HOA/Condo Insurance – The Basics

October: the spookiest time of year. You know what shouldn’t be spooky, but often seems to be? Shopping for insurance.

Thank you for tolerating my poor attempt at a seasonal segue into this month’s topic: community association insurance. Here, I will discuss insurance requirements for condominiums and homeowners associations, basic coverage in a standard policy, and some common exceptions. Hopefully, this article will shine a light into the dark basement of HOA and condominium insurance. (Prepare yourself for more ill-fitting Halloween prose).


THE BASICS

Generally, there are two broad categories of insurance coverage for community associations:

  1. Property Damage Coverage – This would cover damage from hailstorms, falling tree branches, and werewolves digging up the common elements.
  2. Liability Coverage – This protects the association, its Board, and other members from lawsuits brought by someone who slips and falls on the common elements.

Although each one is a bit different, most so-called master insurance policies for community associations will cover the general requirements for the association, such as general liability, directors and officers liability, employment practices liability, and property insurance for the common elements. The association’s insurance is not meant to cover and will likely NOT cover damages relating to the individual sub lots or units, or the members’ private property. Owners need to understand the association’s policy and obtain their coverage for these exclusions.

COMMON EXCLUSIONS

There are some damages and risks which are often excluded from your average master policy. While the association can fill some gaps with supplemental coverage, it is cursed to remain unprotected from some of these risks:

  • Natural Disasters – This often requires an additional policy. Typically, damage from sudden floods, earthquakes, hauntings, and other natural disasters is not covered. The severity of these risks will vary by location.
  • Moisture Damage; Rot – Water and mold damage is often excluded from coverage if it occurs over time.
  • Communicable Disease – Damages and losses from widespread disease are often not covered—not even zombie plagues and not even in the wake of COVID-19.
  • Punitive Damages – Damages assessed by the court to punish outrageous conduct are not covered.
  • Board Member Crime; Wrongful Acts; Discrimination – These items are not covered, including violations of consumer financial protection laws, employment laws, etc.
  • Workers’ and Volunteers’ Compensation – This often requires an additional policy. Note that there are policies that also cover unpaid or volunteer employees. Also, note that there are likely no policies that protect undead servants.
  • Additional Exclusions – War, lead, asbestos, liability for damages by owners.

INSURANCE REQUIREMENTS

There are generally two sources of insurance requirements for any community association: their governing documents and the law. Every association’s governing documents are a little different, but there is often an insurance provision hiding in the Bylaws or Declaration. Additionally, any association in Ohio is bound by the requirements set out in the Ohio Revised Code:

  • Planned Community Associations (HOAs) – R.C. 5312.06(B)
    • (1) Property insurance on the common elements;
    • (2) Liability insurance about the common elements;
    • (3) Directors and officers liability insurance;
    • (4)(a) Blanket fidelity, crime, or dishonesty insurance coverage for any person who controls or disburses association funds.
  • Condominium Associations – R.C. 5311.16(B)
    • (1) Liability insurance for all unit residents
    • (2) Fire and extended coverage insurance on all buildings and structures; 90% replacement cost
    • (3) Blanket fidelity, crime, or dishonesty insurance coverage for any person who controls or disburses association funds.

TAKEAWAYS

I’m sure many (most) of my readers have been in a position to read an insurance policy and can attest to the fact that they are frightfully long. Moreover, all the technical jargon and legalese is enough to put the reader into an early grave.

Like Halloween, the time to renew your association’s insurance comes around annually. To ensure that your policy is providing sufficient coverage, we suggest that HOAs/condos seek the help of an attorney who is familiar with the specific needs of community associations. An experienced attorney can review your current policy to spot gaps in coverage and advise the Board on risk-benefit analysis. This will help protect the association from costs of liability and property damage and ensure that it meets its coverage requirements.

Don’t be scared, the EQUES Law Group has one of the few Ohio HOA and condo law experts on our team. We are well-practiced and well-equipped to advise our community association clients on their coverage needs, risks, and requirements.

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