HOA Insights: Common Sense for Common Areas

019 | Different Types of HOAs = Different Insurance Needs

September 04, 2023 Hosts: Robert Nordlund, Kevin Davis, Julie Adamen Season 1 Episode 19
HOA Insights: Common Sense for Common Areas
019 | Different Types of HOAs = Different Insurance Needs
Show Notes Transcript Chapter Markers

Different HOAs have unique HOA insurance needs. Dive into how lakefront townhomes differ from high rises. Understand HOA responsibilities & how to secure your community.
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Join Kevin and Robert as they venture into the intricate landscape of insurance for homeowners' associations. This episode sheds light on how a lakeside townhome in Boise doesn't share the same coverage needs as a towering condo. For board members and homeowners alike, understanding the nuances is crucial. With each HOA type presenting unique risks, Kevin highlights why tailored insurance is not just beneficial but essential. Keep your property safeguarded and your investment intact. Dive into the ins and outs of HOA insurance with us!

Chapters from today's episode: Different Types of HOAs = Different Insurance Needs

00:00 Complicated HOA Property Damage for Insurance

 00:57 What does your HOA insurance cover based on your type of community?

 08:40 HOA Liability Insurance and the HOA Board of Directors responsibilities

12:51  Insurance is for accidents, not normal life

 18:56 Things you can do to help your HOA 

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Robert Nordlund, PE
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Kevin Davis:

We've talked about your exposure to loss, okay? It's talking about, you know, property damage situations, you know, you had the trees that hadn't been maintained properly. So now someday you have a tree branch fall on top of my car, you have the roof that hasn't been maintained, and you have a roof leaking, and all of a sudden it destroys my $5,000 painting that I bought for $100. So these are the issues that fair to maintain hits us with.

Announcer: HOA insights:

Common Sense for Common Areas exists to help all 2 million volunteer board members nationwide have the right information at the right time to make the right decisions for the future. This podcast is sponsored by four companies that care about Board Members Association Insights & Marketplace, Association Reserves, Community Financials, and Kevin Davis Insurance Services. You'll find links to their websites and social media in the show notes.

Robert Nordlund:

Hi, I'm Robert Nordlund. From Association reserves

Kevin Davis:

it I'm Kevin Davis of Kevin Davis Insurance Services. And this is Common Sense for Common

Robert Nordlund:

Treas. Well welcome to Episode 19, where we'll be discussing how your type of association affects the kinds of exposures and potential losses facing your association. Insurance is complicated. It has a very specific purpose to protect you from very specific losses. So this discussion today will help you know what insurance says for your particular type of association, and how your insurance should be different from a different type of associations down the street. While I believe this is going to be a great conversation, the numbers continue to tell us that our board hero episodes like last week's episode 18 continue to be our most popular. So if you missed it, take a few moments to catch up with that episode, and subscribe to the podcast from your favorite podcast platform. And before we get started, I want to remind you that if you have a hot topic, crazy story, or a question you'd like to have us address, you can contact us at 805-203-3130 or email us at podcast@reservestudy.com. And one of those questions came in about insurance. And I'm hoping Kevin can use it to kick off our discussion today. Sherry from Boise asked, How do we know our insurance policy is covering all the right risks for our small, newer 24 unit, lakefront townhome property. And I bet that's a pretty place in Boise, Idaho. So Kevin, how might lakefront townhomes insurance needs be different from a downtown mid rise or high rise?

Kevin Davis:

Sure. It's a great question. And I love questions about insurance because that's what I do, and I specialize in it. But my goal is always to make it so that it makes sense to everybody. And we talk about insurance it's complicated. However, we talked about community association living, there's so many different variations of it from being in a townhome from a condominium high rise to a CO-OP to an HOA homeowners association may be out in Orange County. And when we're talking about when we talk about we can break it down to something simple. I live in a single family home in Los Angeles. And I have a pool I have a garage, I have a gate out in the front of plants around for my privacy, and I'm responsible for the whole entire thing. I responable for the roofs. I'm responsible for the garage funds for the pool of a cracks in the pool, I take care of it. I'm happy. My job is to maintain it, protect it and enhance it so increased the value of my individual home. If there's a problem with it, if I'm not maintaining it correctly about protecting it if I'll have smoke detectors and maybe burglar alarms in there, okay, and something could happen. I'm not enhancing it gets it gets mad at me, my wife

Robert Nordlund:

of course. Okay.

