Insurance for HOA homeowners?

I am glad your educated enough on how the insurance works in a HOA. Your ahead of the class there! Yes, there is a CAP on how much a HOA can pay out if they were to be sued. Anything over that amount comes out of the HOA's pocket. Hence, why I ALWAYS preach "Suing your HOA is suing yourself and your neighbors".

There is some good news to relieve some of your worries. If you are a Board Member you can NOT be sued personally for acts/decisions made while acting as a Board member. So even if your named in a lawsuit with HOA, it most likely will be tossed out by the Judge. This doesn't mean you can act wrecklessly in making board decisions, it's just when ACCIDENTS due occur your personal income can't be touched.

Many cases the court recognizes the insurance cap and will only award that capped off amount. It's the "Can't get blood from a turnip" issue. This will of course result in either cancellation of your policy or a HUGE increase in payments. That cost will then have to be covered by the HOA's budget.

Essentially, IF there were a case where the cap isn't sufficient to cover the lawsuit payout, then the HOA will have to pass the amount on to the homeowners. That could translate into a "Special Assessment" situation for EACH homeowner including the one that sued. (Unless the court rules they don't have to pay the special assessment). This of course will have the snowball affect as that some homeowner's WON'T pay. This puts those owners at risk of being liened or foreclosed on by NOT paying. Hence the endless loop of legal fees and rich lawyers...

The best you can hope for is to call your insurance company and discuss what best protection your HOA should try to provide such as fencing. Plus go over the coverages and limitations. It will either scare you into re-evaluating your insurance coverage or to do some preventative maintenance....

Melissa and Janet:

Thank you for responding.

Janet:

I checked with my insurance company (Allstate), and they don't offer an added coverage. Could you please tell me which insurance company you are using? I think I really want to add such coverage. My whole question came about as I saw a report on TV about lawsuits and also heard about the $30 million judgement for a family in Indiana against an HOA. Living in an HOA with 3 ponds and a pool, and kids from neighboring communities constantly being around the ponds, the liability is just very high.

I also talked to an attorney who is working a lot of cases around HOAs, and he mentioned that number of lawsuits as well as claim amounts are increasing significantly. He mentioned that it is a good idea to get such coverage, as in the cases he is seeing, insurance coverage amounts of HOAs are not taken into consideration at all. It is all about personal claims no matter what coverage the defendant has. And, he is of the opinion that juries tend to award the plaintiffs more and more over the last 2 years, disregarding any personal responsilities of people. Not to my surprise, but in any case, therefore I think I really need to get such coverage. Should an accident ever happen and a judgement as in the Indiana case, every homeowner in my HOA would be on the hook for $200,000. And that certainly is not a good prospect.

So my advice to everybody would be to check their coverage, and insurance policies whether not only personal negligence is covered but negligence of the HOA also if a judgement is awarded against the HOA with an amount higher than the HOA insurance coverage.

Thank you Janet!

Melissa:

It has nothing to do with a homeowner or HOA member suing the HOA. And you might be surprised, but as a homeowner you are most likely underinsured when it comes to HOAs.

Here is the case: We live in an HOA with 3 retention ponds. Kids from neighboring communities come to the ponds since it is the only "attraction" in the area. There is no physical barrier, and it would be very costly and difficult to restrict access, kids always find a way in. There is always the danger of a kid drowning or other accidents, and the parents suing the HOA since there is no physcial barrier. In similar cases, lawsuits in other states or against other HOAs have been more and more in favor of the plaintiffs, even if the parents were negligent themselves. For instance, there was just a verdict in Indiana where parents of a drowned child received a $30.7 million award.

You may think that your home owners insurance or personal umbrella insurance covers it, but in general it doesn't. Those only cover against your personal negligence. But, in above case, you are not personally negligent, the HOA is, so your personal insurance will cover nothing. Unfortunately, the HOA can only pay with the insurance coverage and funds it has. No matter how high your insurance coverage for the HOA coverage is, there is a risk of a lawsuit and award being higher. In my case, the HOA has $3 million coverage. So that means, should an accident happen and a plaintiff get $30.7 million as in the case above, the difference is $27.7 million. The HOA doesn't have reserves that high. So in the end, whatever is the difference between award, insurance coverage, and reserves, the rest would have to be split between the home owners of the HOA (you are simply guilty by association since you are an HOA member). No real problem if you live in a very large HOA, but in my case, each and every owner would be liable for roughly $200,000. Even though it is just a portion, it is a very high amount. And I am simply not taking that risk. I talked to my insurance and they are not offering supplementing my existing insurance policies to also cover "HOA liabilities". So I will look elsewhere.

