If you’re a member of an HOA board, you probably know that having insurance for your homeowners association is a necessity to protect the HOA and its members. But do you know what type of insurance you need to have or what the Association is responsible for and what the individual homeowner is responsible for? It can be a confusing topic to understand, especially if you have outdated CC&Rs – or haven’t even read your CC&Rs.

Some homeowners associations carry general liability insurance that extends the coverage to include residential insurance in a portion of Association fees. If you’re in a situation where you have HOA insurance coverage that doesn’t mean you as an individual homeowner don't need an additional insurance policy on your residence, as one HOA member found out in the article excerpt below.

Posted by: Los Angeles Times

The limits of homeowner's insurance at a homeowners association

By: Donie Vanitzian

Question:  I live in a residential, two-on-a-lot common interest development with a homeowner association; the other owner and I comprise the board. The covenants, conditions and restrictions state all buildings, driveways and sidewalks are common areas whereas the balconies and a back patio are designated as “exclusive use” common areas.

My neighbor, the other owner, refuses to acknowledge the homeowner association and will not enter into an insurance policy for the association. I tried to obtain individual homeowner’s insurance for my detached single-family dwelling but several insurers refused, stating that the only way to insure me was to follow the laws in the common interest development act. Eventually, though, we each managed to obtain individual homeowner’s insurance on our respective single-family dwellings.

My insurance agent told me that my personal homeowner’s insurance covers the common areas so the association doesn’t need to purchase its own insurance. Is the association really covered by my individual homeowner’s insurance policy, and is there exposure because we don’t follow the CC&Rs? Is my individual earthquake insurance for my building’s structure valid?

Answer: In California, some insurance companies may decline to insure individual property (e.g., units, town homes and detached homes) within common interest developments unless the association itself is adequately insured, which includes earthquake coverage. It can be complicated to separate the loss responsibilities of an owner from that of the association, especially from loss due to third-party vendors, visiting guests and public access in mixed-use developments. And even if you do obtain an individual homeowner’s insurance policy, you may only find out that coverage is limited or the entire policy void when you try to submit a claim, which by that time is too late. 

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Insurance is one of the best investments a homeowners association can make. Not only are you protecting the HOA from potential lawsuits, but you’re creating a community where members feel safe. When they feel safe, they feel valued.

It’s up to the HOA board to make sure the Association is properly covered. This can be achieved by working with an HOA management company as well as trusted professionals who specialize in HOA insurance coverage.

Additionally, it’s important that your CC&Rs reflect your updated insurance policies and that members are kept informed of any changes or actions that need to be taken on their part. Your HOA board will sleep better at night knowing the homeowners association is properly protected. Not only is having adequate insurance – and knowing you have adequate insurance – a reasonable business decision, it’s a necessary one.