Kevin Davis:

I have to maintain it protected and enhance it all the time because it keeps my wife happy and that's our job right Robert? Keep our wives happy, right?

Robert Nordlund:

But it's so much it's first thing every day. Okay,

Kevin Davis:

now here's the problem when it comes to community associations. Now I've taken in my life and says you know what, this living is too complicated for me. I'm going to move into an HOA now HOA I still have to worry about the roofs I still have to worry about maybe the pool of as my own pool but guess what there's certain common areas I may have to worry about anymore about the gate anymore I dont have to worry about my the privacy trees anymore because now they are in common area. So before I had eight responsibilities. But now I have 5. So it's not to worry about it as much. Now all of a sudden I say okay, I'm older now. So it's time to retire I'm going to live in a condominium association. Okay. And I guess what I worry about even less I don't worry about roof anymore I don't have to worry about the garage anymore I don't have to worry about to pool All I have to worry about is the inside of unit, I don't worry about anything but the inside of my unit from the studs in, you know from the drywall in, that's my responsibility. And I had, I don't care what happens outside,somebody could slip and fall in front of my steps in front of my unit, they're not my responsibility It's the HOA responsibility. Now, I live in a Co-Op, it goes one step even further, here, the co op is responsible for all of it, I don't have responsibility, because a co op, I don't own anything but shares in a co op. So for me as a unit owner, my job is to reduce my exposure. Okay, so every time I'd move my risk, exposures reduce. So therefore, I need less insurance, or less headaches and less worries. So what makes complicated situations for keeping associations is that the more exposure the association takes on, which means the Board of Directors, the more insurance

Robert Nordlund:

they have to have, well, you've been talking about you as a person, you have more exposure in Hoa, because you have more stuff, you have less exposure, you personally, Kevin, have less exposure in a condo, and even less exposure in a co op. But that doesn't mean the exposure goes away, it just means that someone else is responsible for it. And that's the board member. And that's who we're talking to today.

Kevin Davis:

Exactly. So I transferred my responsibilities to the board of directors of a condominium. And that's the key thing. That's what I want to do. As a unit owner, as an owner, a homeowner, well we want to do is take protect, okay, enhance, enhance and maintain it. But we do rebuy insurance, and we do our own protection. Now we want to do is the who else is responsible. So what I'm doing now is holding the board of directors responsible for the things I don't want to be responsible anymore. And that's what makes insurance challenging for community associations. Because no matter what you live in an HOA, a condo, or a co op, the Board of Directors now has increased their exposure to loss. In terms of property losses, there is a fire, if there's water damage coming down from a unit and unit a unit. That's their responsibility, if the coop is what it responds to, because they own the entire building. So we talk about insurance, we're talking about insurance protecting the individuals, the Board of Directors, in case there's a loss because they fail to maintain, protect or enhance the Community Association. That's everything boils down to those three things.

Robert Nordlund:

Okay, because the risks are there, there is a roof. Someone is responsible for the roof, the hallways, the tennis courts, the pool, the lakefront for this place in Boise, maybe they have a dock on the lake front, and maybe they have a common area, kayak or canoe or something like that, or boat storage, all the stuff is there. And the big question that sounds like is a dividing line between common area and private space and ownership? Yeah, who's who's, who owns them? Who's responsible for that? And that if you're a unit owner, you're effectively delegating that responsibility to the board of directors. And it's on their shoulders to make sure everything's taken care of, and they've got to customize it for their association.

Kevin Davis:

Exactly. And there's differences here. If my wife gets mad at me, okay, you know, I'm not going to lose millions and millions of dollars. I will fix the phrase, Depends how mad she gets!

