Learn How Insurance Protects HOAs and Condo Associations
HOAs and condominium associations can be sued for accidents on HOA property and allegations of director negligence or misconduct. In addition, HOAs must cover the cost of vandalism and property damage to common property.
Luckily, insurance can cover many of an HOA’s risks, protecting the community and board members from major financial losses. Whether you’re a board member or work for a management company, make sure your HOA is fully covered. An agent or broker who specializes in HOA insurance can put together a plan for your community.
Start with the basics
Knowing your HOA’s structure and legal requirements will help determine the extent of your risk. For example, are all residents required to belong to the HOA? Does the HOA have the authority to charge monthly fees and make assessments? What enforcement powers does the HOA have?
HOAs and condo associations are governed by their articles of incorporation and bylaws, but they also have covenants, conditions and restrictions that their members must comply with. It’s helpful to make a list of all of the risks you know your association faces. In particular, pay attention to:
- The property you must maintain. If it’s a condominium community, the HOA is responsible for the buildings and all of the common areas, including the lobby, fitness center and any outdoor spaces. Communities may have playgrounds, swimming pools, tennis courts, a clubhouse, private roads, streetlights and sidewalks.
- Your HOA’s covenants and restrictions. Some HOAs place very strict conditions on the use and maintenance of members’ units or homes, including the color and style of the exterior, whether a unit can be rented, if pets are allowed, or the height of fences. Does your HOA assess fees or place a lien on the property of homeowners who are in violation of your covenants? Do you have the power to foreclose against a delinquent member?
- The fiduciary responsibilities of your HOA. Does the HOA have a formal budget process? Does it have a reserve fund? Are the HOA’s finances audited? Who has authority to write checks and spend money?
- The management of your HOA. Is the HOA run by volunteers, or do you have a management company? Do you have guidelines to ensure proper board conduct, identify conflicts of interest, and resolve complaints? Does the board seek outside advice on accounting, legal and insurance matters?
HOA master policies
HOAs usually purchase what is called a master policy. This insurance policy covers all of the property owned by the members of the association, which includes all structures and common areas. Members of the association are issued certificates of insurance as evidence of coverage under the master policy.
Condo master policies cover your buildings and can be written as either “bare-walls” or “all-in” policies. Bare-walls (or “studs-out”) policies cover the structure of the building and anything owned collectively by the HOA, but they don’t cover the interior of a unit. All-in coverage is more comprehensive. It covers the fixtures in each unit and any improvements or additions made to the condo building. Condo owners must individually insure their units from the “walls in” by purchasing what’s called an HO-6 insurance policy.
Master policies combine into one policy two important types of coverage that all HOAs need: general liability and property.
General liability insurance
General liability insurance helps pay for bodily injury and medical expenses if someone is hurt in common areas in an incident that is covered under your insurance policy. For example, someone might slip and fall on your walkway, or their car could be hit by a falling branch from one of your trees.
General liability insurance also covers advertising injury, including libel and slander, copyright infringement and using another’s advertising idea. They can also be written to cover injuries sustained as the result of your workers’ use of mobile equipment on your premises.
Liability policies are written with a maximum payout amount, known as a limit. Your application for coverage will be evaluated based on the size of your association; its location; the types of property that need to be covered, their age and condition; and your exposure to hazards. If a liability claim is filed against you, the policy will help with your legal expenses and settlement costs.
Property insurance covers the HOA against fire, theft, vandalism, burst pipes, lightning, windstorms and other perils named in your policy. Some HOAs purchase additional insurance for floods and earthquakes, which are not covered in a standard property policy.
Many commercial property policies exclude sewer and drain backup and equipment breakdown, so talk to your agent or broker about these important protections. They can be added to your policy or bought as stand-alone coverage, depending on your insurer.
If your HOA has commercial vehicles, you’ll need to have commercial auto coverage. Be sure everyone who drives these vehicles is named as an insured on the policy. Remember that cherry pickers, mobile lifts, Gators, and bobcats are not considered commercial autos. Liability for damage caused by their use typically falls under general liability insurance. However, if they are driven on a public road – even just for one block – and are in a wreck there, general liability insurance would not respond. Talk to your agent or broker about mobile machinery insurance for that protection and about coverage for physical damage to that equipment occurring on your premises.
Additional liability coverages
Directors and officers (D&O) liability is a crucial coverage no HOA or condo association should be without.
D&O covers your HOA board and officers for liability claims that may occur as a result of decisions they’ve made or failed to make.
HOA leaders have a fiduciary duty to the association, which means they must make informed decisions in the best interest of the HOA that are within their scope of authority. In the event of a claim, D&O helps pay your legal costs and any judgments against you.
Other insurance you may need
When speaking to your agent or broker about HOA insurance, you may find you need a few other types of coverage if you have employees. Among them:
- Workers’ compensation insurance to cover HOA employees injured on the job
- Fidelity bonds to protect against employee/board member theft and fraud
- Employment practices liability insurance to cover any lawsuits an employee may file against the HOA for discrimination, harassment, wrongful termination, or other employment-related cause
HOAs are critical to the governance, maintenance and improvement of communities. Without them, many neighborhoods wouldn’t have a pool, tennis court or tot lot. You need to protect the assets of your community, your members, and your board. Look to an insurance professional who specializes in HOA and condo association insurance for the best coverage.