Association members often wonder whether HOA liability insurance is essential. After all, they place a financial burden upon the community and increase monthly assessments. But, HOA insurance is an important part of protecting the association from potential losses.
What Is HOA Liability Insurance?
HOA liability insurance protects the homeowners association from different types of liability claims. These include claims related to personal injury and property damage. Liability insurance is often included in a master HOA insurance policy. It is paid for by the homeowners and is included in their monthly assessments.
What Does HOA Liability Insurance Cover?
HOA liability insurance typically covers two main things. The first includes personal injury or regular liability insurance. Meanwhile, the second focuses on covering property damage, called HOA general liability insurance.
Regular and general liability insurance for homeowners associations can vary in coverage. It will depend on the insurance policy the HOA purchases. Some may offer extensive coverage, shouldering the expenses regardless of what causes personal injury or property damage. However, others are less comprehensive and only cover damage from floods or fires.
Homeowners associations must review the HOA insurance coverage before they make a purchase. This will help them determine if the policy is right for them or if they should find another insurance provider. Let’s examine what’s generally included in an average HOA liability insurance policy.
Personal Injury
Residents or guests may injure themselves within the homeowners association or while using the HOA’s common areas. As a result, they may take legal action against the association and ask for damages. HOA liability insurance can cover the expenses related to the lawsuit. This saves the association from levying heavy special assessments on the homeowners.
Property Damage
Liability insurance also covers HOA liability for common areas. Hence, whenever someone or something damages common areas or property, the HOA’s liability insurance will cover it. The homeowners association will not need to worry about shouldering the cost of repairs and replacements. Likewise, this helps them avoid special assessments or dipping into the reserves.
Condo Liability Insurance
Condominium associations also have HOA liability insurance. However, it’s slightly in how it works. This is because the line between resident and HOA property is not as well-defined in condo associations. They are usually only divided by walls, complicating insurance coverage related to property damage.
For this reason, insurance providers offer more specific policies for condominiums. There are two main types:
- All-In Coverage. This type of policy protects all the common areas in a condominium. It also protects the structural elements inside residential homes.
- Studs-Out Coverage. This policy covers only the common areas and parts of the condo outside residential homes. It does not protect the floors, walls, and fixtures inside units.
What Is Not Covered In HOA Liability Insurance?
While HOA liability insurance covers property damage and personal injury, its protection only takes effect depending on the cause. For example, this type of insurance does not include HOA liability for security. Hence, the policy may not cover damage caused by criminal acts.
In addition, some policies only cover the damages if covered perils cause it. For instance, some policies may cover property damage due to floods, fires, and earthquakes. Meanwhile, they may not always cover damage from heavy snowfall, hail, or hurricanes. It depends on the policy and insurance provider.
HOA liability insurance also doesn’t protect board members from claims that their actions have harmed the HOA or residents. For this, homeowners associations must purchase a separate policy called Directors and Officers (D&O) Insurance.
Finally, homeowners association insurance does not cover residential property. Hence, it will not pay for the expenses when an accident or damage is inflicted on a resident’s home. This remains the responsibility of individual homeowners. They or their purchased homeowner’s insurance will cover the costs.
Why Do HOAs Need Liability Insurance?
Personal injury and common area liability insurance is important for homeowners associations. That’s because accidents may occur even in well-maintained HOAs. After all, no association can completely prevent injuries or natural disasters from occurring. Their best bet is to prepare themselves financially in case legal issues arise.
Apart from this, proper HOA liability insurance coverage can keep the association financially stable in emergencies. Without insurance, the association must dip into the reserve funds or levy special assessments to pay the fees.
Even if the HOA wins the lawsuit against them, the cost of legal and defense counsel may be burdensome. In the case of property damage, the HOA must shoulder the repair and replacement costs.
Furthermore, some states have certain regulations that require HOAs to purchase liability insurance. For instance, Arizona’s laws mandate property insurance for common elements and liability insurance for injury, property damage, and death. Some governing documents also have similar requirements that the HOA board must follow.
Finally, the board is responsible for acting in the HOA’s best interest. Purchasing insurance is often helpful for the association and works in its favor. Hence, the board may need to obtain liability insurance regardless of the requirements in state law or the governing documents.
How Much Is Homeowners Association Liability Insurance?
The price of HOA liability insurance will vary greatly depending on the insurance company. It also changes depending on the size of the association, the number of homes, and the number of shared spaces. Larger HOAs may naturally need to pay higher insurance costs. Moreover, the location of the HOA may also affect how much the price will be.
Homeowners associations can expect to pay between $50 to $100 a month or $1,200 annually. The standard policy covers about $1,000,000 to $2,000,000.
Keep Your Homeowners Association Protected
HOA liability insurance is important in keeping an association financially protected. It covers the cost of personal liability and property damage that may arise from accidents or natural disasters. Every HOA should consider purchasing a policy with adequate coverage.
Is your HOA finding it difficult to purchase and manage the right insurance policies? Landmark Community Management can help. We provide high-quality management services to HOAs around Texas. Contact us online or call us at 512-569-5527 to request a proposal!