Homeowners living in planned communities usually have governing documents that mandate the individual home or condominium unit owners carry their own insurance in the event of a property loss. While unitholders in these communities pay monthly or yearly dues so the main association (HOA) can take care of the common areas, part of those mandated payments usually go to the HOA for the purchase of a master insurance policy which ideally should insure everything maintained by the HOA. Rarely do individual unitholders in an association ask to see the master policy of their HOA. Nor do the individual unitholders ask their governing board to audit the master insurance policy to make sure it covers enough of the HOA’s potential responsibilities and liabilities. If the policy does not contain the proper coverage for the HOA, the HOA subjects its unitholders to a special assessment if a disaster occurs and major rebuilds that are costly. Planned communities risk inadequate insurance coverage if it purchases a master policy without understanding the needs to the community and discloses these needs to its broker or agent when purchasing its policy.

Recently, I spoke with an HOA board who found that their planned community, which consists of several hundred individual single family homes had spent large amounts of money after a disaster fixing the roads and sewer system after a natural disaster was experience in the community. The community’s roads and sewer were not the responsibility of the local city or county authorities and were considered private property maintained by the HOA. The master insurance policy for this planned community was paid through HOA dues of each homeowner in the community. If the HOA master insurance policy does not cover the loss, then it is up to the HOA to pay to fix the loss experienced on the common roads and sewer through its money reserves or by assessing the individual unit owners in the association.

Another HOA I spoke with purchased a master policy for their planned community of condominiums and found that their insurance policy (which afforded the proper monetary amount of coverage to their unitholders) did not afford their unitholders with the right coverage because their HOA governing documents conflicted with their insurance policy. If the duties of the HOA to their unitholders are not properly spelled out in their governing documents, it may place the unitholders in a perilous situation where the master HOA policy provides less coverage than that which was purchased or intended.

For unitholders and HOAs purchasing master insurance, we provide a few suggestions when purchasing and reviewing their master insurance policy:

  1. Overall, know what your common areas are and disclose them to your agent or broker in writing;
  2. Check to see if the HOA is responsible for road and sewers;
  3. Check to see if the HOA is responsible for sidewalks and paths in the community;
  4. Check to see if the insurance policy covers landscaping of common areas;
  5. Figure out what types of losses are covered under your policy;
  6. Purchase enough coverage to realistically rebuild all common areas in the event of a natural disaster;
  7. See if the policy requires co-insurance which may result in assessments to individual unit owners; and
  8. See if the HOA governing documents conflict with your insurance policy regarding the HOA duties to the unitholders and make a plan to make sure the insurance policy limits can be utilized under the governing documents.

Planned communities have a difficult job in purchasing and affording the right insurance coverage for an HOA’s needs. Reviewing and purchasing the right HOA master policy and updating governing documents to fit the proper insurance policy can afford unitholders/owners piece of mind that surprises such as special assessments or lack of coverage won’t arise.

  • paul weinberg

    Also, unit owners should make sure they have loss assessment coverage limits on their own policies well above the $1,000 standard amount. It’s not expensive

  • Leland Coontz, Public Adjuster

    Sometimes the CC&R’s cover MORE than what the HOA thinks- there are a few governing documents that have the unit owners’ interior improvements (flooring etc.) insured under the HOA master policy.Sometimes the CC&R’s name the unit owners as additional Named Insureds on the HOA master policy. The HOA board or its property manager needs to be careful about failing to file or pursue claims for damage to unit owners’ interiors. When a unit owner’s damage doesn’t get paid due to an association’s misunderstanding of the coverages, that unit owner may have a breach of contract or other claim against the association. And if the association has sat on its hands and let the claim age, they might be on the hook to pay the unit owner with no recovery from the carrier that could and probably would have paid in the first place.

    Good insurance adjusters often submit copies of the CC&R’s to attorneys for review. HOAs and their Public Adjusters can do the same – either before a loss occurs or for guidance when one does.