Insurance for Homeowner Associations

Search Committee The Board should appoint a committee to analyze insurance options and make recommendations; to gather information needed by insurers; and, act as the contact for insurance agents and their representatives. Appointing a committee allows the Board to promote volunteerism and communicate clearly to insurers.

Requesting Bids  Insurance bids should be requested every few years. Getting bids periodically reminds the agent that performance is expected. It also keeps the Board current of insurance trends, provides several different professional opinions and the best coverage at a reasonable price. Several suggestions:

1. Avoid getting bids every year. Agents and insurers are reluctant to invest the considerable effort required to analyze coverage needs and prepare a bid for only one year’s business.

2. Award the bid mainly on qualifications, not cost. Some points to consider:
a. What does the policy cover?
b. Availability of the agent to service the account.
c. History of the agent and the company in writing this type of insurance.
d. Reputation of the company
e. Professionalism of agent, company and the bid presented.
f. Availability of adjusters to promptly handle any claims.
g. Premium (price).

Insurance Bid Specifications
1. Should be in writing
2. All bidders should bid the same "apples to apples" coverage for ease of comparison.
3. Each bidders should be allowed to suggest options separately.
4. All bids should be submitted by a specific deadline. Late bids should not be accepted.
5. All bids should be submitted on a form provided for ease of comparison.
6. Obtain at least three bids.
7. Allow at least 60 days to prepare the bid

Information Needed by Insurers
1. Number of units in each building and amount of building and contents insurance on each.
2. Number of units in use as rentals
3. Number of units rented by the association, if any, and amount of rent collected.
4. Maximum value of money, checks and other securities on the premises at any one time.
5. Maximum value of money, checks and other securities in transit to the bank.
6. Current limit of liability insurance and medical payments coverage.
7. Number of swimming pools.
8. Number of employees using their personal autos on association business.
9. Description of association sponsored activities which include free alcoholic beverages.
10. Amount paid annually to contractors for maintenance and repair.
11. How many hot water heating boilers or steam boilers on premises.
12. Diagram of the premises showing the location of each building.
13. Deadline for bids.
14. Name and mailing address of the person to whom bids are to be submitted.

After Bids Are Received
1. Bids should be reviewed by the insurance committee for completeness.
2. Bids should be ranked in order of merit.
3. Board should hear presentations from agents to explain coverages.
4. Board’s final decision should be communicated to all bidders.

Attributes of a Good Insurance Agent
1. Inspects the property before making a bid.
2. Makes a bid within the time allotted by the Board.
3. Has adequate claims staff to promptly handle claims.
4. Has experience insuring homeowner associations.
5. Represents "name brand" company known in your community.
6. Has a good reputation in your community for prompt service.

Property Insurance - All Risk Insures against all risks of direct physical loss to the property subject to certain exclusions.

Guaranteed Replacement Cost Coverage Pays for actual repair or replacement cost of damaged buildings with no deduction for depreciation.

Inflation Coverage Automatically increases the amount of building insurance in accordance with an indexing system, such as the Composite Construction Cost Index published by the US Department of Commerce. This is a very important option.

Agreed Amount Endorsement  It states that the company and the insured have agreed on the value of the buildings and that no coinsurance penalty will be considered in any claim.

Higher Deductibles  Higher deductibles offer significant premium savings. By accepting a $1,000 or higher deductible, the association self insures for that portion of all losses.  In return, the insurer reduces its price for coverage. This is usually a wise move since the association should rarely file claims.

Rents Insurance Needed when the association owns and rents units to tenants. If a loss makes the unit unlivable, the coverage makes up for lost rent.

Glass Insurance  Most basic policies have limited glass insurance but the amount of coverage is generally insufficient for a large loss. Specific glass insurance can be added to most policies, but the premium is usually substantial.

Earthquake  Available subject to underwriting requirements. Detailed information on the construction of the buildings is usually needed, particularly if the building is not wood frame construction or is more than three stories tall.

Building Ordinance or Law  Covers the increased cost of reconstructing to current building codes or zoning ordinances that may have changed since the original construction.

Basic Coverage Building insurance for homeowner associations covers all common property and excludes coverage of unit interior walls, floors and ceilings except for common heating elements and wires, conduits and other utilities.

Broad Form Coverage Extends coverage to any part of the building including unit fixtures, carpentry, paint, wallpaper, etc.  The association should adopt an Areas of Responsibility Policy which clearly defines who is responsible for maintenance and insurance of particular building components, either "association" or "owner".  This policy is needed to limit the number of claims filed against the association insurance. Too many claims could lead to cancellation or increased premiums.

Fidelity/Employee Dishonesty Insurance. Most governing documents require the association to purchase this coverage for directors that handle money (usually the president and treasurer).

General Liability. Covers claims relating to the operations, ownership, maintenance and use of community association property. Recreational facilities and swimming pools may carry a premium surcharge.

Comprehensive General Liability. Covers business operations not otherwise covered elsewhere (subject to certain exclusions and limitations).

Medical Payments. A subcategory of liability coverage included in most forms. This insurance pays for medical expenses incurred by non-residents injured on the premises without regard to association negligence.

Personal Injury Liability. Included in some policies and an add-on to others. Protects the association against claims arising from wrongful entry, eviction and other right of privacy issues. Also includes libel, slander, defamation, false arrest and malicious prosecution.

Host Liquor Liability. Covers the liability of the association providing no cost alcoholic beverages at association functions.

Employer's Non-Ownership Auto Liability. Provides protection for claims occurring while an employee is using a personal automobile on association business.

Hired Automobile Liability. Covers liability arising from the use of a rental auto.

Directors & Officers Liability  Most governing documents indemnify (association agrees to protect and defend) directors and officers against lawsuits. Examples of possible lawsuits are:

• Failure to attend officers or directors meetings.
• Misstatement of financial reports.
• Action resulting in damage to the association.
• Failure to take action resulting in damage to the association.
• Exceeding authority granted by the governing documents.

Insurance firms will help prevent losses before they happens by suggesting or requiring that certain loss-prevention precautions be taken such as: fire extinguishers, smoke alarms, updated and adequate wiring, a good heating system, proper plumbing, handrails and good management. The real cost of insurance is often not what is covered but what isn't.

Information provided by Rich Ranf - State Farm Insurance - Portland Oregon - Ph 503/227-1595

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