Complete Guide to HOA Insurance for New Board Members

As an HOA Board member, your commitment plays a crucial role in the management of your community. Understanding and overseeing the HOA's insurance policies are fundamental aspects of this responsibility. This guide is designed to provide a solid foundation in HOA insurance, enabling you to make informed decisions about the insurance requirements for your community.

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Key Takeaways

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• Importance of Coverage: Discover how HOA insurance, or the master policy, plays a pivotal role in protecting homeowner’s associations from disasters and liability.

• Coverage Types & Responsibilities: Unravel the differences between HOA insurance, covering common spaces and liabilities, and homeowners’ insurance for personal properties. Learn about the unique coverages and responsibilities essential for community safety and compliance. 

• Strategic Insurance Management: Explore strategic insights into managing HOA insurance policies effectively, from conducting regular reviews and understanding community-specific needs to proactive risk management and utilizing partnerships with insurance and legal professionals.

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Understanding the Basics

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What is HOA Insurance?

HOA insurance, also known as a master association insurance policy, is a type of property and liability insurance specifically designed for homeowners associations. This insurance plays a critical role in protecting the community's shared spaces and assets against unforeseen events like natural disasters, theft, vandalism, and liability claims.

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Differences Between HOA and Homeowners Insurance

• HOA Insurance: Covers the community’s common area property and liability. In some cases, depending on how the CC&Rs read, this can include your residential building and/or unit. The HOA master policy's premium is typically a common expense covered by the member’s HOA dues.

• Homeowners Insurance: Covers damage to an owner’s personal residence, belongings, and other assets. The individual owner is responsible for premium contributions and covers any interior damages not covered by the HOA policy. If you live in a single-family community, this would include everything on your lot, including the residential structure.

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Understanding HOA Insurance Coverages

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Property Coverage

Property coverage within your HOA insurance pertains to physical damages to the residential building and may extend to units, shared facilities, and common areas. It's essential for repairing or rebuilding parts of the community damaged by insured events such as fires, storms, or vandalism. The specifics of this coverage are typically outlined in the insurance provisions of the CC&Rs.

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Types of Property Coverage:

• All-In Coverage: Covers both the entire residential building, including units, and improvements to the inside of the unit.

• Walls-In – Single Entity Coverage: Covers the entire residential building and units but excludes improvements made to the interior of the unit-by-unit owners.

• Bare Walls Coverage: Limits protection to the bare structure of buildings, usually defined by the CC&Rs. This coverage also excludes the unit.

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Liability Coverage

Liability coverage addresses bodily and personal injury that occurs on or relates to the common property of the association’s cash assets. Base limits are usually set at $1,000,000/$2,000,000, meaning the association can have a claim or claims up to $1,000,000 per occurrence, with a total policy limit not exceeding $2,000,000. This includes injuries from dog bites or slip and falls, personal injury claims like defamation, breaches of contract, and unique instances like bee attacks, illustrating the broad nature of potential liabilities.

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Directors and Officers (D&O) Insurance

D&O insurance provides coverage for the officers and directors of the association for the cost of defense and claims arising from lawsuits alleging that the directors had failed to properly perform their required duties.

Common claims under D&O include: 

• Neglect in maintaining common areas or elements

• Disputes related to Architectural Committees

• Challenges to Board decisions or breaches of fiduciary duty

• Non-compliance with open meeting laws or other regulations

• Unfair treatment of homeowners such as discrimination

• Violations of Fair Housing Laws

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Crime/Fidelity Bond Coverage

These bonds typically protect against fraudulent or dishonest acts by the persons named in the policy, generally the Board of Directors and/or association manager, against embezzlement of the association’s cash assets.

Common claims under Crime/Fidelity coverage include:

• Cyber theft, forgery, and falsified invoices.

• Fidelity bonds do not cover mysterious disappearances, burglaries, or thefts by outside parties, ordinary mismanagement of funds, or overspending.

• Your association’s governing documents may dictate the minimum amount of coverage required. If not, the standard formula is 3 X monthly association dues + reserves.

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Workers’ Compensation Insurance

There have been many discussions regarding whether an association needs to carry a Workers’ Compensation policy. Even when a contractor provides proof of insurance, there is no guarantee that coverage will be in force at the time of an injury, potentially exposing the association to responsibility.

Common Workman’s Comp claims include:

• Accidents involving tools

• Slips, trips, and falls

• Being struck or colliding with an object

• Owners providing services that should be performed by licensed, bonded, and insured professionals.

