Insurance: How Does a Board Ensure Both The Association and Unit Owners Are Complying?


"It is one thing to have requirements for owner insurance in the CC&Rs, obviously an important matter these days as such things as wildfires increase risk to entire communities. But it is another thing to assure compliance. Declarations from companies rarely contain enough detail to confirm compliance. What is a good solution for an HOA beyond reading each owners' policy and trying to decode dense insurance jargon?"

Dave Jensen, Oak Creek Commons 


Great point Dave. It’s wonderful when the CC&Rs spell out what insurance should be in place for both the master policy for the association and the individual unit owner. Sadly, that language is often vague and sometimes silent. And even if the CC&Rs read crystal clear, how does a board ensure both the association and each individual unit owners are complying? As you said, the Board or manager can require individual unit owners to provide copies of their insurance policies for review. But 1) Who has time for this? And 2) Even if a committee or individual had time to review each policy, how could they be sure the policies checked off all the requirements? 

I think the most logical way to approach insurance coverage, in an attempt to close potential gaps, is educate, educate, educate. I am a huge fan of townhall style meetings. Invite your insurance agent out to meet the community and relay insurance coverage and where the master policy ends and individual insurance begins. This also gives the community facetime with their agent and an opportunity to ask those burning insurance questions in person. 

Don’t meet regularly? Can’t get owners to attend a meeting? Another option is an agent written community letter which spells out current insurance coverage and suggests what individual owners need for their interior units. When in doubt, have the professionals get together. Encourage unit owners’ insurance agents to contact the association’s insurance agent. Let them close-up the gaps and interpret the “insurance jargon”. 

Even if you do educate the community, there’s no easy way to guarantee all owners will purchase correct coverage, if any at all. Some associations have been known to change their CC&R language to put more of the interior of the unit responsibility on the master policy. Revising governing documents takes time and money so in the interim, some associations have chosen to purchase a proactive policy. A proactive policy, unlike what’s known as a “following form” policy, will not take CC&R language into account and will pay a covered loss as the policy reads. Whether it’s interior cabinets, fixtures and appliances as originally constructed or interiors including upgrades done since original construction. 

No matter which option you and your board takes, this is a great opportunity to start a conversation and get the entire community on the same page. Good luck and enjoy the donuts!