Insurance for Homeowners Associations

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Man and woman going over insurance documents - FirstService ResidentialNavigating insurance for homeowners associations is not an easy task. If you are a member of your community’s board of directors, understanding the ins and outs of your policy can protect your association from liability. And if you are a homeowner’s association (HOA) member, it is essential to have general knowledge about your community’s master plan and how it protects your investment and property.  Factors like what kind of coverage your HOA’s master policy outlines, costs and annual assessments should be considered when reviewing your HOA policy. The right coverage can not only protect your property value but can also help to minimize risk.  This article will explore insurance for homeowners associations and help you understand how the right policy and coverage can protect your investment and community.

What is HOA Insurance, and What Does it Cover?

A homeowner's association is responsible for establishing and enforcing your community's rules and maintaining and repairing common areas. Part of that entails outlining what kind of insurance the property requires to cover losses, damages, and other shared risks, as well as the coverage limits and deductibles. HOA members pay monthly association fees used to maintain and repair the community’s common areas and pay for insurance that protects the community’s assets.

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Having the right insurance plan and coverage for your association can bolster your budget and reputation (and the opposite is true, too!). Read our complimentary guide, "4 Things You May Not Know About Community Insurance".

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First-Party vs. Third-Party Coverage

There are two kinds of coverage for HOA communities: First-party and third party. First-party insurance covers the policyholder's losses, and they can file a first-party claim against their insurance policy. An example of a first-party insurance claim would be if the association filed for losses or damages from a fire. Third-party coverage protects an association from litigation brought forth by another entity. An example of a third-party claim would be if a resident broke their ankle after stepping in an unrepaired pothole in the community parking lot and sued the association for medical costs and damages.

Insurance for homeowner’s associations generally includes several types of first-party and third-party policies. The community’s policies protect building exteriors, structures, shared spaces and furnishings and people like board members and community employees.

The community’s master policies can provide coverage that protects several areas of the property and may include some of the following:
  • General Liability: This coverage includes incidents within the community’s shared spaces, like personal injuries, theft and property damage. If a resident or visitor has their computer stolen at the community’s gym and sues the HOA, a general liability policy should cover the damages. This coverage also applies to accidents like a slip and fall on a shared walkway or sidewalk or other damages incurred in a common space.
  • Property: This coverage applies to property within the community, including parking garages and lots, hallways, elevators, fitness centers, pool areas and community meeting or reception areas. It also covers shared equipment like boilers, oil tanks, water heaters, pool pumps and more.
  • Directors & Officers Liability: This coverage protects board members, officers, employees, trustees and volunteers against liability claims while carrying out their duties and making decisions on behalf of the association.
  • Building: A master policy usually offers three different kinds of coverage for units in a building. They include:
    1. Bare Walls: This coverage includes basics like roofs, exterior floors, elevators, and exterior walls. It requires residents to cover things inside their units like flooring, fixtures, furnishings and large appliances. Bare walls coverage excludes residents’ personal property.
    2. Single Entity: This coverage includes basic elements like roofs, exterior floors, elevators, and exterior walls. It also covers some fixtures, standard finishes and general appliances. Much like bare walls coverage, single entity coverage excludes residents' personal property.
    3. All-In: This comprehensive coverage protects elements like roofs, exterior floors, elevators, and exterior walls, as well as fixtures, additions, installations, and improvements inside the units. It does not, however, cover personal property.
  • Crime Coverage: Covers against loss or disappearance of money or property due to forgery, fraud, embezzlement, or theft committed by board members or “employees” as defined in the policy.
  • Commercial Auto: This coverage covers comprehensive and collision damage involving service vehicles owned, rented, or borrowed by the association.
  • Workers Comp: This coverage protects direct employees and volunteers who may be injured while on the property and under-insured subcontractors and vendors.
  • Umbrella Coverage: Provides extra limits of coverage beyond liability and limits on policies like general liability, commercial auto, and directors and officers.
  • Building Ordinance or Law: This coverage covers upgrades and repairs (which can be costly) required to bring an older building up to code after the damage is incurred.

Exclusions and Supplemental Coverage

While a community’s master policy might provide coverage in various areas, policies may have several exclusions. Because association’s policies will vary from community to community, becoming familiar with the exclusions under an HOA master policy makes it easier for boards to communicate coverage to homeowners. In turn, boards can help residents navigate home insurance policies to obtain coverage for things not addressed by their HOA insurance.

“Owners should know what the association’s policy covers so they can get a corresponding policy that ensures complete protection without any gaps in coverage,” said Jamie George, vice president of insurance at FirstService Financial. “It should be a dynamic relationship.”

Annual Insurance Review

Reviewing insurance coverage for a community every year is essential both for measuring costs and limiting risk. Because different types of coverage apply to specific areas within the property, and because communities are constantly growing and evolving, an association must conduct an annual insurance review to assess what new coverage might be needed or outdated.
Since most HOA insurance policies renew every year, it is an excellent opportunity to have a professional assess and advise what new coverage is needed. An annual insurance review can be conducted by either an agent or broker and is especially important if the property has undergone extensive improvements or renovations or has a new asset like a gym area or pool. The annual insurance review is also crucial if a community has partnered with a property management company within the last year. A property management company may require specific coverage to protect the property, so it is best to review this annually to ensure compliance.

Risk & Risk Management

One of the most important things to consider when looking for a new policy or renewing the community’s coverage is how to minimize risk. Since cost is based on property value and the risk involved, it is vital for an HOA board to partner with a knowledgeable property management company that understands risk management and how to negotiate better coverage and lower rates. FirstService Residential can help your association navigate HOA insurance and find the right coverage for your community.  And while no one can predict when disaster or damage will happen, having the right coverage and partnering with the right experts can help mitigate risk and keep your community safe and protected.
Thursday October 21, 2021