When purchasing a home, the mortgage company often requires a certain amount of insurance to protect its investment, something a homeowner would want protected as well. For single family homes, it's pretty much cut and dry-insure the structure(s) and reduce potential liability on the property. Additional insurance provisions may also be outlined in the association's Covenants, Conditions, and Restrictions ("CC&Rs") as well as through the insurance agent you've selected.

Owners in single-family planned communities need only to insure their best interests, including but not limited to, dwelling, other structures, and personal property. The association is responsible for insuring the common areas and any amenities of the community. What that translates to is that should someone get hurt on community property (park, playground equipment, pool-whatever the association owns), a claim would be filed against the association's insurance policy and not against an individual homeowner's insurance policy. However, condominium and townhouse insurance (hereinafter referred to as "Condominium") is not so simple.

Why is that? Many condominium owners think they only need to insure their personal possessions and not the structure because they own the "air" within their units-similar to apartment rental insurance. That type of thinking can be costly. Condominium owners own much more than personal possessions and the air in which they live. Condominium owners literally own a piece of the pie.

In this type of community, it is often assumed that the association is responsible for covering the structure of the buildings and all that comprise their units. This too can be a costly assumption-one that an owner may not be prepared to pay should a catastrophe occur. As an example, an association's master insurance policy may cover:

• Structural building elements, including wiring, piping, and HVAC systems;
• Perimeter and partition walls, including windows;
• Drywall, plaster, and primer; and
• Flood and earthquake damage to property and deductible.

Based on the above example, the owner could then be responsible for:

• Regular plumbing fixtures and cabinets for kitchen and bath;
• Floor, wall, and ceiling coverings;
• Additions and alterations made to the unit;
• Decorating: paint, paneling, wallpaper, etc.
• Personal property (furniture, clothing, etc.);
• Personal property of special value (artwork, jewelry, cameras, etc.);
• Flood and earthquake damage to property; and
• Association and individual insurance deductibles.

This is just an example and please don't take it as gospel. It is extremely important that owners read their association's CC&Rs, obtain a copy of the association's insurance certificate, and seek clarification on what is covered/not covered from the insurance agent if at all possible. Common and limited common elements are unique to each association. Don't assume anything.

Insurance coverage for condominiums doesn't end here. Condominium owners share an interest in the common areas (referred to as tenant-in-common ownership), which is based on the total number of units within the community. For a community of 150 units, each owner would own a 1/150 th interest of the common elements. It might not appear to be a big deal-after all, what is a 1/150 th interest worth-but should a serious injury or death occur on common property, that 1/150 th interest could possibly cost you a million dollars or more, which would come out of your pocket if it wasn't covered in your policy. The cost of the extra insurance coverage is minimal and well worth it.

On the flip side of the coin, associations worry that owners may not be adequately insuring themselves. To protect the association's interest, attempts are made to gather insurance information from each owner on an annual basis. This request is not made to hassle owners but to protect their interests as well.

The bottom line? Review your current policy to make sure you have the appropriate insurance coverage on your unit, speak with your licensed insurance agent regarding your tenant-in-common ownership, and provide a copy of your insurance certificate to the association. As the old saying goes, "an ounce of prevention is worth a pound of cure."

Source: Association Times

Here are the more common Homeowner Insurance Policies.

HO-1: Limited coverage policy
This "bare bones" policy covers you against the first 10 disasters. It's no longer available in most states.

HO-2 Basic Homeowner Insurance Policy
A basic policy provides protection against all 16 disasters. There is a version of HO-2 designed for mobile homes.

HO-3: Most Popular Homeowner Insurance Policy
This "special" all inclusive policy protects your home from all perils except those specifically excluded.

HO-4 Renter Insurance Policy
Created specifically for those who rent the home they live in, this policy protects your possessions and any parts of the apartment that you own, such as new kitchen cabinets you install, against all 16 disasters  

H0-6 Condo/Co-Op Insurance Policy
A policy for those who own a condo or co-op, it provides coverage for your belongings and the structural parts of the building that you own. It protects you against all 16 disasters.

