The lender requests to increase insurance coverage...

One of the units in our association is on escrow process. The deal should be closed by end of next week. The escrow company just told our HOA that because the employee dishonesty coverage $5,000 in our current insurance policy did not meet the lender's requirement. In order to close the deal, we have to increase the coverage to $12,500, by paying additional $100. It's just the last step to close the deal.

Since we board never encountered such problem before, some board memebers questioned "Why is it HOA's problem to spend more money on insurance? The owner should choose another lender."

Personally, I'd like to "do the owner favor", since the premium increase is not that significant and it'll be "cruel" for the owner to start all over to choose another lender.

I'd like to ask for your opinions whether it is HOA's responsibility to "help owner to close deal" by paying more insurance premium or we should just leave the owner alone to deal with it.

Thank you.

If you haven't reviewed your insurance requirements in awhile, it could be that you are no longer in compliance with CA law:

(4) The association maintained and had in effect at the time the act or omission occurred and at the time a claim is made one or more policies of insurance which shall include coverage for (A) general liability of the association and (B) individual liability of officers and directors of the association for negligent acts or omissions in that capacity; provided, that both types of coverage are in the following minimum amount:

(A) At least five hundred thousand dollars ($500,000) if the common interest development consists of 100 or fewer separate interests.

(B) At least one million dollars ($1,000,000) if the common interest development consists of more than 100 separate interests.

If you are in compliance with the State law for both your liability and D&O insurance (which both must be at least 500K or 1 mil) then the Board should reply to the owner that since you are in compliance with State law, that the Board sees no need to increase insurance at this time.

However, if you are not in compliance with State law (or your bylaws if they require a higher amount) then you should increase insurance to that amount and notify the homeowner and his potential lender.

Tim

Janet,

Thank You. I found out during my learning curve in filling out PUD questionnaires that there was a statute for that in VA because lenders were specifically asking for the dollar amounts that we had in place.

Once I checked, I discovered that my Associations insurance did not keep up with the law. When I asked past boards about it, they explained that they were of the impression that the insurance carrier would have notified them of any new requirements. Obviously this was the wrong impression (but I could see how that would be an expectation). I immediately authorized the agent to raise the insurance to the minimum required so we were in compliance with the law.

Had I not gotten the question from a lender I never would have checked. I was of the impression that this might be a similar situation.

This is what I love about this site, to be able to benefit from others learning experiences.

Tim

Something else all of us need to add to the annual To-Do List.