Homeowners Associations HOA coverage may also be complicated, and many
factors can trigger premium increases. Let's look at the context and
the elements involved in coverage and rate development. An HOA is a private
residential subdivision management association.
A governing document called CC&Rs, contracts, covenants, and prohibitions
governs their exact obligations and powers. A segment called Bylaws is
the association's precise guidelines, including forming a board of
directors, elections, duties, job requirements, penalties, and more. These
are the governing documents. The above documents also describe the association's
exact responsibilities vs. members in matters such as how much and what
form of insurance the HOA needs.
Each year, different parts of laws are updated on what HOAs are permitted
to do, what they are expected to do, and how they are limited. For example,
ages ago, some areas of town disallowed property sales to Jews or other
minorities. As time passed, the Civil Rights legislation had thankfully
preempted the bigoted CC&R clause. Several lawsuits of discrimination
have been filed and settled in recent years, forcing HOAs to pay. This
elevated risk threat will push up premiums for all HOAs as insurance companies
plan for future court battles. So what HOAs are there? Several groups
manage a community's common areas with single-family homes.
These are called planned development units, or PUDs. They maintain visual
uniformity in the appearance of the homes and keep the grounds. Some associations
are responsible for building structure. This is particularly valid for
condominiums and townhomes but can extend within the neighborhood to single-family
units and duplex units. The governing documents describe all these powers
Can an HOA insure indoor floors, cabinets, and other structures within
each unit? The governing documents often describe these obligations, and
they differ from HOA to HOA. So what are the related HOA insurance policy
parts? Note that individual unit owners must have additional coverage
protecting their unit's interests not covered by master HOA insurance.
First property. What coverage is required to value property adequately?
Should coverage be for exterior walls only, or should it include kitchen
cabinets and floors? How about other fixtures, walls, tiles, etc.? And
what value should be put on all property to enable proper replacement
after a loss?
The material expense has plenty to do with property coverage rates. When
construction materials become more costly, property pricing rises. Insurance
firms often have automatic increases, which may or may not be necessary—it's
a review area. And how about standard area equipment and structures, including
pool equipment, leisure equipment, walls, ponds, spas, and hundreds of
other things typically owned by the organization. All these must consider
the overall insured worth.
So what's a fair deductible to cover? Want to do it to the smallest
disadvantage, or are you an organization risk-taker and want a higher
deductible? What's higher? This must be explored and balanced with
provisions of the governing documents, which can determine coverage amounts.
Is replacement cost compensation at a full or depreciated value like a
car? A loss could hurt—badly as you depreciate value and subtract
Previous losses and current maintenance, or lack thereof, can determine
the most extensive coverage availability. What other areas to consider?
Liability coverage: would it compensate only physical harm that a member
might do to a non-owner or other third party or their property? How broad
is the liability coverage included in the policy? Is the liability cap
just $1,000,000? Actually? Two hundred group units, $40,000,000 of properties,
and you think a complaint would stop at $1,000,000? Plan a worst-case
scenario, or even the worst-case scenario, with more coverage.
Excess insurance is now required. I know of one allegation made against
the handyman of the complex by a renter, alleging he improperly touched
her. Will the master insurance cover that, or will the organization write
an extensive check? Non-guilty? Prove that. And when you prove it, how
much you spent on legal fees? Charge to have it gone? How long would it
take? And the HOA has workers speaking of handymen? If so, it would undoubtedly
need workers' compensation coverage, since as an employer, the statute
allows workers to be covered from injuries.
Do workers drive their HOA vehicles for supplies? Do board members conduct
car errands? Run for stamps, a party food? That's protected if they're
involved in an accident while doing HOA work. Again the non-owned auto
coverage is listed in this book's commercial vehicle chapter. And
speaking of board members, they're HOA directors and officers. A potential
situation where HOA members hold them accountable for judgment errors
or even suspected errors in evaluation or management. Is the board covered?
If you're a board member, did you sign up to work part-time for nothing
and be liable to a lawsuit for doing what you felt was best? The proper
coverage is called Directors and Officers coverage.
Yeah, and by the way, the Treasurer will be responsible for plenty of revenue.
Is the HOA shielded if they choose to use HOA money to finance a permanent
Caribbean trip? HOA maintains a website? It might be suspected of infecting
visitors. Many insurance policies provide cyber-liability coverage. Is
anyone monitoring purchasing and keeping website certificates? Web Security
Updates? Even if not infecting, if convicted and sued by the HOA, it still
has to mount a legal defense. That may cost. Finally, let's talk about
my favorite, coverage earthquake. Is it in place? Great, how structured?
What's the deduction? Which assets are covered? Is it basic earthquake
building coverage, or does it cover something like your foundations, pollution,
mold, debris removal? It's enough to remember.
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