HOA Up Front – Reader Questions: HOA insurance rates and broker advice

Q: Our community insurance plans will be updated soon. Some neighborhood associations are reporting a tenfold increase in fire insurance premiums due to concerns about the proximity of the fire. Although our area does not appear to be in a fire-prone area based on current conditions, are we really afraid?

BC, Rancho Santa Margarita.

Answer: Many customer-facing organizations have also had a tough time due to the high cost of property damage insurance. To bring some insurance expert guidance to the discussion, I contacted Michael Berg, of Berg Insurance in Lake Forest, and Scott Litman of Scott Litman Insurance Agency in Calabasas, two leading brokers known to serve HOAs.

As for how to pay for insurance, Litman said “unfortunately, this is going to be a long-term problem. According to reports, the number of wildfire claims is increasing every year.” Michael Berg explains that installing property damage insurance is not difficult for any area, but “only those that are facing a difficult history or are in fire-prone areas.” For those areas, he says, “installation will be difficult.”

I asked our experts, how can HOAs increase their insurance premiums? Berg said HOAs should make sure their broker works for HOAs to ensure the HOA has the right advice when making a business decision in their community. Litman also suggested changing the HOA’s approach to “wallless” insurance, which often requires changes to the CC&Rs. He said this could reduce the premium by about 5%, depending on the insurance company.

Non-wall insurance means that the HOA only insures the shell of the building – the interior is only covered by drywall, excluding fasteners (cabinets, sinks, etc.), finishes (clothing, wall coverings) and interior. Many of my condominium clients have moved in, but first the CC&Rs need to be reviewed. As Mr. Litman pointed out, there may be a need to amend the CC&R to align the HOA’s insurance liability with its liability for damages. Also, if the HOA adopts the “without walls” approach, proper notice must be given to the homeowners, so that they do not face a big loss without insurance after the change in the HOA’s insurance policy. Before pursuing bare walls as an insurance policy, consult an HOA legal professional on this matter.

Another strategy used by HOAs is to lower insurance costs and increase deductibles, and many HOAs have already followed this strategy, which requires the HOA to be willing to take more out of pocket money.

I asked experts about the mistakes they see in HOA insurance. For Mr. Berg, “the biggest mistake is neglecting business relationships with their insurance companies.” Scott Litman said, “we’re going to find a lot of information that’s missing important information.” He encouraged HOA boards and managers to annually review their policies.

There are many insurance professionals who serve California HOAs. Thanks to Michael Berg and Scott Litman for sharing their expertise and advice.

HOAs are best served when attorneys and insurance brokers communicate with their clients. HOAs should review their insurance policy to make sure it meets their insurance and damage obligations.

Kelly G. Richardson, Esq. is a Fellow of the College of Community Association Lawyers and Partner of Richardson Ober DeNichilo LLP, a California law firm known for community association consulting. Send questions to Kelly@rodllp.com. Older posts at www.HOAHomefront.com.