We all forget things. But forgetting certain ingredients in your homeowners association (HOA) insurance recipe can be a disaster. These optional coverages can look boring. They aren’t exciting like chocolate. They’re more like salt and yeast that you can’t see. But if you forget them, your insurance recipe can turn out like a disaster. So, let’s run down the list of some of the ingredients you should discuss with your agent. You may not need all of these, but you should be aware of them. Umbrella coverage I mentioned in my last article that you may need umbrella coverage in an HOA insurance policy in California. Why? Two reasons. First, even though the Davis-Stirling Act requires a minimum of $2 million of liability coverage, in today’s world, that may not be nearly enough. It may less expensive, and more comprehensive, to increase that limit with an umbrella policy. Second, an umbrella policy often contains broader coverage language. In simple English, this means that some types of things that may be denied under your regular liability policy just might be covered under a broader umbrella policy. That’s no guarantee of future coverage (I have to be careful here), but it’s sometimes the case. Umbrella coverage can sometimes operate as “gap” coverage. It’s worth discussing with your agent. D&O insurance protects the board much like malpractice insurance protects a doctor from damages due to mistakes, or an insurance agent or accountant from accidental errors and omissions. You might ask why that benefits the association. Simple. The cost of defending the board from a lawsuit will typically be passed on to all the association members according to the CC&Rs (the governing documents everyone in the association is bound by). Read the exclusions. Ask questions. This type of coverage can vary greatly between policies and carriers. As it is in recipes, so it is with insurance. The devil is in the details. And the details are often found in the exclusions section of a policy. Always go through it carefully with your agent. Flood insurance We know how wet it can get in Napa, Calistoga, St. Helena, Yountville, American Canyon and Sonoma. The question to ask your agent is... do we need to consider flood insurance? Don’t assume the answer. Sewer drain backup coverage A close cousin to flood insurance is sewer backup. Part of preparing your HOA coverage package is to discuss all of the what-ifs with your agent. Employee-related coverages Even if you have only one employee, and even if they are part-time, you need to discuss optional coverage that would cover employees and their actions. You and your agent can discuss Crime Coverage (which can protect against employee dishonesty), Workers Compensation and Employment Practices Liability, to name a few. Earthquake insurance This is often called Differences in Conditions Coverage. It’s optional (if offered). But it should be on the discussion list when preparing the recipe for your final HOA insurance package. Commercial auto coverage When you or an employee drives a personal vehicle on an association business-related errand, the association could be held liable for an accident. Discuss this scenario ahead of time. As always... Make sure you sit down with a local agent who has your best interests at heart. They can take the time to make sure the recipe for your homeowners association insurance is exactly what you need.
Small Homeowners Association (HOA) insurance coverage can be cheaper. But that can cost high assessments later. The easiest mistake to make when reviewing your HOA insurance policy is to think too small. After all, many of the condo and homeowners associations in Napa, Calistoga, St. Helena, Yountville, American Canyon and Sonoma are small. And small associations don’t need big policies, do they? Yes, they do. It’s a myth that a small association needs a small policy Everything Perfect Condos (fictional but sounds wonderful, doesn’t it!) had just 36 units. The board members were friends with most of the owners, and as owners themselves, they tried to keep insurance premiums as low as possible each year. They thought their risks were low. They were in a safe area of town, and had no pool, no employees, and new common grounds... no cracked sidewalks here! So, they bought the lowest liability limits under California law (the Davis-Stirling Act): $2 million of liability coverage. Surely, that was enough. But it wasn’t enough when a little boy was seriously injured in a freak accident on the common grounds. But it wasn’t enough when a little boy was seriously injured in a freak accident on the common grounds. He was in and out of the hospital for over a year. The total judgment, including pain and suffering, was for $3 million. Each member was on the hook for future assessments to cover the difference. Everything Perfect Condos was small. But they had a big insurance need. Don’t settle for small liability coverage A slip-and-fall injury is one of the most common risks that homeowners associations face... and one of the most expensive. Hazards show up out of nowhere, even in the best-maintained properties. Wet, snowy, or icy sidewalks are accidents waiting to happen, and magnets for large claims. Every HOA is just one slip away from a large claim. Large judgments are awarded on emotion, suffering, and “what should have been done.” They never seem logical to the defendant. They are all about the victim. It costs less than you’d think to increase your liability limits (per occurrence and aggregate) to meet modern realities. And adding an umbrella policy to fill in gaps and increase limits is also a good thing to consider (more about that in my next article). Don’t risk a future association assessment to save a little premium today. Don’t settle for small coverage on your buildings I’ve been an agent for more than 20 years, and I’ve rarely seen a property rebuilt for what it was thought it would cost at the time an insurance policy was purchased. New building codes get passed, and appraisals don’t get revisited. No one plans to not have enough coverage. It just sort of happens over time. If you haven’t had your association’s buildings appraised in the last couple of years, it’s a good idea to consider doing that. It’s also a good idea to check and see that you have Building Ordinance Coverage. Building Ordinance Coverage has three parts:
My advice Don’t settle for small coverage at the risk of a large claim later. Call your agent today.