Robert Nordlund:

Yeah, it depends how mad she gets one thing for some very messy divorces in the news, but we're not we're not going there.

Kevin Davis:

As true as true. But it does mean the same thing, though. We're talking about. If my wife gets Max, I did not maintain. I didn't protect, I didn't enhance it properly. Yes. You know, now all of a sudden, there's consequences for the actions. And that's where talking about when it is you go back to that that one single home association for lakefront property, or if all of a sudden that lake, the Board of Directors failed to maintain the lake, and they had to dredge the lake because they failed to maintain it. Guess what happens now? That means a special assessment for everybody in association. Now, if people live away from that association gets what they got to say, wait a minute, I am I don't have lakefront property, I'm not going to pay that special assessment, you know, is that even fair? We should cater it so that people will live on a lake has this much special assessment and the other ones have this was special assessment. And so now the debate comes in. Now all of a sudden is that nobody's happy and the last to start coming in? Because a the special assessment that's unfair, and unreasonable, and it Oh, unenforceable, and now all of a sudden, the Board of Directors sitting there and said, Okay, what happens now? Now all of a sudden they have a liability exposure. That's when they need liability insurance. Overall, what we're gonna be talking about today, Robert, as the most important coverage they're going to have is liability light Reality is that I transfer all my responsibilities to the Board of Directors living in a condo or Co Op, or whatever. And now I'm holding them responsible as opposed to my wife holding me responsible. My wife's who get mad at me because I'm living in front of a lake and that lake is is destroyed, because they didn't maintain it. Right. But guess what my wife and I gonna do we go after that board president because the board president fail to maintain the lake.

Robert Nordlund:

Right, so being a board member is a serious deal. It's not just, you thought you'd volunteer little bit of time to do so give back to the community, you have some very serious and significant responsibilities. And you got to make sure that the assets of the corporation and your three words are used was maintained, protect and enhance. And I like that I'm thinking about just the small things maintaining that might be trimming the trees away from the roof and might be fixing that leaking outdoor spigot. So it's not creating a slippery trip and fall hazard. It may be maintaining the docks or though the waterfront. So it is a an enjoyable process. And once you're not doing those kinds of things, then all of a sudden, that's in my mind becomes a trigger element where it starts triggering a lot of bad things to happen. discontent, a property values aren't maximized, a concern for the board, the board meetings get long and contentious. So many bad things begin to happen when you're not addressing the board leadership and those things that we're talking about here on this insurance question. What is the board responsible for?

Kevin Davis:

Yeah, and that's the key thing is that they are responsible for the common area that the Maintain maintenance is their number one responsibility that they also have to enforce the documents, okay, they have to collect assessments. But the key thing is maintenance. And the problem with insurance is that people think that just because there is damage done, insurance you're gonna pay for insurance is not a maintenance contract is not a maintenance contract. So if all of a sudden I'm upset because the lake needs to be dredged. Okay, because they didn't maintain it properly, you know, the docks or haven't been maintained since starting to rot. They started to see wear and tear all over the associations, and the board is being sued. The board has been sued on it, directors and officers liability insurance, the general liability insurance, any liability they're being sued. The problem is is that is that covered, you have maintenance issues wear and tear and wear and tear is excluded under most liability policies. If the board is sued, because they failed to maintain the failed to maintain the lake, if the user if if they sue under general liability because the general liability does property damage, but there's no wear and tear,

Robert Nordlund:

right? When in, in my words, in insurances for accidents, not normal life, normal life, you're responsible for normal life, you're responsible for putting oil in your car, you're responsible for balancing your wheels, so your car doesn't veer off the road, things like that. You're personally well, you and I and the families that we care for. We're responsible to make that happen. Insurance is for when someone blindsides you, and that's a surprise.

Kevin Davis:

Exactly. Or somebody falls into that lake and drowns. Oh, I can't believe it. Yeah, so they're there. And that's what we're talking about. Now, you can blame the board because the board did not do their job powerfully. But now you're talking about a really air a tough area of for insurers that come in and say we go back to Surfside, okay, Surfside woulda made a difference as the building came down. Okay, all of a sudden, wow, that's an occurrence that happened. We saw the damage damage was caused by the building. Now, if the building never came down, and somebody came and said, look at all the wear and tear, look at all the structural damage. And, and it's taken place over a series of years. That is just your responsibility to maintain is not an insurance company's responsibility to take care.

