Homeowners associations are complicated. They’re comprised of dozens of families, include shared public amenities, and spend hundreds of thousands of dollars on renovations, repairs, and general operations each year. With all of these responsibilities and people involved, problems will arise — and when they do, they’ll need a good broker with the right HOA insurance policy in their corner.
However, getting HOAs the right insurance isn’t easy. You need to understand the general provisions and features that underpin sound, comprehensive coverage. Every HOA will also have different needs and legal requirements that you’ll have to consider when getting them the best possible policies. This guide will bring you up to speed on the basics of HOA insurance: what it covers, which policies are needed, and how much this will all cost. With this knowledge in hand, you can confidently sell HOA insurance, and HOAs can get the coverage they need to stay financially secure.
What Does HOA Insurance Cover?
HOA insurance provides coverage to homeowners associations that aren’t protected by personal homeowner or condominium policies. Generally, this includes coverage for property damages, crime, and liability suits to common areas like:
- Rec rooms
- Tennis courts
HOA insurance also covers the board of directors. It protects them from the costs of liability litigation, discrimination suits, or even employee theft, providing peace of mind to the people running HOAs.
Which Coverages Should HOA Insurance Policies Include?
HOAs need more than just property coverage and general liability to be fully insured. Here’s a breakdown of the main types of coverages most will need to be secure.
Commercial Property Coverage
The HOA should be insured for at least the value of the common area buildings, like clubhouses and maintenance facilities. That way, if any damages occur, the HOA will be able to rebuild without putting itself in financial jeopardy.
Distinguished’s coverage takes this a step further by offering the option of Guaranteed Replacement Cost (GRC) for “Other Property” (things like pools, sidewalks, signs, etc.). With GRC, there’s no need to worry about estimates or inflation because your clients are always covered for the total replacement cost of those covered items. So if a wall, fence, or even clubhouse needs to be replaced, your clients will be covered for the total cost of replacing them — no matter how much that is.
General liability coverage shields the association from having to foot the bill for liability suits up to its coverage limit. Specifically, a GL policy provides coverage in the event of an injury or accident in common HOA areas.
Some potential exposures a GL policy would cover include:
- Injuries by the HOA-owned pool
- Slips and falls on icy walkways
- Damage to a private car caused by HOA property
Having a high enough coverage limit is crucial because unit owners can be affected when the suit forces their HOA to pay out beyond what its coverage can handle.
It’s also necessary to consider any applicable local laws. In California, the Davis-Stirling Act statute protects owners from individual liability, provided the HOA maintains at least minimum levels of insurance as follows: $2 million for associations with 100 or fewer separate interests; and $3 million for associations with more than 100 separate interests.
Umbrella insurance offers an extra layer of protection for HOAs as it writes over other existing policies like D&O. The advantage of an umbrella policy is that it can offer you significantly higher limits so that the HOA is at a far lower risk of ever exceeding its policy limits.
For instance, Distinguished’s Umbrella insurance policy for HOAs offers limits as high as $5 million. As well, brokers can easily apply for one of our umbrella policies online through our broker’s portal.
Crime insurance is designed to protect HOAs from the actions of criminals, dishonest employees, and unpaid volunteers. Specifically, it covers instances of embezzlement, check fraud, vendor fraud, forgery, and other means of theft.
When determining how much Crime insurance your HOA needs, make sure to check local laws and the HOA’s CC&Rs to see if there is a minimum amount required. Beyond that, the amount of crime insurance required will be proportional to the size of the HOA’s assets. A good standard is coverage for three months of an HOA’s operating budget plus any money in its Reserve Account.
D&O insurance provides coverage for defense (expenses) and indemnity (awards and settlements) of wrongful acts and allegations against the board of directors and the association. The defense of a single D&O claim can cost the association tens of thousands of dollars, so it’s essential that the HOA carries this coverage.
Most commonly, the D&O is there to protect boards from the costs of non-monetary suits. These are legal actions taken against the board because an HOA member feels the board is not following HOA bylaws. For instance, if Jenny thinks Suzie’s board-approved fence is too high, she can sue to have it taken down. D&O would help foot the legal defense bills for this case.
When picking D&O insurance, make sure to clarify who this insurance will cover and what exclusions exist within the policy. Some policies do not cover all people associated with the board (i.e., past directors) or all suits (i.e., defamation or discrimination claims).
D&O also includes Employment Practices Liability Insurance (ELPI), which provides coverage against claims made by board members or volunteers alleging discrimination (sex, race, age, or disability), wrongful termination, harassment, or other employment-related issues. The policies cover directors and officers, management personnel, and employees themselves. Typical exclusions are bodily injury, property damage, and intentional or dishonest acts.
The Cost of HOA Insurance Coverage
HOA insurance costs vary wildly based on a number of factors, including amenities and the size of the HOA. Although it would be nice to be able to throw around ballpark figures, the only way to truly get an accurate estimate is to speak with an expert who can assess your situation.
If your clients are looking for estimates tailored to their circumstances, contact our insurance experts for a specific quote. Or use our Broker Portal to get a quote on HOA insurance in as little as a day (non-residential exposures only). For residential exposure quotes, please download our application form instead.
Homeowners Association Insurance From Distinguished
Scratch the surface just a bit, and you’ll see that HOA insurance coverage is a lot more complicated than it might appear at first. For this reason, we’ve designed an HOA Insurance Package that makes it easy for brokers to get homeowners associations the coverage they need.
Distinguished is a national sponsor for the CAI, and our products aim to protect HOA communities with comprehensive coverage, including property, GL, D&O, Crime, and Umbrella.
Want to learn more? Check out our Community Associations Package Insurance brochure to see what advantages come with our coverage.
You can also look below to find information on our individual policies:
- Express Umbrella Highlights
- Community Associations Directors & Officers Insurance
- Community Associations Crime Insurance
About Distinguished Programs
Distinguished Programs is a leading national insurance Program Manager providing specialized insurance programs to brokers and agents with specific expertise in Real Estate, Community Associations, Hotels, and Restaurants. Property and liability products are distributed through a national network of agents and brokers. Serving the same core markets and partnering with the most stable and reputable carriers, Distinguished Programs’ high-limit umbrella programs remain the clear choice in its areas of specialty for superior coverage, competitive pricing, and attentive service. Through thoughtful innovation, stemming back to 1995, Distinguished Programs fosters growth and opportunities for its brokers, carriers, and employees.