Master Property Insurance Policy

A policy for Community Associations, Condo Associations, Timeshare Properties and Homeowner Associations, where there are common areas to be protected.  Some areas include the property grounds, parking lots, roofdecks, buildings, hallways and lobbies.

One area of Condo Association insurance coverage that is always a little vague to most of us is the issue of liability insurance coverage for elected Board members, as well as insurance coverage for appointed Officers, and those appointed Committee Members operating under the jurisdiction of the Board.

What is Directors and Officers (D&O) Insurance?

Directors and Officers Liability Insurance provides protection for the directors and officers of your association in the event they are sued in conjunction with the performance of their duties. Think of Directors and Officers Insurance as a management Errors and Omissions policy. Directors & Officers Liability Insurance can include Employment Practices Liability and Fiduciary Liability. Directors and Officers Insurance is often confused with Errors & Omissions Liability. The two are not synonymous; Errors & Omissions is concerned with performance failures and negligence with respect to your products and services, not the performance and duties of management. Since a director or officer can be held personally responsible for acts of the association, most directors and officers will demand to be protected and are not willing to risk their personal assets to serve as a corporate director or officer without such protection.

How is D&O Insurance applicable to Committee Members?

Generally speaking, when HOA Committee members have been appointed by a Resolution of a Board of Directors, are operating under clear and appropriately drafted Charters, and are conducting activities in conjunction with the Charter, liability insurance is assumed to be in place for all of these members. A common example would be a member of an Architectural Control Committee (ARC) making a decision, in a meeting, as part of the ARC Charter that is then challenged by way of a lawsuit against the Association and ARC members. However, for other activities of committee members, the line is not as defined. When a member of the "Welcome Committee" visits a new owner, and words are exchanged regarding the condition of the property, or perhaps worse, are the actions of the Welcome Committee covered should the new owner feel as though the visit was harassment, racial discrimination, etc? How about a scenario where the Pool Committee member decides to discipline a youngster who was running at the pool, by sending the child home, or making the child stay out of the water for 30 minutes. Did the Pool Committee member have the authority to "police" the pool area or just to establish the "Pool Rules"? The Condo Association itself will likely be covered under even the most awkward circumstances, but what about the committee member, should a lawsuit be brought against the committee member personally? These are all important aspects to consider when working with your Committees and their members. Asking your HOA insurance agent for details on committee member liability insurance coverage is paramount to a sound risk management program.

What are the key questions to raise when reviewing your HOA D&O policy?

• Are Association Committee Members included in the D&O Policy?
• If not, what types of insurance coverage can be provided that adds that extra protection for the association?
• Does the condo association's governing documents provide an automatic indemnity for Directors and Officers?
• Does the policy maintain coverage for a period beyond the HOA Board Member's term of service?
• Does the policy extend coverage beyond the policy period if circumstances that might give rise to a claim are disclosed during the policy period?
• Is there a minimal deductible per Director?
• Does the policy also feature a low aggregate applicable to one occurrence?
• Does the Policy cover claims against Directors, Officers, Committee Members?
• Can the Board of Directors choose their own legal representatives when defending a claim?
• Does the policy cover legal costs incurred through investigations that DO NOT result in litigation?
• Is the limit of liability for a single loss, or for total losses during the policy period, set at an appropriate level?
• Does the policy have any unusual exclusions?

Clearly, the best course of action is to remind directors, officers, or committee members who are looking after an association to only act within their own authority, commit the association to transactions or agreements that are within the law, and to avoid placing themselves in a position where their personal interest conflicts with those of the association.

The Condo Association, through the Board of Directions, should adopt concise Committee Charters, detailing the specific areas of responsibility, and requiring Committee Members to sign a copy of the Charter. As always, it is critical to review the association governing documents to determine the legal structure of committees, areas of permitted activities for those members, as well as the authority the Directors and Officers have with the condo association.

Source: Association Times