Robert Nordlund:

Right? Well, they were in the process of a major special assessment at that time. Were they? Yes, they were Yes. Okay. Because they they realized, it's our building. It's our problem. And I'm not sure if they just, well, it's I don't know, enough details, but they were embracing that it was their building that was aging and deteriorating. And then they tragically ran out of time to get all those things fixed up. But it is that as you speak about the board's understanding of common area, and that's where you get an attorney to help if you have any gray area of uncertainty. And then the board has to say, Okay, how are we ready for these things that can happen? And you I think I use the word exposure, you use the word risk, what are the things that can happen? What's unique to our association,

Kevin Davis:

and as we've talked about your exposure to loss, okay, It's talking about, you know, property damage situations, you know, you had the trees that hadn't been maintained properly. So now I'm a Sunday, you have a tree branch fall on top of my roof that hasn't been maintained, and you have a roof leaking, and all of a sudden, it destroys my $5,000 painting that I bought for $100. You know, that was sudden, and so. So these are the issues that failure to maintain, hits us with and it hits us with so strong that what we do is that we look at water damage, water damage has been a number one problem In community associations forever when a leak from one unit to another unit to another unit to another unit. So what we do from insurance point of view is we put a higher deductible on it, and we will put some tax exclusion because we know that is your job to do a better job of maintaining. So if you do a better job maintaining, we will lower the deductible, we won't put a higher one on him. So from insurer's point of view, we want to limit our loss also. So if you maintain that you do a good job, guess what happens? You know, you limit your exposure. Another area let's talk about is protection. And we say maintain protect them hence, we talked about protection. I have, you know, alarm systems around my house, I smoke detectors in my house, and you have associations that some associations have more security associations. But if there's a loss, okay, the first thing we got to personally want to say if there's been a burglar robbery in association with what's going or a fire or fire in the in the common areas, okay? And yeah, that that smoke detector, they don't have adequate. What happens is that, again, it ends up being a more dangerous loss, more costly loss to the association, they have to take responsibility. And again, it goes back to us when we do our underwriting and say, do we want to insure this building, we look at the whole fire safety list of things they do to make sure they have the thing they should have initiative, the right doors, make sure they are self locking gates, we do this the maintenance work for them to make sure they made to and we have a loss control, people come out there and say guess what, that gate is not self locking, you got to make sure you do it. So from an insurance point of view, we help them by giving them recommendations. And you as a reserve specialist, you help them out also, it comes into play where they don't listen to you, as a reserve specialist or listen to me as insurance specialists. And we get back recommendations, they come back and say, we're going to do eventually we had to then we have to come back and say guess what, we don't want to short us entity any longer because they're not maintaining property that protecting their asset the way they should. And because you and your you said it before, if you don't maintain it, if you don't, is this a deterioration that happens? Where you see, it's a regression where okay, I'm not going to trim the trees. Okay. Well, I see some of the garages are not up to snuff, I see cracks starting to form, but it cosmetic is not a big deal, right? And then it goes down this vicious cycle to the point where you walk into a place to say, Wow, what happened here? You know, if you have a theory, if you have a plan, it says we gotta maintain it. Guess what happens? Me as an insurer says, I want to write your association. And guess what, you're probably get a discount because we're looking at it and seeing you're maintaining it properly, you're protecting it. We are doing all things necessary for you to have a quality Association and the values will go up. People want to live there. Hi, I'm Kevin Davis, the president of Kevin Davis Insurance Services. Our experienced team of underwriters will help you when you get that declination, we provide the voice of reason someone who will stand by you. Our underwriters bring years of knowledge to our clients that can't be automated by technology or driven by price. As a proud Edwin's company, we bring true value to your community association clients. We are your community association insurance experts.

