HOA Insurance Guide: What Does Your Association’s Insurance Cover?

Scott Brady is co-owner and principal of Progressive Association Management, a CACM-member HOA management company serving 228 communities and nearly 15,000 homeowners throughout Southern California. Since founding the association management division in 2020, Scott has grown the company into the fastest organically growing association management firm in California by limiting manager workloads, providing full back-office support, and holding every team member accountable to documented daily service standards.

Most homeowner associations carry insurance that covers the association, the board, and owners. Even in communities made up of single-family detached homes, where individual owners are responsible for insuring their own property, the association will still maintain certain types of coverage. Here is a breakdown of each type and what to look for.

Types of HOA Insurance Coverage

Directors and Officers (D&O)

Because boards make decisions on behalf of the community, and not every owner will agree with those decisions, board members can be sued. Directors and Officers insurance provides coverage in those situations. As long as board members are serving without pay, which is almost always the case, and are not acting with gross negligence or committing criminal acts, this insurance provides legal assistance for any dispute. Without it, many people would simply decline to serve rather than risk personal liability.

General Liability

When people are injured on association property, they typically sue the business responsible for maintaining it. Because associations are corporations, even nonprofit ones, they need business insurance to cover claims involving bodily injury or property damage. The most common example is a slip and fall. An owner or visitor trips over a tree root in a common area and breaks their arm. They have cause, the association maintained that area, and damages, the medical costs and personal impact of the injury. General liability insurance protects the association from this type of claim.

Worker’s Compensation

No vendor should set foot in your community without adequate insurance, and that includes worker’s compensation coverage. Workers comp provides financial, medical, and rehabilitation benefits to employees injured on the job, including lost wages and death benefits. Even if your management company requires every vendor to carry this coverage, policies can lapse. Having worker’s compensation insurance at the association level provides an additional layer of protection if a vendor’s coverage has expired or was never in place.

Water and Fire Coverage

This type of coverage applies to all attached townhome and condominium associations. When water damage or fire occurs, a claim is filed by the association. There are a few key terms owners should understand within this coverage:

• Premium: The premium is the total amount the association pays for its insurance coverage and can vary widely depending on the level of coverage selected. Some associations are required by their CC&Rs to carry earthquake coverage, which increases the premium. To keep costs down, some boards opt to insure only a percentage of the property’s replacement value. For example, if it would cost $800,000 to fully rebuild after a fire but the association only insures for 50% of replacement value, the insurance company is only obligated to pay $400,000. The deductible amount also plays a significant role in what the premium will be.
• Deductible: The deductible is the out-of-pocket amount the association or owner pays before the insurance company steps in. Generally, a higher deductible means a lower premium because it reduces the insurer’s risk. For example, if water damage totals $50,000 and the deductible is $1,000, the insurance company covers the remaining $49,000. But if the deductible is $50,000, the insurance company has no obligation and the owner covers the full amount out of pocket. It is critical that owners understand who is responsible for paying the deductible and how much it is. Owners can also obtain an HO-6 policy to help cover costs not addressed by the association’s master policy. It is equally important to know whether the association’s coverage is inside the walls or outside the walls.
  • Inside the Walls (Walls In or Studs In): The association protects the interior surfaces and structural components of each unit. If water damages flooring or cabinets, either the association’s master policy or the owner’s HO-6 policy will cover those costs, depending on whether the policy is “All In” or “Bare Walls.”
    • All In: The association covers all damage to the interior of the unit.
    • Bare Walls: The association only repairs the source of the damage and restores the wall itself. Everything else inside the unit is the owner’s responsibility.
  • Outside the Walls (Walls Out): The association only covers the exterior of the unit, including the roof, exterior structure, and common areas.

What to Know About Deductible Trends

To keep premiums manageable, many associations have moved toward split deductibles. Since fire damage is relatively uncommon, the deductible for fire claims tends to be lower, while the deductible for water damage, which is the most frequent type of insurance claim, is typically much higher. It is not unusual to see a $10,000 deductible for fire and $50,000 for water. For more on how insurance decisions affect your community’s finances, see our post on the cost of reducing coverage.

Have questions about your association’s coverage or how your HOA is being managed? Progressive AM is here to help.