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Insurance is also necessary for practical purposes: if your association’s property is damaged or your association is sued, you’ll need insurance to mitigate the losses. Below we discuss the protection that HOA insurance does and does not provide, as well as coverages to consider adding to your HOA insurance policy.

Different Types of Homeowners Association Insurance Policies

Although homeowners association insurance policies typically share certain common features, there are variations. For this reason, it’s important to review your terms and verify that they meet the needs of your association.

Critically, homeowners association policies are different from condo association policies. A homeowners association typically comprises owners of single-family houses, and there is a clear separation between property belonging to the association and property belonging to the individuals. In contrast, a condo association consists of unit owners, and it is necessary to draw a distinction between the association’s property and the individuals’ property.

Both policy types cover property belonging to the association:

• A homeowners association policy covers property like community pools, playgrounds, club houses, fences, and gates. It also typically provides general liability insurance, which covers third-party claims involving bodily injury or property damage. For example, general liability insurance could cover a lawsuit involving a guest who is injured on the association’s property.

• A condo association policy covers property like the condominium structure. According to IRMI, there are three ways to approach the division between association and individual property. Bare walls coverage insures the bare structure, fixtures, and furnishings of collectively-owned areas. Single entity coverage insures most real property (including fixtures in individual units), but it may not include structural improvements or additions. All-inclusive coverage insures all real property, including improvements in individual units. Condo association insurance also typically provides general liability coverage.

States often require condo association insurance. For example, Florida requires condo associations to maintain property insurance for “full insurable value, replacement cost, or similar coverage.”

What Insurance Doesn’t Cover

Homeowners association insurance does not protect against everything. Common exclusions include:

• Property belonging to individual owners Individual homeowners need to carry homeowners insurance to cover their own building structures and personal belongings. The HOA may require individual owners to maintain homeowners insurance. (Mortgage lenders also typically have this requirement.)

• Lawsuits against board members Although homeowners association insurance typically includes general liability insurance, this does not cover lawsuits against individual board members for their decisions and actions. (This coverage is available under a D&O policy.)

• Criminal acts Most insurance policies exclude intentional illegal acts, such as if a board member embezzles funds. (This coverage is available under a crime and fidelity policy.)

• Certain types of losses Standard property insurance policies exclude certain perils, such as flood and earthquake. You can also expect exclusions for damage caused by wear and tear or a lack of maintenance.

Coverages to Consider Adding

Although a standard homeowners association policy provides important coverages, it does not cover every type of loss an association could face. Each association should review its exposures and determine whether it needs additional coverage.

Additional coverage could come in the form of an endorsement added to the primary homeowners association insurance policy or as a separate, standalone policy.

• Sewer backup endorsement - Many property insurance policies exclude water damage caused by sewer backups, but it’s often possible to add this coverage. If your association owns property that is vulnerable to sewer backups, this would be a wise investment.

• Ordinance and law endorsement - When property owners must rebuild after a major loss, they may need to upgrade the property or replace more than what was damaged to meet local ordinances. Standard property insurance may exclude these additional costs, but it is possible to secure this coverage with an ordinance and law endorsement. Consider this coverage if your association’s property was constructed prior to current building codes. Florida, for example, has enacted many new building codes to prevent damage from hurricanes.

• Flood insurance - If your association owns property that is subject to flood damage (such as a clubhouse or gym in an area with flood risks), consider purchasing flood insurance.

• D&O insurance - Individual board members may face personal liability for their actions while serving on the HOA board. D&O insurance provides financial protection for the associated legal costs.

• Crime and fidelity insurance – Homeowners associations can be vulnerable to financial crimes, such as embezzlement and wire fraud. Depending on the policy, coverage may apply to financial crimes committed by current employees as well as by former employees and third parties.

• Commercial Auto/Hired and Non-Owned Auto – If your association owns any vehicles, you will need commercial auto insurance. You will need hired and non-owned auto insurance if board members use their personal vehicles for association-related duties.

• Umbrella insurance – In the face of rising jury awards, liability protection that was previously adequate may no longer be sufficient. Associations may want to increase their liability limits. One way to do this is to purchase an umbrella insurance policy, which adds coverage to underlying liability policies.

Do you need help securing coverage for your homeowners association? Century Risk Advisors can help you review your exposures and put together an HOA insurance package that meets your needs. Contact us.