HOA Insurance Checkup!

By:  Cline Agency Insurance Brokers

    HOORAY ! Your association is in good standing!

    1)  Our owners are aware of what the master insurance policy covers, and what they’re responsible for individually.

    COMMENTS: Board Members are often surprised how many unit owners fail to purchase individual insurance coverage to supplement the HOA’s protection. In studies conducted on condominium associations, as many as 25% neglect to purchase a Condominium Unit Owner Policy (or HO-6), likely due to a lack of understanding regarding the limitations of the HOA’s insurance. As condominium projects begin to age (or, after a season of busy loss activity), two things often begin to occur: (1) deductibles on Master Policy claims creep higher; and (2) the scope of what the Master Policy will cover inside the home narrows. These two changes can have a significant impact at the time of loss – and if an individual is uninsured, the outcome can be financially catastrophic. The key to this problem is communication! The more often individual owners are reminded, the more likely they are to contact their own individual agent/broker to obtain the right coverage.  

    2)  We’ve read and understand our CC&Rs and our insurance meets its requirements.

    COMMENTS: You can be an expert in running a successful board meeting and have a pocket “Roberts Rules of Order” should there be a dispute, but you can really run afoul if you fail to keep the community running based on the guidelines in the CC&Rs. Here’s the deal: If the CC&Rs or By-Laws specify a certain coverage or endorsement, then the Association is contractually required to maintain it, to the extent that such coverage is commercially (and in some cases, reasonably) available. If the Association does not maintain a required provision, it would greatly behoove the Board to document the reason(s) for its omission.  To this end, have your insurance agent/broker review your CC&Rs and By-Laws, and have them confirm in writing that coverage, as purchased or proposed, is in compliance (to the extent commercially/ reasonably available).   

    3)  Our insurance complies with the California Civil Code with respect to Directors and Officers Liability (§5800), General Liability (§5805), and Fidelity Bond (§5806).

    COMMENTS: California’s Common Interest Development Act provides certain protections to individual owners in the community, but only if the Association maintains the prescribed minimum liability limits outlined in the Civil Code. With respect to Fidelity/ Crime insurance, the stipulated coverage is not merely a quid pro quo but is unconditionally required by law for all communities subject to the Act. A knowledgeable insurance agent/broker who specializes in condominium and planned developments will be able to ensure the necessary coverages and endorsements are in force to protect the community and comply with these statutes.

    4)  We review our Insurance Coverage annually with our agent/broker.

    COMMENTS: It should cost absolutely nothing to have your insurance agent/broker come out and review your coverages with you.  A knowledgeable representative can explain your various coverages and provide you with suggestions and recommendations that may highlight gaps or bring you added value.  And it is not unreasonable to expect them to be available to educate the individual owners in person. The recent California firestorms have reminded us that building limits should be reviewed regularly, so don’t be afraid to ask your agent/broker if there are any new carriers, programs, or broadening endorsements that would benefit your community. The marketplace is constantly adapting their forms to the changing marketplace, and sometimes broader endorsements may be added at renewal with no additional premium. It’s worth asking!

    5)  We have a written procedure for submitting claims.

    COMMENTS: Who in your community has the authority to submit a claim? Is it a board member? The community manager? Individual owners? This is a question that may not be fully addressed by your CC&Rs, yet a hyperactive claim history can cause a community a headache if it results in a large premium increase or non-renewal. Developing and formally adopting a written procedure for handling insurance claims (and Deductibles) will manage expectations and minimize confusion if and when a loss occurs.