HOA as "additional insured" or "loss payee" on homeowner insurance

Started by RayleneM • 22 replies • 8341 views

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RayleneM (Missouri)
Posts: 2

Posted:

I am a board member of a small HOA. Our covenants state that homeowners shall carry sufficient hazard insurance "naming the Association as an additional insured or loss payee." The Board is under the impression that by being named on the homeowners' insurance, the HOA can be sure that insurance proceeds will be used to restore the property to its original condition. It is our fear that unscrupulous homeowners could take the insurance proceeds and spend only enough to "cobble together" their property, perhaps to a less than desirable condition, and then pocket the remaining insurance proceeds. We realize that this could not happen with mortgaged property, but what if the homeowner has paid for his residence? Would having additional insured/loss payee status on the insurance mean that the HOA would be included on any insurance checks and would have to endorse those checks? If that is the case, we would have some leverage to ensure that the proceeds are being used on the residence. Any thoughts?

R. Mason

NpS (Pennsylvania)
Posts: 4,216

Posted:

Hi Raylene

Most likely that HOA will be named on the insurance check. Banks won't cash it without the signatures of everyone named on the check.

Recommend that you call your own insurance company - Ask who the check would be made out to if you had a claim. Be sure to let us know what you find out.

Sikubali jukumu. Read all posts at your own risk.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

FYI: Banks dont look at checks anymore. Most will deposit it no questions asked.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By SteveM9 on 03/25/2015 4:26 PM
FYI: Banks dont look at checks anymore. Most will deposit it no questions asked.

Two payees. Two endorsements required. Otherwise the bank could have liability. Just my opinion tho.

Sikubali jukumu. Read all posts at your own risk.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Raylene

My HOA is a co-payee via the Covenants for the reasons you list.

The mechanics of a check are one issue. An association having protection as co-payee, is the subject. In the even of an issue, there will be time for the HOA to legally jump on and protect themselves if they are a co-payee.

MarkM31 (Washington)
Posts: 556

Posted:

Quote:

Posted By NpS on 03/25/2015 4:45 PM

Posted By SteveM9 on 03/25/2015 4:26 PM
FYI: Banks dont look at checks anymore. Most will deposit it no questions asked.

Two payees. Two endorsements required. Otherwise the bank could have liability. Just my opinion tho.

The insurance company may tell you to lump it. Their checks may come as they do

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By NpS on 03/25/2015 4:45 PM

Posted By SteveM9 on 03/25/2015 4:26 PM
FYI: Banks dont look at checks anymore. Most will deposit it no questions asked.

Two payees. Two endorsements required. Otherwise the bank could have liability. Just my opinion tho.

In recent years I have found my bank has two different sets of rules for deposits:

Set Number One: All the rules for deposits that were ever in place in the 1900's will still apply to any and all deposits made by presenting an instrument to a teller.

Set Number Two: There are no rules for deposits made via an ATM.

Using Set Number Two of the rules, I have on several occasions deposited checks into my own account that were payable to others and/or lacked endorsement of any kind.

If the homeowner hands a check lacking a required endorsement to a teller, the teller will not deposit it. The homeowner may, however, deposit the very same check via ATM without hassle.

Go figure.

SheliaH (Indiana)
Posts: 6,964

Posted:

Are these detached homes or a condo (or townhouse)? If it's a townhouse or condo, shouldn't the HOA have its own insurance anyway to take care of the common areas? I'm in a townhouse community and our HOA master insurance covers the building structure or "skin" of the units, but the homeowners are responsible for everything inside, including the utility lines from the point they enter the unit.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

LouiseP1 (Colorado)
Posts: 4

Posted:

Hi,

Our condo association is considering adopting this new insurance cost method. The proposal is to raise the deductible of the HOA "skin" insurance and have each owners carry that amount on their individual policies. In the case of a claim that an owner files directly with the HOA insurance, the owner/s who would benefit from the insurance pay the deductible from their policies. This is obviously a savings for the HOA, but seems unenforceable and somewhat unfair.

I'm a new member and will be looking for information on this in all the forums. What do other members think who already have this? If an owner has a mortgage company as additional payee, will they allow a second payee to be added?

NancyG3 (North Carolina)
Posts: 342

Posted:

Raylene - I have a couple of questions. Are the homes single family dwellings or a condo? Has this provision always been in your Covenants? I'm not to sure how legal it is for the HOA to be named as an additonal insured as the HOA has no interest in the property or house of a single family dwelling. The only responsible of an HOA is to maintain the common areas of a single family dwelling community. The HOA is to only enforce the Covenants so the homeowners comply with the them. Someone else in this forum has addressed the condos. As far as replacing the home,if destroyed, their insurance company would take care of replacing it, they usually do not just hand over the money to the homeowner. You could ask your insurance agent how company's handle this type of claim. If the homeowner does not have insurance and does not replace the home you would probably have to take them to court anyway. I would never add my HOA as an additonal insured to my policy because they have no monetery interest in my home or property. I suggest your board check with an attorney to see how legal this is. If these are condos I can understand adding the HOA as an additonal insured.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By NancyG3 on 04/03/2015 7:57 AM
Raylene - I have a couple of questions. Are the homes single family dwellings or a condo? Has this provision always been in your Covenants? I'm not to sure how legal it is for the HOA to be named as an additonal insured as the HOA has no interest in the property or house of a single family dwelling. The only responsible of an HOA is to maintain the common areas of a single family dwelling community. The HOA is to only enforce the Covenants so the homeowners comply with the them. Someone else in this forum has addressed the condos. As far as replacing the home,if destroyed, their insurance company would take care of replacing it, they usually do not just hand over the money to the homeowner. You could ask your insurance agent how company's handle this type of claim. If the homeowner does not have insurance and does not replace the home you would probably have to take them to court anyway. I would never add my HOA as an additonal insured to my policy because they have no monetery interest in my home or property. I suggest your board check with an attorney to see how legal this is. If these are condos I can understand adding the HOA as an additonal insured.

