Reviewing the HOA insurance policies regularly is critical to the smooth operation of any homeowners association. Community associations often overlook this key management task. With property values at all-time highs in Vail, CO, protecting investments is more important than ever. While each association’s insurance needs vary, there are typically three main policies:
- Property – coverage on the physical property
- Liability – coverage for actions
- Directors and Officers – coverage for the Board of Directors/Managers
With an assortment of other policies, endorsements, and riders to cover other things like crime, fidelity, cyber, worker’s compensation, auto, and umbrella. Keeping track of all of these and the various limits and exclusions can mean the difference between a seamless claim process and the denial of a claim.
Selecting an HOA Insurance Provider
The review process starts with evaluating the community association’s needs and matching those needs to the myriad of available insurance providers. Brokers and agents are an ally here. Leveraging their experience and knowledge is key to ensuring the association is properly covered. Brokers have access to multiple markets or carriers while agents are usually associated with a specific insurance company.
We also take into consideration other aspects of performance such as customer service, responsiveness, and HOA specific knowledge. Finding a provider that knows the intricacies of interpreting governing documents and navigating the commercial claims process makes life easier for Boards and managers alike. Meaningful responses and high levels of customer service encourage trust. An association has to know that they can count on their insurance company in a time of crisis.
Scheduled Insurance Reviews
An annual review of the policies in force provides a great opportunity for the association to give updates on changes in their operations, property, and needs. If an association just spent a large amount of money on upgrades the agent or broker needs to know! In Vail, we see significant insurance cost savings with wood shake roofs replacement or wood-burning fireplaces elimination.
This meeting is a vital method to catch errors or omissions in the policies. We’ve found errors in the numbers of units, roof types, and even the underlying coverage types. All would have been critical errors in the event of a claim.
Sitting down with the broker or agent is also a good time to catch up on industry changes. They also help forecast costs to inform the next year’s budget.
HOA Coverage Specifics
We encourage Board members to sit in on our review meetings as an educational tool. Each association sees different specifics set out in the governing documents on how things should be insured, which things are insured, and even specific minimum limits of coverage.
Property coverage is usually the most opaque topic. Governing documents vary on what the association is responsible for covering. There are three general levels of coverage that we see in the Vail Valley:
- All-in – the association is responsible for covering everything except possessions. This would include the structure, walls, floors, fixtures, finishes, and improvements.
- Bare walls – the association is responsible for covering the structure and unfinished walls and floors. Owners need their own coverage for everything after the bare walls, including texture, paint, flooring, and all the other improvements.
- As originally conveyed – the association is responsible for insuring the unit as it was originally built and sold. This means that the level of finishes replaced in reconstruction would match the grade originally installed. Owners need to ensure that they are covering any improvements since the original construction – which can be extensive in our Vail Valley properties.
There are many possible variations in these three broad categories. Some communities have additional party wall agreements and can require insuring a unit like a single-family home rather than a condo. As an owner, putting your agent or broker in touch with the association’s is the best way to make sure you’re fully covered.
Communication with Boards and Owners
So far we’ve covered one side of the equation – the vendor. Equally important is the HOA and owner side. Both Boards and owners need to review their responsibilities as well.
Boards need to make sure that their association’s coverage makes sense in a changing world. This can mean updating governing documents to allow (or require) different types of coverage on the community side. Also, checking – or having an attorney draft if it doesn’t exist – an insurance responsibility matrix helps clarify the responsibilities of the HOA and owner.
It is the Board’s fiduciary responsibility to make sure that the Association is properly covered and follows the governing documents. Legal counsel and agents/brokers can assist the board with this.
Owners need to review with their personal agents or brokers to make sure that they have the necessary coverage. Direct communication between the personal agent and the HOA broker is often the best way to cover any gaps and reduce liability.