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Claims Made vs. Per Occurrence: Navigating Policy Types in HOA Insurance

Understanding the nuances between "claims made" and "per occurrence" policies is crucial in HOA insurance. A "claims made" policy provides coverage if both the incident and the claim happen while the policy is active and enforceable. On the other hand, a "per occurrence" policy covers incidents that happened during the period of insurance, even if the claim is reported after the policy has expired.

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Claims Made Policies

Typically, Directors and Officers (D&O) insurance policies are "claims made," which means they cover claims as long as the incident and the reporting of the claim both occur while the policy is in force. This underlines the importance of maintaining continuous coverage, as any gap could mean a lack of coverage for previous acts

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Per Occurrence Policies

General Liability (GL) insurance policies are usually "per occurrence" policies, providing coverage for events that happen during the covered period, irrespective of when the claim is filed. This is significant for HOAs, as a claim for an injury or damage can arise long after the incident occurred.

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Multiple Coverages and Overlapping Years

In certain situations, multiple coverages can apply to the same claim. For example, both D&O and GL policies might respond to a claim, depending on the circumstances and how the policies are written. Additionally, claims can span different years of coverage, potentially involving overlapping policies which might both contribute to the settlement of a claim.
It is essential for HOAs to understand the type of insurance policies they hold and how claims are addressed within each. When a claim overlaps multiple policy periods or types, the association should work closely with its insurance broker and legal counsel to determine how the coverages may interact.

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Navigating HOA Insurance Responsibilities

As a Board member, you play a key role in ensuring that your HOA has adequate insurance coverage.

This involves:  

• Conducting Regular Reviews: Insurance needs can evolve with changes in state laws, community assets, or risk exposure. Annual reviews of your policies are critical.

• Understanding Community Needs: Each community has unique features and risks. Whether your community includes amenities like pools, gyms, or playgrounds, each introduces specific insurance considerations. Review your CC&Rs and make sure you are meeting the required limits.

• Hiring Vendors with Insurance: When engaging with HOA vendors, it’s imperative that contracts mandate adequate insurance coverage. This process should include a review by the HOA’s attorney to confirm the sufficiency of the types and limits of insurance, terms of indemnification, and any other additional coverage for insured endorsements.

• Educating Homeowners: A common area of confusion is the differentiation between what's covered by the HOA's insurance versus an individual homeowner's policy. Providing clear communication on these distinctions is vital.

• Maintenance: Associations need to continually ensure they are maintaining the common areas, residential buildings, and units in accordance with their CC&Rs. Failure to properly maintain the community may affect the association’s insurance premium.

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Enhancing Your HOA's Insurance Strategy

• Comprehensive Policy Reviews: Engage with an insurance professional who understands association insurance to conduct thorough policy reviews. This ensures your coverage meets both current community needs and legal requirements. It's also an opportunity to identify potential coverage gaps or areas where the association may be over-insured.

• Specialized Coverage Considerations: Depending on your community's specific amenities and features, additional coverages may be necessary, such as Fidelity/Crime Insurance, Workers' Compensation, Flood or Earthquake Insurance, and Cyber Insurance.

• Managing Risks: Proactive risk management can help minimize insurance claims and potentially lower premiums through regular maintenance, implementing safety measures, and conducting safety audits.

• Working with Insurance Professionals: Maintain a strong partnership with your insurance professional who can assist with explaining coverage intricacies, identifying cost-saving opportunities, recommending coverage adjustments, and navigating claims processing complexities.

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Conclusion

As an HOA Board member, you shoulder the critical responsibility of safeguarding and managing your community's collective assets. Having a general understanding of HOA insurance is necessary for protecting the community from unforeseen risks and liabilities. This guide is meant to serve as a reference, empowering you with the knowledge needed to be effective stewards of your community's well-being.

 Navigating the complexities of HOA insurance can be a challenge, regardless of whether your community is self-managed or partners with a professional HOA management company. This is where the expertise of AAM HOA Management can make a significant difference. Our involvement extends beyond insurance management; we are committed to enhancing your Board's proficiency in ensuring the community's comprehensive protection. Partnering with AAM, a professional HOA Management company, not only simplifies the intricacies of insurance but also strengthens the protection of your community and bolsters the Board's confidence and competence.

As a reminder, your role as a Board Member is paramount in building the financial health and stability of your community. Engaging with trusted professionals is not just about managing policies; it's about building a partnership that increases your Board's proficiency in preserving your community's future.

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