy Cover?
There are many types of insurance policies that a homeowners association must get, each one with its own distinct purpose. The coverage, both the extent and the specifics, depends on the policy.
It also varies according to the insurance provider. When considering your options, it is important to thoroughly scrutinize what each policy covers exactly and if there are any limits. This way, your association can cover its bases and choose wisely.
What Is an HOA Master Policy?
An HOA master policy typically covers all the general requirements of a homeowners association. This includes liability expenses, common area repairs, and property damage. For instance, if an earthquake hits and causes damages to the clubhouse, your HOA master policy should cover the cost of repairs. Similarly, if someone files a lawsuit against your association after they slip on HOA property, the master policy should also cover the cost of legal expenses.
Essential HOA Insurance Policies
Insurance policies come in all shapes and forms. It is imperative that your HOA understands the different types of policies and why they are necessary. Here are the most crucial HOA insurance coverages you must obtain:
- Property Value and Replacement Cost
It is imperative to insure your buildings at least according to the amount specified in your governing documents. Typically, this means the full replacement cost of the building. There are three building ordinance coverages, all of which are integral components of your insurance policy.- Contingent Liability. Also known as Coverage A, contingent liability ensures coverage for undamaged sections of the property. Some states, like California, require the demolition of the remaining portion of the property that is left undamaged (if 50 percent or less) in order to rebuild. Insurance policies generally only cover damages, so the costs for undamaged portions are left for the HOA to shoulder unless you have contingent liability insurance.
- Demolition. Also known as Coverage B, demolition supplies coverage for just that — demolition. Demolition can be expensive, especially if heavy machinery is necessary.
- Increased Cost of Construction. Also known as Coverage C, the increased cost of construction covers the cost of required upgrades according to local ordinances.
- D & O Liability
Standing for Directors and Officers, D & O insurance protects the association’s board of directors. This policy provides coverage for defense expenses, indemnity, errors, and omissions liability claims. Lawsuits and settlements can run very expensive after all. Liability claims come in all forms, ranging from monetary to non-monetary. This includes violation of the governing documents, breach of contract, failure to buy sufficient insurance, libel or slander, and even discrimination. - Workers’ Compensation and Employee Dishonesty Insurance
If your homeowners association employs workers in any way, then workers’ compensation is vital. This applies to employees working full-time, part-time, and even on a contractual basis.
Workers’ compensation insurance shields the association from lawsuits in case an employee suffers injuries while working. Employee dishonesty insurance, on the other hand, protects the HOA in the event of theft or property damage brought on by workers. - Discrimination Claims Coverage
Homeowners have an obligation to pay regular assessments to the association. When they default on these payments, the HOA can choose to foreclose on a resident’s property to collect the delinquent dues. Foreclosure is serious, and many residents will do whatever it takes to keep their homes, including filing a discrimination claim. With foreclosure rates on the rise, discrimination claims insurance is more necessary than ever. This policy protects the association from liability should the board decide to foreclose on a property belonging to a resident of a minority or protected status. - Commercial General Liability
Slips and falls happen all the time, and your HOA should take steps to protect itself in case third parties decide to place blame on the association. Even if the third party was not supposed to be in the area where they fell, the HOA could still face a potential lawsuit. Commercial General Liability can protect your association from this type of scenario. This policy can help in the event of third-party property damage or bodily injury.The amount of coverage largely depends on where your HOA is located. In California, for instance, Civil Code Section 5805 mandates at least 2 million dollars in coverage for HOAs with 100 or fewer separate interests. That amount shoots up to 3 million dollars for more than 100 separate interests.
- Commercial Umbrella Policy
HOA insurance policies typically have limits, and a good way to extend these limits is to purchase a Commercial Umbrella Liability coverage. This policy can boost your association’s existing liability coverage.It does this by providing coverage in excess of your D & O insurance, commercial liability insurance, and workers’ compensation insurance, to name a few. Extending the limits on policies can cost a lot of money, but a broad Umbrella Policy can accomplish this in a more affordable way.
- Condo Insurance
There are a couple of insurance policies that uniquely apply to condominium associations because of the more complicated nature of their common areas. The two main types of insurance condo associations must consider:- Bare Walls Coverage. Condo owners share walls with their neighbors, making maintenance and insurance somewhat awkward for all parties involved. A bare walls policy insures the walls of your condo, including wiring, plumbing, and any insulation within.
- All-in Coverage. An all-in coverage includes a bare walls policy and takes it a step further. In addition to the condo’s walls, this policy covers installed fixtures such as countertops and appliances.
Understanding HOA Insurance Coverage vs. Homeowners Insurance
Homeowners must keep in mind that HOA insurance is not the same as homeowners insurance. The association is not responsible for your property itself as well as the items inside your home.
The same goes for condo associations. Just because the COA has an all-in coverage does not mean condo unit owners can skip their own home insurance. Homeowners insurance is still paramount for every property or condo owner.