With the help of the Educational Community for Homeowners (ECHO), a nonprofit membership corporation dedicated to assisting California homeowners associations, IKO Community Management discusses the different types of HOA insurance you should invest in:
Building Ordinance Coverage
Coverage A: Contingent Liability
“Contingent Liability provides coverage for undamaged portions of property. For example, if half of a building burns down, the property insurance coverage will replace the half of the building that’s damaged.”
However, some cities and counties “have ordinances that require the association to demolish the remaining 50 percent (or less) and rebuild as a whole. Since the unburned portion of the building is undamaged, the property insurance section doesn’t provide coverage unless Building Ordinance Coverage A is included.”
Coverage B: Demolition
Demolition provides coverage for demolition. “However, because demolition can become costly if heavy machinery is needed, this coverage is an important component of full” HOA insurance.
Coverage C: Increased Cost of Construction
“Increased Cost of Construction provides coverage for building code upgrades and/or increased cost of construction. For example, assume that a building was to burn down and local ordinance requires that the reconstructed building include updated fire sprinklers and a hard-wired fire alarm system. Building Ordinance C will provide this coverage to the association.”
Errors and Omissions Liability
Also known as D&O Liability, this covers defense (expenses) and indemnity (awards and settlements) for wrongful acts and allegations against the board of directors as well as the association. According to ECHO, it should automatically include cases of the following:
- Broad definition of insured and wrongful act
- Duty to defend
- Monetary and non-monetary claims
- Breach of contract
- Fair Housing Act claims
- Personal injury, including libel and slander
- Non-insured versus insured exclusion
- Management as additional insured
Personal Accident/Volunteer Insurance
This type of insurance generally covers members, volunteers, officials or participants for any out-of-pocket expenses following accidental injury, disability, or death while carrying out their work on behalf of the organization.
It normally covers loss of income, too, if the injured person is unable to work as a result of the incident.
Note that this is different from public liability insurance, which protects the organization and its volunteers against negligence involving third parties. You can find more information below.
This policy generally covers an organization’s physical contents against fire, storm damage, accidental damage, or theft. You can minimize the cost of this type of insurance by protecting common property with deadlocks, an alarm system, security lighting, and security signage.
Sewer Drainage Backup Coverage
This type of coverage includes common circumstances like if someone flushes a foreign object down a toilet causing backup and property damage. However, invasion by tree roots isn’t a covered loss, as it’s “considered uninsurable risk” or act of nature.
Third Party Bodily Injury Coverage
“Third party bodily injury losses are slip-and-fall claims.” Whether a person is supposed to be in the common area or not, if they were to get injured, this coverage would protect the association.
Third Party Property Damage Coverage
This insures damage done to someone else’s property by common property. For example, if a tree in a common area falls onto a neighbor’s car or house, your organization will be covered.
Workers Compensation Coverage
While a homeowners association doesn’t have employees, the board will most likely have to hire contractors. This policy protects your organization if an employee gets hurt on your property and is useful in a number of cases, such as:
- The contractor has a poorly written contract that doesn’t include their own coverage
- Their coverage will lapse or be cancelled during the project’s duration
- Their proof of insurance is fraudulent
To learn more about HOA insurance, including commercial umbrella and flood policies, visit ECHO’s Essential Types Of HOA Insurance. You can also download our popular Guide To HOA Rules to learn more about what to expect living in a community: