Homeowners Association Insurance (HOA)

Two forces drive it, and both are about supply rather than anything specific to one association. Fewer carriers are competing for California association business than a few years ago, particularly for property in or near wildfire-exposed areas. When fewer carriers quote, pricing power shifts toward the insurers still writing, and renewals can come back higher even where nothing about the property changed. Replacement values have also risen, and a master policy is priced against the cost to rebuild, so when the insured value goes up the premium follows even at an unchanged rate. Practically, that means association renewals in wildfire-exposed areas are being quoted differently than they were, and some are placed outside the standard admitted market. Whether the market loosens, and when, is not something we will predict. California has regulatory changes underway intended to bring capacity back, and the effect on any particular association is something to judge at its renewal rather than in advance. What is within your control is the file a carrier underwrites: a current replacement cost valuation, documented maintenance and any wildfire mitigation work, and a clean loss history. Those are worth assembling before a renewal rather than during it.

A lapse in the master policy creates problems on several fronts at once. Lenders: mortgages on units typically require the association to maintain coverage, and a lender can force-place coverage at the association’s expense, which is normally more expensive and narrower than what the association would buy itself. Sales and refinancing: owners may be unable to sell or refinance without evidence of adequate master coverage, which tends to surface quickly and creates pressure on the board. Uninsured losses: damage to common areas or a third-party claim during an uninsured period falls to the association, and ultimately to owners through a special assessment. Board exposure: operating without the coverage the governing documents require can create exposure for the association and its board. Whether it also breaches a legal obligation depends on the governing documents and on current law, which is a question for the association’s counsel rather than for a summary here. If a carrier has issued a non-renewal or a policy has been cancelled, tell us as early as you can. Options in a difficult market can include the standard admitted market, surplus lines, and the FAIR Plan, and the earlier we start the more room there is to work.

Yes, D&O is one of the coverages most associations carry, and the reason is structural. Board members are volunteers making binding decisions for all owners, and claims can be brought against them personally over matters such as selective enforcement of the rules, financial mismanagement, discrimination, failure to maintain common areas, improper denial of an architectural request, or breach of fiduciary duty. General liability generally does not respond to those claims. It is built for bodily injury, property damage, and personal and advertising injury arising from the premises and operations, rather than for decisions the board makes. D&O is the coverage written for management and governance decisions. Two things are worth understanding. Forms vary in who counts as an insured, so whether volunteers, committee members, and employees are covered is a policy by policy question. And employment-related claims are sometimes placed in a separate employment practices coverage rather than inside D&O. If you want to know what your association’s form actually covers, send it to us and we will read it with you.

Underinsurance is the most common gap we find when we review association policies, and it usually stays invisible until there is a large claim. The mechanism is straightforward. The insured value was set at some point in the past, construction costs have moved since, and a commercial property policy may contain a coinsurance clause that reduces what the insurer pays when a building is insured for less than a stated percentage of its replacement cost. Whether that applies to your association depends on your policy, so the things to check are specific: when the replacement cost valuation was last updated, whether it came from a professional appraisal rather than an estimate, whether the policy contains a coinsurance clause and at what percentage, and whether it is written on an agreed value or a replacement cost basis. As a general practice, associations review coverage at each renewal and refresh the replacement cost valuation periodically, more often after significant improvements. Reviewing the actual figures for your association is a conversation with a licensed agent looking at the master policy and the current valuation.