Homeowner Association Insurance

 

Homeowner Association Insurance may be written to cover condominium associations, planned developments, cooperative housing, community apartment projects, and tenancy in common developments. These are all common interest developments.

It is important to understand that not all HOA policies are the same. They vary by state, company, type of property, and many other factors, including the options selected by the insured. You should not assume your association's insurance policy includes the coverages described below. You must read your policy and obtain an evaluation by an expert.

In order to simply this article, assume we are discussing insurance for a condominium association since nearly 90% all common interest developments in California are condominiums.

Most master policies for condominiums have three levels of coverage:

All Inclusive or All in Coverage. This is the most inclusive level of coverage. All nonpersonal property items within the individual owners' units such as cabinets, appliances, countertops, wall coverings, and floor coverings, are covered. In addition, any upgrades made after the developer conveys the unit are also covered . An example would include replacing tile countertops to granite or marble.

Single Entity or Walls In Coverage. This is a common scope of coverage. All nonpersonal property items within the owners' units are covered. However, unlike the "All In" policy, the owners' upgrades are not covered.

Bare Walls Coverage. Fixed items within the units such as cabinets, appliances, countertops, wall coverings, floor coverings, etc.} are not covered , nor are upgrades made by owners. Rather, the master policy covers replacement up to the drywall. This form of insurance is less expensive for associations to carry because coverage is limited. If there is a flood or fire in one or more units, the association's insurance does not pay for improvements to the unit such as fixtures, appliances, interior partitions, wall coverings, floor coverings, cabinets, etc. Instead, the owner is responsible for carrying his or her own insurance to cover these items.

Associations should review their CC&Rs to see if they are obligated to carry "All-In" insurance which requires replacement of a unit to the condition it was in at the time of the loss, including all improvements made to the unit from the date of its original construction.

Before changing from full coverage to bare walls, associations should review their CC&Rs to determine if they are obligated to carry "All-In" insurance which requires replacement of a unit to the condition it was in at the time of the loss, including all improvements made to the unit from the date of its original construction. If so, the association will need to amend its CC&Rs to allow for bare walls coverage. Again, this is not recommended.

Under all three levels of coverage the association's master policy does not cover owners' or tenants' personal property.

Boards and managers should also consider the following coverages:

1. Building Ordinance. This endorsement covers any increased costs of construction after a covered loss that may be imposed due to changes in the building codes. Most city and county building codes require compliance with current building codes whenever 50% or more of a building is materially damaged and repaired. The requirement will apply regardless of the source of the damage which includes floods, fire, earthquakes, etc. The older the building, the more costly the code upgrades for plumbing, electrical, elevators, fire sprinklers, and seismic stability. The costs can be substantial and can result in significant special assessments if a "Building Ordinance" endorsement is not part of the association's insurance. Condominium associations need building ordinance coverage if they wish to be compliant with Fannie Mae requirements.
2. Demolition and Debris Removal. This endorsement covers demolition and debris removal costs. After a major fire, the debris will need to be removed and disposed of. It is quite likely that undamaged portions of structures will need to be demolished and remodeled as well. If the association's insurance policy does not cover this expense, the membership will be required to pay the costs in the form of a special assessment.
3. Boiler and Machinery. An endorsement for boilers covers the loss or damage to boilers, pressure vessels, and pressure pipes. It may also provide coverage for mechanical breakdown of items such as elevators, sump pumps, and pool equipment.
4. Garage Keepers Liability. This is for associations that own vehicles. This is most common for high rise buildings and large associations.