In almost every community, whether a condominium complex or single family home community, there are common areas that are owned by the unit or homeowners in that community. Many communities today are developed with an active lifestyle in mind and therefore a tennis court, swimming pool, playground, or clubhouse is built to enhance the lifestyle of the owners. Also, many communities are built with some type of landscaped entrance and electric security gates. These communities rely on the Homeowner’s Association to maintain this property and provide insurance for the risk involved with ownership.
The Property Coverage section of the HOA Insurance policy responds to the risk inherent with property ownership. The policy will usually contain Special Causes of Loss coverage to protect buildings, such as a clubhouse or guardhouse and the contents therein. Without the insurance coverage, the property owners would be assessed each time there was damage to the building or its contents. Having the HOA Insurance in place transfers this risk to an insurance company for losses such as fire, lightning, windstorm, hail and vandalism or malicious mischief.
Also included in the policy or added by endorsement, is coverage for perils most homeowners may not foresee:
Water and Sewer Backup – Most communities receive water and sewer service from the city or county in which they are located. If the water or sewer line fails or becomes obstructed, water can backup into the home causing significant damage to floor coverings, furniture, window coverings, and walls. This coverage will respond by reimbursing the HOA for repairs or replacement of the damaged property within the limits of the policy and subject to the deductible if any, that is selected.
Business Personal Property – This coverage is available to protect the HOA from loss to property owned. Business personal property (BPP) owned by the HOA usually consists of computers, furniture, telephone systems and other property used by the HOA to service the members. The risk of damage or theft is transferred to the insurance company up to the limits applied and subject to the deductible.
Landscape Coverage – Trees and shrubs used to decorate and landscape the area are continually at risk for damage by named perils including vandalism. Mature trees and shrubs can be very expensive to replace and the risk must be transferred to the insurance company. Most policies will include a sub-limit for these items or a per item limit.
Ordinance or Law – Periodically a municipality will change code requirements than can substantially increase the cost of rebuilding damaged structures. This coverage will respond by increasing the replacement cost of the structure to accommodate the added costs resulting from code changes. Many communities in some states were forced to rebuild sturdier structures after several earthquakes completely annihilated neighborhoods in the area.
Different parts of the country present different common risks resulting from geographic locations and weather experience. The HOA policy is ordinarily endorsed in such a way that it will respond to the risks that are common for the area. No HOA policy however is going to provide coverage for earthquake or flood which is provided by purchasing a different type of policy to respond to these risks.