Getting familiar with Homeowners Association (HOA) guidelines for California is important to escape paying out of pocket for what insurance can cover. We created this guide to keep you in the loop of everything related to HOA insurance in California.
What is HOA Insurance and how does it work?
HOA insurance is designed to protect homeowners associations from financial losses by covering shared areas and properties commonly used by all residents in a community. This type of insurance is common in condominiums and townhouses, but single-family home associations can also invest in HOA insurance.
HOA insurance covers shared areas like swimming pools, clubhouses, sidewalks, green spaces, roofs, and stairways. Any damage to these areas or lawsuit ensuing from someone getting injured due to property causes is covered by the HOA insurance. The insurance company will review any claim filed and decide if it’s under the jurisdiction of what the HOA insurance covers.
Your HOA should have adequate insurance coverage to prevent financial losses and protect board members from personal liability, as some residents are known to sue over things such as how board elections are publicized. The best HOA insurance policy caters to your HOA’s specific needs; Nextier Insurance can help you choose an insurance policy that caters to the nuances of your community.
Types of HOA Insurance Policies
General liability, property, and directors & officers liability insurance policies are the three major insurance policies for HOAs in California. Although equipment breakdown and crime insurance are also common options.
Property Insurance
Under the California Davis-Stirling Act, HOAs are required to insure commonly shared areas like pools, clubhouses, and parks to protect against potential liabilities and risks. When incidents of fire, wind, hail, or vandalism occur, HOA-insured areas benefit from full replacement of the damaged property. But you should note that HOA insurance policies do not extend coverage to damage due to earthquakes; you’d need separate earthquake insurance for that. In addition, you can choose to add building ordinance coverage to your HOA insurance plan. This will cater to damages depending on the level of coverage.
What to Look Out for: Your HOA insurance policies should allow for replacement cost valuation at current market prices. This will protect homeowners from bearing the brunt of the repairs after extensive damage occurs.
Liability Insurance
California law requires HOA officers to be covered under insurance against general and personal liability. Liability insurance protects the HOA against claims of bodily injury, property damage, and personal injury. Having an HOA insurance policy with full provision against liabilities protects the association against costly legal expenses and settlement payouts.
What to Look Out For: If your HOA is a small association, your insurance policy should have a minimum of two million dollars for general liability coverage, and if your HOA is on the larger side, you’d need three million dollars.
Directors & Officers (D&O) Insurance
The HOA constantly faces claims of breach of contracts, violation of Covenants, Conditions, and Restrictions (CC&RS), and different forms of discrimination. Directors and officers’ insurance is key to protecting the association and its board of directors from personal liabilities associated with the decisions made from working for the association. D&O insurance is important because even if your HOA officers have acted in good faith regarding a case, they can be personally held liable for various allegations.
What to Look Out For: Your HOA insurance policy should cover alleged wrongful acts, defense costs, fiduciary liability, insured vs. insured exclusion, monetary and non-monetary claims, and personal injury (libel and slander).
Other insurance policies
California HOAs may consider customizing their insurance plans with the following options.
- Fidelity bond insurance, also known as crime insurance, caters to claims of fraudulent or dishonest acts by the association, employers, and sometimes third-party contractors.
- Workers’ compensation insurance covers work-related accidents or injuries, providing medical and wage assistance to the injured.
- Flood and earthquake insurance covers damages caused by these natural disasters, although they may come at a higher cost for high-risk areas like California.
HOA Insurance Policy Exclusions
Here are some of the standard exclusions in an HOA insurance policy:
- Most HOAs don’t cover damages from neglect or gradual deterioration or water and mold damage from extended maintenance issues.
- An insurance policy may not cover injuries during unauthorized events on property under an HOA, but this varies depending on the insurance product.
- Natural disasters like floods and earthquakes are usually excluded.
- Most HOAs are not covered from nuclear hazards like nuclear radiation, reaction, or radioactive contamination.
- Any damage determined to be caused intentionally in order to file an insurance claim is also excluded from the HOA insurance.
HOA Insurance Costs in California
Here are the top factors that affect HOA insurance costs in California:
- Location: California is prone to wildfires, earthquakes, and floods, which may drive the cost of HOA insurance to rise.
- Community Size and Type: Bigger communities usually have more properties and higher risks making insurance costs higher than in smaller domains.
- Age of HOA properties: Insurers may demand higher premiums from HOAs with older properties as they have higher risk exposure and are more prone to damage.
- Extent of Coverage: HOA insurance cost varies with the amount of coverage involved. Additional coverage like flood and earthquake or workers’ compensation insurance will increase the HOA’s premium.
- Claims History: If the insurance company evaluates an HOA and finds a history of frequent or costly claims, such HOA may find it challenging to obtain coverage or be faced with higher premiums.
Securing the Best HOA Insurance Policy
Finding the best HOA insurance policy means sifting through a myriad of options and comparing them for the best pick. For more comprehensive research and a customized insurance policy, getting an insurance agent on board may be a smarter option. Nextier Insurance agents will help you secure the best HOA insurance policy that caters to the exact needs of your communities at a competitive price. Getting expert help will help you navigate the complexities of your HOA’s insurance coverages, policies, and compliance requirements.