HOA Homefront – Insurance: Does your HOA have EVERYTHING it needs?
The previous column discussed property insurance considerations, but this is just one of the many types of insurance that most HOAs should have in place.
Liability insurance is foremost. This is the insurance that covers claims for negligent damage or injury to people (owners, tenants or visitors) on the property. Section 5805 of the Civil Code protects individual HOA members from personal lawsuits simply because they are members of the HOA, provided the HOA has at least $ 2 million (100 members or less) or $ 3 million of dollars (more than 100 members) in civil liability. HOAs should discuss with their insurance broker and legal advisor the appropriate amount of liability insurance, as an allegedly injured party could seek damages beyond the limits of the insurance, and the financial impact on the HOA could still later be passed on to all members. in the form of a special assessment.
Directors and Officers Insurance adds a layer of protection for unpaid volunteer directors who make important decisions every year and face lawsuits from hapless owners. Section 5800 of the Civil Code provides immunity for HOA administrators as long as the HOA carries at least $ 500,000 (100 residences or less) or millions of dollars (more than 100 residences). This should really be a non-negotiable item for every HOA director in California – make sure the HOA has this insurance in place before you join the board. Just like with general liability insurance, discuss with the broker and legal counsel recommended levels of coverage, as many HOAs may find larger limits of coverage more desirable.
Individual homeowners should have their own home insurance policies, insuring their lot or unit against liability and against incidents of property damage. Many condominium associations have little or no responsibility for restoring a unit beyond the bare walls, ready to be installed and finished, and the condominium owner without an âHO6â insurance policy can find himself in dire circumstances if HOA home insurance does not cover any finishes, accessories or personal effects inside the unit.
Loyalty insurance insures against losses due to dishonesty of people handling HOA funds. In 2018, Section 5806 of the Civil Code was enacted, requiring all HOAs to have such insurance covering directors, officers, employees and management. The amount of insurance must match or exceed the total of the combined HOA reserve account balance and three months of HOA valuations.
Earthquake insurance is often a topic of discussion in HOAs due to the high potential damage from major seismic events and the high cost of insurance and high deductible. Some CC&R HOAs require such insurance, but most do not. While the final decision on such insurance rests with the board, consider taking the time to disclose to members the pros and cons first.
Worker’s compensation insurance is a good idea for HOAs, even those who apparently don’t have employees. The definition of âemployeeâ was significantly broadened in 2020, so that a person who could have been an independent contractor in 2019 could be an employee in 2020. HOAs should check with their insurance broker for insurance. Minimum workers’ compensation compensation is in place. Injured employees are mostly limited to workers’ compensation insurance benefits if such insurance is in place.
For more useful information on insurance, visit the California Department of Insurance at www.insurance.ca.gov. Look in the âconsumersâ section for lots of useful information and lots of informational guides.
Kelly G. Richardson CCAL is a senior partner at Richardson Ober DeNichilo LLP, a California law firm known for its advice on community associations. Send your potential questions to [email protected] Past Columns – www.HOAHomefront.com.