Increasing the HOA coverage only goes to a certain degree. In the example, double it to $6 million. There would still be a difference of $24.7 million and in my case, every home owner liable for about $175,000...

I agree with Susan. You may be seeing the forrest for the trees on this one. It's easy to get caught up in the entanglements of an HOA. Especially when you read the headlines in the news. Unfornately, the media typically doesn't print the actual details or results. Like everyone's HOA foreclosure fear. They hear stories of a soldier getting their home foreclosed on while on duty. What they don't report is the fact the soldier didn't pay their dues for over a year, abandoned the property, and didn't contact the HOA to tell them of their situation. By the time the soldier has returned, the HOA has already started the foreclosure process. What other action do you expect your HOA to take against an abandon house that hasn't paid their dues in a year?

This is the same with lawsuits. People threaten to sue for outrageous amounts. However, they usually don't get awarded or other conditions are met behind doors. I wouldn't hit the panic button just yet living in fear of lawsuits. Lawsuits happen. It's just best to be prepared to win the suit than live in fear of how to pay it if they were to win...

Janet read it the same way I did. Unfortunately, I don't know of any.

In the past, I've seen some that will offer a policy to cover special assessments for emergency repairs, but the one's I recall seeing had very specific language on what would be covered in the special assessment and what wouldn't.

Tim

My neighbor works for an insurance company and has served on our board. He suggests an umbrella policy. He has one, but no one else has one yet.

One poster asked if anyone knows of a case where people were individually named in a suit. It happened to us. A few folks along the side of our subdivision sued our developer, and they also named everyone who had closed on property at the time of the lawsuit. Our developer had his law firm represent us all so we had no out of pocket expense.

I have Allstate and added loss assessment coverage to my policy a few years ago, which covers special assessments (less a $500 deductible). You may want to ask your agent about that

USAA may also offer something like this for their homeowner policies. I think it's intended to cover assessments due to deductible on HOA liability policy claims, but might also cover you for exceeding HOA policy caps.

Best to check with an insurance agency that is not dedicated to a particular insurance company. They are best equipped to shop for you. They can compare pricing, look for particular types of coverage, and advise you on what will best suit your situation.

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Someone posted that Directors are not liable for their decisions. Not true -- anybody can be sued for anything. That's why HOA's need D&O insurance to protect their Directors and Officers, in addition to liability insurance to protect the HOA. Don't assume anything of the judicial system -- that judges will dismiss a case, make a ruling you think is right, or that jury's will be sensible. Best to consider the legal system an expensive crap shoot and avoid it. The house always wins, and the lawyers are the house.

Our Bylaws say Directors are not liable, and the HOA must reimburse them if they are sued. The law does not protect (or allow such protection for) Directors who act negligently or maliciously. Besides, this only applies when something goes to Court, in which case judges and lawyers determine what happens and whether such Association rules apply.

With insurance, you are largely protected and these problems get handled by professionals who are not in a position to rip you off.

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Your HOA might be able to reduce its liability and insurance costs by turning over the ponds to a public agency, such as the municipality. My HOA has grassy Common Areas. We might consider the fearsome liability of a swing set or picnic table, as long as our insurance agency says it won't change our coverage or premiums. We may add more trees.

We also have a golf course with ponds -- owned and managed by the City, but still for our benefit. Anyone can use these, but we get to live right next to them with no maintenance fees or liability. It's great fun and it's great for our property values. When the golf course (wrought iron) fence adjacent to our Common Areas becomes a rusty, broken mess, we tell the City, "It's your fence and a safety hazard for our children. You must maintain and replace it. If you don't, then it's our fence, and we will maintain it by removing it."