For any condominium or community association, there are certain types of insurance that HOAs cannot live without. Generally those include: property, liability, umbrella, D&O (with employment practices liability (EPL) insurance embedded in the coverage), fidelity, equipment breakdown coverage or more commonly called boiler and machinery (B&M), workers compensation, disability coverage, and when applicable, environmental coverage.Homeowners should also purchase their own insurance to protect their valuables and the contents inside the residence.
Keep It Covered
According to Cheryl Rhine, CIC and Debbie Pasquariello, CIC, CIRMS, with BHB Insurance Services, the basics are as follows.Minimum legal requirements are outlined in the association’s documents in the master deed and the bylaws under duties and responsibilities of the board. In the documents, there is also generally a provision for “other insurance” the the board "deems necessary,” which will enable to board to purchase broader coverage should they choose to. These coverages should always be discussed and reviewed with a professional insurance agent that specializes in community association insurance, say Rhine and Pasquariello.
These are the main requirements for any HOA:
Property:Your insurance company may provide an appraisal based on a software program such as Marshall & Swift, or the association may retain the services of a licensed insurance appraiser to determine current replacement cost. If the association’s policy provides "guaranteed replacement" cost coverage, there is little need for concern regarding the limit. If the association has a property loss that is underinsured then they would special assess each unit owner based on their proportionate share of ownership, for the uninsured portion of the loss. The unit owner would in turn submit the claim to their personal insurance carrier for coverage under “loss assessment.” There are other coverages of concerns as well like equipment and machinery, flood, earthquake, business interruption/loss of use. It is important to discuss all these coverages with the association's insurance agent.
Liability:Unfortunately there is no guideline on what limit of liability is enough. The board should always purchase an "umbrella policy." In the current marketplace $15 million, $25 million and $50 million limits are very affordable.