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Homeowners Associations

Homeowners Associations 

by Rohan Mathew

HOA coverage can be pretty complicated, and there are a number of conditions that may cause an increase in premiums. Let’s take a closer look at the background and the elements involved in coverage and in producing rates. 

An HOA is a private association, called the CC&Rs, or Covenants, Contracts, and Restrictions. Bylaws are the exact rules by which the association operates, including job descriptions, levying fines, and more. Together these are the governing documents. 

These documents define how much and what type of insurance must be obtained by the HOA. Each year, various sections of California laws are updated with respect to what HOAs are allowed to do and what they are required to do, as well as how they are restricted. 

Homeowners discrimination cases

At some point and in some places, the sale of houses to Jews was prohibited. I didn’t know those sections of the CC&Rs, and clearly, by the time the first family had purchased their home, the Civil Rights laws had preempted that CC&R clause. In recent years, many discrimination cases were filed and it can drive up rates, due to HOAs had to pay and insurance companies are now prepared for future lawsuits.

What types of HOAs exist? 

There are some associations, which only manage the common areas of single-family homes in a community. Those are called planned unit developments, or PUDs. They make sure that there is visual uniformity in the appearance of the homes and that the grounds are kept. 

There are some associations that are responsible for the actual structure of the buildings. All of these powers and responsibilities are defined by the governing documents. 

An HOA may be responsible for insuring interior floors, cabinets, and other structures within each unit?

These responsibilities are defined by the governing documents as well, and they vary from an HOA to another.

So, what are the relevant parts of the insurance policy for an HOA

Remember that individual unit owners must procure supplemental coverage that protects the portions of their unit that are not protected by the master HOA insurance. 

What other aspects should be taken into account?

  1. The cost of materials has a lot to do with property coverage rates. 
  2. How about common area equipment owned in common by the members of the association? 
  3. Do you need a higher deductible? This must be explored and matched with the requirements of the governing documents, which may dictate the amounts of coverage. 
  4. Availability of the most comprehensive coverage may be dictated by prior losses and current maintenance, or lack thereof.

What areas should be considered in Homeowners Associations Coverage?

Let’s plan for a worst-case scenario, or even the worst-case scenario, with more coverage. Excess liability insurance is now needed. 

If a renter in a complex lives a claim against the complex’ handyman, claiming he touched her inappropriately, will the master policy’s liability insurance cover that, or will the association be writing a big check? Not guilty? Prove it; and by the time you prove it, check the costs of the legal fees. How much will that take? 

And speaking of handymen, does the HOA have employees? If so, it is needed workers compensation coverage, because the law requires that employee workers are protected from injury. 

Do the employees pick up supplies for the HOA using their own vehicles? Do the board members run errands in their own vehicles? Do they run for stamps, food for a party? There is coverage for that as well, in case they are involved in an accident while doing work for the HOA. There is that non-owned auto coverage.

And speaking of board members, they are directors and officers of your HOA. If the members of the Homeowners Association hold them liable for errors in judgment, or even simply for perceived errors in judgment or management, is the board covered for that? If you are a board member, did you sign on to work part-time for nothing and be vulnerable to a lawsuit for doing what you thought was best? The proper coverage for such protection is called Directors and Officers coverage

Oh, and by the way, the Treasurer is bound to be in charge of plenty of money. What if the treasurer disappears without a trace with HOA monies? Is the HOA covered? 

Does the HOA operate a website? It could be accused of infecting any visitors. There is cyber liability coverage available with most insurance packages. Is someone keeping track of buying and maintaining internet certificates for the website? Website security updates? Even if not infecting, if the HOA is accused of it and sued, it must still mount a legal defense. That can cost. 

And finally, let’s talk about my favorite; earthquake coverage. Is it in place? Great; how is it structured? What is covered in this case? There is plenty to consider.

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