State laws and/or governing documents for homeowners associations impose requirements for the association to carry various forms of insurance such as:

Directors & Officers

Commercial General Liability

Property insurance

Fidelity Bond


Workers Compensation


Flood Insurance

Many different insurance companies offer various types of insurance that is required by homeowners associations. While the general types of insurance may be available from different insurance carriers, not all of the policies contain the same coverage. Obvious differences that most HOA personnel who have the responsibility for investigating coverage consider are the differences in the annual premium, the coverage limits, and the amount of the deductible to be paid by the insured when a claim has been accepted by the insurance carrier. Unfortunately, because not all insurance policies contain the same terms, there are many other things that need to be considered before a decision is made on the right policy to purchase like the specimen policy. Policy language differs with regard to such things as the time limits and the process for submitting claims, the parties who are covered by the insurance, the types of claims that are covered, the specified exclusions, and the attorneys fees and costs that are covered. All of these items are very important considerations and can be valuable benefits within the scope of a policys coverage.

In the typical scenario of homeowners association management personnel investigating insurance policies that are desired for the association, contact is made with an insurance agent who specializes in placing insurance coverage for homeowners associations. The agent then provides those parties with one or more proposals for the desired coverage. The proposals specify the premium and some coverage highlights. The highlights of the policy do not include all of the important information that should be considered in order to make a determination about whether to purchase that policy such as the definition of an insured (who is covered by the policy), or the nature and extent of the policy exclusions. Considering only the limited information that has been received concerning a policy, the homeowners association personnel unknowingly present insufficient information to the associations board of directors in order for them to make a decision on the policy to purchase for the association. Based on the insufficient information, the board then authorizes the purchase of a particular policy, a premium is paid by the association and a binder that lists the main coverage features is issued by the insurance company. The actual policy that contains all of the terms of the insurance coverage is then mailed to the association days or weeks later. In the normal course of homeowners association operations, that policy is then placed in the associations file for that coverage, without ever studying all of the terms and conditions that are in the policy.

Unfortunately, it is frequently after a claim has been made and tendered to the associations insurance company that the association first learns about the deficiencies in its insurance coveragewhen the insurance company denies the claim or accepts it with a reservation of rights, which means the carrier has a right challenge the coverage after the claim is submitted. In such situations, a homeowners association could find itself in a position of not having the insurance coverage that it thought it had after paying thousands of dollars for insurance premiums. As a result, the association and/or individuals who were sued would be forced to defend the case at their own expense and be responsible for the costs and any damages that are recovered by the party who brought the action.

To minimize the risks of not having sufficient insurance coverage when it is needed, association personnel should obtain bids from multiple carriers and then compare the terms to make sure that the most comprehensive coverage is being offered for the best rates with the desired deductible. To make these comparisons between different policies, a specimen policy should be obtained from each prospective carrier. The specimen is a blank policy that provides the coverage in question. A specimen policy may be made available on an insurance carriers website or may be obtained directly from the insurance carrier or agent that you are dealing with. It is only through a thorough review of a specimen policy that a prospective insured can really determine the terms of a particular policy are. A sample Specimen Policy is attached hereto.

Because understanding the language contained in insurance policies can be a challenge for the typical volunteer association member who does not have expertise in the area, it may necessitate assistance from an experienced insurance agent or the associations attorney. If there is a cost associated with that, it will have been well worth it to make sure that an appropriate decision is made on the insurance that is purchased. The cost of not having the right coverage when it is needed can be financially devastating to a homeowners association.