In my last article, I talked about several ways your Homeowners Association (HOA) insurance policy could be inadequate. This week, I’d like to start a series about specific mistakes to watch out for in your Homeowners Association Policy. What are CC&Rs? Covenants, Conditions and Restrictions (CC&Rs) are the documents that govern your shared neighborhood, such as a condominium association, a townhome association, a mobile home park and even some neighborhoods with single-family detached homes. Here in our immediate area (Napa, Calistoga, St. Helena, Yountville, American Canyon, Sonoma) we have dozens of neighborhoods that have CC&Rs. These documents have legal authority, and the agreements are entered into willingly so that everyone knows what they can and can’t do in the neighborhood. They also state the responsibilities of the association, and the responsibilities of the individual condo or homeowner. What’s this got to do with insurance? A lot. There is usually a section within the CC&Rs that deals specifically with insurance. Sometimes, if you are lucky, it’s been carefully drawn up and reviewed by an attorney. The insurance section is clear, simple, and lets you know where the association’s responsibilities end, and the homeowner’s begins. An agent should be able to read the CC&Rs and understand exactly what type of coverage to write for the association. That’s the way it’s supposed to work. And it usually does. Usually, but not always. How can misunderstanding CC&Rs cause a problem? Several ways. For instance, under civil law in the State of California, an HOA “master” policy is not required to be “primary” before other coverage pays. That sounds like “no big deal.” But it is a big deal, and though normally the HOA policy should be primary, it isn’t always. This can happen because of poorly written CC&Rs, or a misunderstanding by the board or the agent. Claim time is not when you want two insurance companies fighting over who is the first-payor on the claim. Another more common error is an accidental gap in coverage. We talk about HOA insurance policies as “walls-out” coverage. That means the master policy that is usually required by the CC&Rs should cover everything from the exterior walls outward. The condo owner is then required to insure the “inside” of the unit. That sounds simple. But CC&Rs are unique. If the documents are not read closely and carefully, an accidental gap in coverage between the association’s master policy, and the condo owner’s personal policy can happen at claim time. Finally, overlapping coverage can be a problem. Most people would think... “How can having too much coverage be a problem?” That’s common sense, but not “insurance sense.” Insurance companies always use an “other insurance clause.” It means... “If there’s other coverage, we don’t pay.” Sounds fair enough. But the way it sometimes plays out, if the CC&Rs are poorly written, or are misunderstood when the HOA policy was sold, you can have a claim denied by both companies, each claiming the other was responsible. Having overlapping coverage could mean you have no coverage. My advice When purchasing an HOA policy, you should always work closely with an agent who knows the importance of understanding your particular CC&Rs. A good agent will read the CC&Rs and review them carefully with the underwriting department that is preparing the quote and the policy. If you are an HOA board member, a lot is riding on getting this correct. If you have questions, call an agent today.
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Bruce SackrisonNapa, California Archives
August 2021
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