How To Handle HOA Community Insurance, According To Experts


Because homeowners associations run like a business, it’s important to have insurance to cover any potential accidents, legal action, and other high-risk scenarios. A community should be prepared and covered for these situations to offset incurring costs, replace property, and keep the community safe.

The topic of HOA insurance is a difficult concept to grasp in your own research. Before any permanent decisions are made, discuss options for your community with a lawyer or insurance professional.

Types Of HOA Insurance

Farmers Insurance and State Farm, national insurance companies, offer a comprehensive understanding of insurance for homeowners associations based on their own policies. Here’s a variety of scenarios that HOA insurance can help with, including the following:

  • Building ordinance coverage for when new or updated regulations increase the cost of repairing or replacing an older building and/or its auxiliary features
  • Business property insurance for when damage is done to association buildings and common areas caused by fires and other unforeseen disasters
  • Business liability insurance to offset the cost of a lawsuit and other claims brought against a homeowners association due to injuries sustained on community property
  • Business crime insurance to cover losses from robbery or a board member’s dishonesty
  • Data compromise and identity restoration to provide coverages that work together to get back on track after a data breach occurs or someone becomes a victim of identity theft
  • Directors and officers liability insurance to cover the cost of a lawsuit or dispute claim that’s filed against board members
  • Guaranteed replacement cost to restore a community building to its original condition if costs exceed the current policy limit
  • Ordinance and law to “cover the loss of value and increased cost due to the enforcement of municipal laws or ordinances regulating the construction or repair of damaged buildings caused by an insured loss”

Common Insurance Claims

Travelers partners with Kevin Davis Insurance Services to explain risk management in homeowners associations. It’s important to protect “your association from damages and the defense costs resulting from wrongful act allegations and lawsuits.” The companies explain the four most common claims from HOAs:

  • Breach of contract occurs “when a binding agreement or bargained for exchange is not honored by one or more of the parties to the contract.” In a homeowners association, this is a common scenario regarding contracts for improvement or repair of community property.

    “When an association receives a claim from a third party, a prompt response and good faith evaluation of the problem...pave the way for an early settlement of the dispute.”

    If the third party's craftsmanship is deficient, the HOA should immediately place their contract on notice and “keep photographic or video record of any potential problems.”

  • Breach of fiduciary duty occurs when the HOA board of directors don’t “exercise a degree of care and loyalty required of” their fiduciary duties. According to Travelers, courts commonly “apply a ‘reasonableness’ standard in testing the validity of actions taken by the board in regards to association management.”

  • Violation of Covenants, Conditions & Restrictions occurs when the homeowners association and residents don’t operate within or obey these governing documents (unless a specific provision conflicts with federal, state or local laws). These legally enforceable documents may also include or be called bylaws, regulations, or rules.

  • Employment practices liability occurs when employment-related claims are made, including “allegations of wrongful termination, discrimination, workplace harassment, and retaliation deriving from [an] employer-employee relationship.” For homeowners associations, coverage for this liability typically includes “defense costs and damages.”

Questions To Ask Your HOA

When moving into an HOA community or joining an HOA board, it’s good to ask about the existing insurance policy. Use the following list from Lawyers to get started:

  • Are there gaps in the homeowners association insurance?
  • Does the policy fully cover repairs after major property damage?
  • Can I see a copy of the HOA insurance policy?
  • Are there duplications between the HOA insurance policy and my personal homeowners insurance?
  • If there’s a discrepancy between my home and common property, whose insurance covers the issue?

No community, board member, or resident is immune to the targeting of a wrongful allegation or lawsuit. That’s why it’s vital to have HOA insurance. It’s meant to protect your community and its members in case of damage or defense.

For more information about risk management in your HOA community, download IKO Community Management’s guide. Click on the button below to get started:

Download the Guide To HOA Risk Management Standards

IKO Community Management was not compensated or sponsored by any of the mentioned insurance companies. The information in this post is for informational purposes only. Consult a legal team and/or insurance expert prior to purchasing any insurance for your planned community.