A homeowners association (HOA) is crucial for the upkeep of many residential communities. But HOAs can be threatened by a variety of risks and holes in insurance coverage; they have to handle money and hire contractors like a business, insure property like a homeowner and maintain public areas like a park service. With all these roles, HOAs have risks coming from every angle. A professional association will be on the lookout for potential dangers and ready to confront any problem.
What are My Risks?
Only property owned by the HOA can be protected by its insurance, yet it still can be held liable for accidents it could not control. As a result, communities and condo buildings present challenges when tailoring adequate coverage for all parties involved.
Nearly anything HOAs are involved with can be a source of trouble. Unfortunately, many times HOAs aren’t aware of potentially costly risks. Here are just a few frequently missed risks to HOAs:
- Board negligence
- Equipment maintenance malfunction
- On-the-job staff injuries
- Liquor liability
- Inadequate auto coverage
For any HOA, an ounce of protection can go a long way. Analyzing and shrinking your potential risks is the best way to put a stop to problems before they start.
Where to Look
Lapses in HOA insurance coverage usually occur in one of two areas:
- Damage to personal property
- Liability or property damages incurred by HOA board members
Many HOAs don’t consider damage to renter or owner’s personal property their responsibility. This is typically an accurate view, but in some circumstances, the HOA can be held accountable for damages incurred by machinery, plumbing or landscape it is responsible for maintaining.
For instance, if a water heater maintained by an HOA employee broke down and flooded the floor of a condo, basic property insurance will likely pay for repairs to the floor and walls. However, an upset owner may seek compensation from the HOA for all the electronics ruined by the water. Such compensation would likely not be covered by basic property insurance held by the HOA.
Many HOAs also don’t consider the inherent risks that having officers creates. Too often HOAs consider their board members inscrutable, only to find out about theft or embezzlement of HOA funds. Similarly, poor repairs or dishonest actions made by anyone hired by the board can cause the HOA to be held liable for damages or loss of private property.
Dealing with the Risks
HOAs take on a variety of risks. While many are prevalent and destructive enough to demand insurance, others may require tough decisions to be made by the HOA. Some risks require specialized insurance, while others that are covered can cause large increases in premiums.
There are three major strategies to dealing with property and liability risks.
- Accepting risks: Accepting a risk means that you decide to accept a situation “as is” and are willing to deal with the consequences if it should occur. For example, an HOA in Kansas would consider not insuring against earthquakes. The risk is too low to justify the added premium costs.
- Reducing risk: Risk reduction is done through education, inspections and behavior change. The idea is to so greatly reduce the chance of the risk occurring that it becomes acceptable. In some cases, reducing a risk may mean completely removing a fixture or policy to eliminate any potential problem. Risk reduction is very useful—whether a risk is insured or not. A policy may cover the HOA in the event of an accident, but prevention of that accident keeps your association’s premiums down and its reputation high.
- Insuring risk: The final method of dealing with risk is to simply make certain someone is willing to undertake it. Whether it’s through insuring property or contracting out maintenance, diverting risk to professionals guarantees protection against the costly threats that may face your HOA.
Every HOA is different. Comprehensive coverage requires regular, detailed communication with an experienced agent. Contact Valent Group to make sure your coverage is airtight. Help us better understand all the needs facing your HOA.
|Check out our Condo Associations Practice for more resources and information.|
Information abstracted from Zywave’s “Insurance for Homeowners Associations” article.