Most homeowners associations (HOAs) have insurance coverage to protect the HOA against liability arising out of accidents and injuries that occur on HOA property. Condo associations also need HOA insurance due to the amount and type of property that they own and manage.
What Is HOA Insurance?
HOA insurance is insurance that is acquired by a community’s homeowners association (HOA) to protect the HOA from liability for injuries and property damage that occur on property that belongs to, or is managed by, the HOA. These areas are frequently referred to as “common areas”. In a condo HOA, the common areas frequently consist of parking areas, lobbies, hallways, stairwells, roofs, sidewalks, swimming pools, fitness facilities and exterior walls.
An HOA insurance policy consists of:
- General Liability: This covers injuries such as slip-and-fall in a common area or playground injury and legal fees to defend the association if it gets sued for damage potentially covered by the policy.
- Physical Damage: This protects against damage to common areas caused by such events as natural disasters, storms, fire, vandalism, or negligence.
- Fidelity Insurance: This protects the HOA from dishonesty by its officers or board members.
- And any additional insurance coverage that the particular HOA or condo association needs.
Often, an HOA also will acquire officers and directors liability insurance which provides coverage to the individual officers and directors, who are usually volunteering their time to serve on the HOA board, for negligent management of the association. If an officer or director is sued for mismanagement by a member, the insurance covers the cost of defense and resulting losses.
HOA insurance is acquired in the form of a single “master policy” that consolidates the various types of insurance coverage into that one policy. The type of coverage needed is determined by the appropriate association officials. The HOA insurance premium costs are paid out of the condo association’s assessment revenue.
Reasons Why Condo Associations Should Have HOA Insurance
All HOAs should have HOA insurance. This coverage is of special importance for condo associations or HOAs having condominiums under their responsibility. Below are reasons why any condo association, or any HOA with condo owners as their members, should have HOA insurance:
- Satisfies state laws requiring HOAs to have HOA insurance. HOA insurance is required for condo associations under the laws of many states; an experienced agent will be able to provide information specific to your state.
- Reduces personal liability of each association member. Without HOA insurance, members of the association can be held personally liable for damages arising out of the use of common areas. In such cases, the HOA would impose a special assessment on each member on a pro rata basis to cover the member’s share.
- Protects the HOA’s financial resources. HOA insurance can prevent undue liability resulting from an accident which could otherwise threaten the financial integrity of the association. A personal injury or damage to property could mean repairs or replacement costs that deplete the association’s reserves. That would likely require the members to pay a burdensome special assessment.
- Eliminates individual member’s liability in some cases. Under some states’ laws, if an HOA carries adequate liability insurance the individual homeowners have no premises liability in many cases.
- Lowers the cost of the condo owner’s individual insurance. HOA insurance can help lower the cost of the condo owners’ individual homeowner’s insurance or other condo insurance policies. This overlap of HOA insurance reduces the risk that the condo owner’s insurance would have to pay on an incident that is covered by both the HOA insurance and the condo owner’s individual policy. In such cases of dual coverage, the HOA insurance is usually considered primary, meaning that it is required to pay first. The condo owner’s insurance will pay a remaining balance if the claim exceeds the HOA’s insurance coverage limits.
- Avoids duplicate coverage on the homeowner’s insurance of the condo owner. HOA insurance helps condo owners avoid duplicate coverage and thereby reduces their premium costs. In a condo association, the HOA insurance should already cover certain portions of the condo such as the roof, exterior walls of the building and all common areas; as a result, the condo owner only needs insurance to cover the interior of the condo, not the exterior. However, some of that savings is offset by amounts paid by the condo owner in their assessments to cover some portion of the HOA insurance.
Acquiring the necessary HOA insurance coverage and making timely premium payments are the responsibilities of the condo association board. It is critically important that association officers and board members ensure the association correctly obtains the insurance required by state laws, providing sufficient coverage on other assets and obligations of the HOA.
For More Information Contact the Experts at Pro Insurance
Condo associations need to have adequate insurance coverage to protect themselves and their members against the inevitable accidents that occur on HOA property, as well as to comply with state laws. Talk to the HOA insurance professionals at Pro Insurance to make sure your condo association has all of its risks adequately covered. They are available to review your existing coverage and answer any of your questions about insurance.