Nancy

We are a standalone, private homes HOA. Our Covenants call for the HOA to be a co-payee (not a co-insured). The reason is to be sure that in the event of a home being damaged/destroyed is that it is rebuilt to our Covenant standards. The secondary reason is so the owner cannot take the money and run thus leaving the place in a chaos.

We have had a few go arounds with insurance agents and lawyers that say well this is not right, correct, legal, whatever BS they like to spew. A soon as our HOA lawyer sends them a letter explaining the legal whatevers, they have all backed down and made it happen.

Now it is possible we could have an incident where the owners insurance has lapsed and the HOA is unaware but out lawyer says when it happens, let him know and he will take the appropriate action to protect us.

NancyG3 (North Carolina)
Posts: 342

Posted:

John - You said "A soon as our HOA lawyer sends them a letter explaining the legal whatevers, they have all backed down and made it happen." Would you mind explaining the legal whatevers.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By NancyG3 on 04/04/2015 12:50 PM
John - You said "A soon as our HOA lawyer sends them a letter explaining the legal whatevers, they have all backed down and made it happen." Would you mind explaining the legal whatevers.

Nancy

Sorry but I do not have a copy of such and in most cases (my own when I purchased) all it took was a phone call from the association's lawyer to the insurance company to make it happen.

NancyG3 (North Carolina)
Posts: 342

Posted:

John I still find this difficult to understand why the HOA has to be named on insurance policy because the HOA does not have a monetary interest in the property. It would be interesting to know if this is legal.

JohnB26 (South Carolina)
Posts: 1,001

Posted:

It is a CONTRACTURAL issue to which the HO has agreed.

The Covenant states the HO must rebuild ASAP in the event of a 'loss event'.

The additional 'payee' merely ensures same.

It prevents an unscrupulous HO from 'taking the money and running'.

This is very very important in coastal SC.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By JohnB26 on 04/05/2015 9:07 AM
It is a CONTRACTURAL issue to which the HO has agreed.

The Covenant states the HO must rebuild ASAP in the event of a 'loss event'.

The additional 'payee' merely ensures same.

It prevents an unscrupulous HO from 'taking the money and running'.

This is very very important in coastal SC.

While we are not in coastal SC, JohnB understands the situation.

Our Covenants say repairs must be made within 75 days or must commence within 75 days if repairs cannot be completed within 75 days.

To better understand our specific situation, we are standalone, patio homes that are fairly close together. In some case only 15 feet separate them. While different models (single and two story), our homes are "near identical" (including the landscaping) and that "sameness" is a "look" we desire to keep.

Personally, I consider the co-payee to be a great plus in protecting us.

NancyG3 (North Carolina)
Posts: 342

Posted:

Thanks John - This is not in our Covenants where we have to add the HOA as an additonal insured. I don't believe I have ever heard this applying in NC. I've found this forum very interesting. Thanks again.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Nancy

I believe there is a big difference between co-insured and co-payee. Our HOA is a co-payee.

NancyG3 (North Carolina)
Posts: 342

Posted:

I'm sure there is a difference. However, as a co-payee, your HOA's name would appear on any checks issued to the homeowner and the mortgagee. This is what I have problems with because I can't understand why the HOA has to be a co-payee as they do not have any monetary interest; only to make sure of appearance. Since this is in your Covenants your HOA is set. Maybe something for others to think about, either way.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Nancy

The HOA has an obligation to protect itself and its members. Our concern is if a home is damaged or destroyed and not repaired/rebuilt and to our standards.

Our covenants allow the HOA to actually insure the house and bill the owner in the form of an assessment if the owner does not maintain the proper insurance. Granted we would have to know that they have no insurance and that is near impossible to know even though our Covenants say they must notify us. In this case our lawyer has said that what we should do if we notice damage is to notify him and he will "cover us" with a letter to the owner.

BruceS3 (Florida)
Posts: 33

Posted:

First let me say that I understand your desire to make sure a home is rebuilt to your standards in the event of a loss of home. However I am curious why no one has said that if you want me (homeowner) to put you (HOA) on my insurance policy as a payee then you should also be obligated to help pay the premiums on that insurance. Along with that there would be in the bylaws a clause that states those monies when received would only be used to rebuild the damaged home and not used in any other fashion.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Bruce

I am not going to defend our Covenants on this other then to say I personally like the idea as it binds/forces the owner to repair/replace the home to our standards within a reasonable time. Covenants vary and if one does not like them, then it is decision time for them.

I know of one local HOA that has a partially burned out, boarded up house that has been sitting there for almost a year. The HOA has their lawyer working on getting it repaired but as the HOA President told me, so far all the HOA has done is spend money and nothing has happened.

As I said, in reality we have no way of knowing if one does have insurance as we do not ask for a verified copy of the policy. If one was to let their insurance lapse or decide to self insure then so be it. Until we observe damage, we have no way of checking. Once we noted damage, we would contact our lawyer. Our lawyer basically says they signed Covenants agreeing to do so and so and all we are simply doing is holding them to what they agreed to.

Knock on wood, the only damage so far has been an owner hitting his garage door. After 30 days, he was sent a polite letter asking him to repair/replace it to "community standards".

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Bruce

After rereading your post again, allow me to clarify something. Our HOA is not looking to nor expecting to collect any money on any insurance claim. We are simply using the co-payee as a method to assure that repair/replacement is done promptly and to our standard.

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