Homeowner's Associations: Does Your HOA Have the
Right Coverage? |
Article Courtesy of The Property Insurance Coverage Law Blog
Published
November 13, 2016
Homeowners living in planned communities usually have
governing documents that mandate the individual home or condominium unit
owners carry their own insurance in the event of a property loss. While
unitholders in these communities pay monthly or yearly dues so the main
association (HOA) can take care of the common areas, part of those
mandated payments usually go to the HOA for the purchase of a master
insurance policy which ideally should insure everything maintained by
the HOA. Rarely do individual unitholders in an association ask to see
the master policy of their HOA. Nor do the individual unitholders ask
their governing board to audit the master insurance policy to make sure
it covers enough of the HOA’s potential responsibilities and
liabilities. If the policy does not contain the proper coverage for the
HOA, the HOA subjects its unitholders to a special assessment if a
disaster occurs and major rebuilds that are costly. Planned communities
risk inadequate insurance coverage if it purchases a master policy
without understanding the needs to the community and discloses these
needs to its broker or agent when purchasing its policy.
Recently, I spoke with an HOA board who found that their planned
community, which consists of several hundred individual single family
homes had spent large amounts of money after a disaster fixing the roads
and sewer system after a natural disaster was experience in the
community. The community’s roads and sewer were not the responsibility
of the local city or county authorities and were considered private
property maintained by the HOA. The master insurance policy for this
planned community was paid through HOA dues of each homeowner in the
community. If the HOA master insurance policy does not cover the loss,
then it is up to the HOA to pay to fix the loss experienced on the
common roads and sewer through its money reserves or by assessing the
individual unit owners in the association.
Another HOA I spoke with purchased a master policy for their planned
community of condominiums and found that their insurance policy (which
afforded the proper monetary amount of coverage to their unitholders)
did not afford their unitholders with the right coverage because their
HOA governing documents conflicted with their insurance policy. If the
duties of the HOA to their unitholders are not properly spelled out in
their governing documents, it may place the unitholders in a perilous
situation where the master HOA policy provides less coverage than that
which was purchased or intended.
For unitholders and HOAs purchasing master insurance, we provide a few
suggestions when purchasing and reviewing their master insurance policy:
-
Overall, know what your common areas are and
disclose them to your agent or broker in writing;
-
Check to see if the HOA is responsible for road
and sewers;
-
Check to see if the HOA is responsible for
sidewalks and paths in the community;
-
Check to see if the insurance policy covers
landscaping of common areas;
-
Figure out what types of losses are covered under
your policy;
-
Purchase enough coverage to realistically rebuild
all common areas in the event of a natural disaster;
-
See if the policy requires co-insurance which may
result in assessments to individual unit owners; and
-
See if the HOA governing documents conflict with
your insurance policy regarding the HOA duties to the unitholders
and make a plan to make sure the insurance policy limits can be
utilized under the governing documents.
Planned communities have a difficult job in
purchasing and affording the right insurance coverage for an HOA’s
needs. Reviewing and purchasing the right HOA master policy and updating
governing documents to fit the proper insurance policy can afford
unitholders/owners piece of mind that surprises such as special
assessments or lack of coverage won’t arise.
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