Robert Nordlund:

One thing I like to hear is that there's things you can do we hear a lot in the news about how difficult insurance is to place how expensive insurance is. But Kevin, the words that you just mentioned, those were magic, to remind everyone their role. From the reserves a point of view, we see things as for years, we've seen these just as a reserves that how can we help the association get ready for for a new roof, or new asphalt or new painting or the you know, the big projects. And now we're seeing it more that it's interrelated with the maintenance. When you're doing a good job with maintenance, then your major components are going to last longer. And that's going to have a net lower cost to the association. And so it's all involved in different things together. And there's a problem that we see among boards, and it's called familiarity blindness. When they see everything every day, they no longer see it. If you are walking from your car, to the mailbox area to your front door. And you know, I bet you couldn't tell me how many The cracks, there are uneven areas in the sidewalk because you know where they are. And that's why you walk to the right of the sidewalk, because the cracks are on the left. There's that familiarity blindness. And so there's that idea. You talked about a loss prevention specialist. It could be a reservist, a provider, someone else to walk the property, with fresh eyes to help you see, what are the risks that your association? What can you do better? We hear a lot in California about fire insurance, what can we do? And and if I would imagine, you're the insurance guy, not me. But if I have a plan, and I say we trim our hillside, hillsides around our property 50 Or 100 feet away, I don't know what the magic number is, that's going to make you as an insurance provider much more comfortable. Right?

Kevin Davis:

Yes. And that's the key thing, you talk about your reserve study, if I get an application that says we get a reserve study, all of a sudden, I say, okay, they are aware of their responsibilities, and they are making an effort to do certain things. If I look at their application, and they're saying they're they're doing, they maintaining their property all of a sudden, and I go out there, inspect it and see it, all of a sudden, they're golden. They're the kind of sociation that we're going to look for. And again, what happens is, if you're not, you're looking at higher deductibles for Water Damage, or, or certain types of losses that we know, we're going to see, quite frequently, we're gonna put high deductibles on there and say, guess what, you're gonna participate in that loss yourself, it will come out of your own pocket, okay, until you fix it or recognize the fact that you have a responsibility to maintain it, to protect it, and enhance the community.

Robert Nordlund:

I like that balance when we talked about at the very beginning board members have that responsibility. But they also have the opportunity to participate. And they can fix that leaky spigot that's dripping onto the pool deck and making a slippery spot. They can take good care of the entry gate to minimize their access and security concerns. They all these things. I love seeing that there's board member participation, not just board member responsibility, I think you use the word earlier, board member liability. Those are scary things. But board member participation. I love that where we're empowering the boards or all the way across the country to participate make their association a little bit better, a little more safer, a little more secure, a little more desirable place to live. I'm not sure if we talked about one aspect of that original question where that person from the lakefront Association asked, How can we be sure that all our risks are covered? Does that mean walking the property with the insurance agent or a loss prevention specialist? How does that board member, make sure that the risks are covered?

Kevin Davis:

First of all, if you a board of directors, you need to know a list of all the things you are concerned about if something goes wrong. Okay, so all the things you named in terms of the docks in terms of the lake, make a list, these are all the things that I'm concerned about, and then asked, Are they anything more? I mean, if you have a list, I know you live in a home right now I live in the home. I know exactly. I have a list of all the things that that can go wrong. I know my roof has to be maintained. I know right now my garage door it up I need to look at goes up slow. You know, I know by by pool water's going now lowered in this shit. I gotta make sure check for cracks. I mean, we know instinctively all the exposures that we have that lady who live in that lake front knows to con exposure, keep track of all those exposures. A when you go to your insurance agent, they these are my concerns. These are my 1015 20 concerns that I have, can we be insured for them? Whether there's a loss, okay, if there's a loss, if there's damage to it, if they're if I get sued for it?

Robert Nordlund:

Right? And what can I do? What is my responsibility was my opportunity to make you feel comfortable with my risk. Can I show you a maintenance plan? Can I show you my list of the vendors that take good care of her association? That I'm looking for that combination?

Kevin Davis:

Those other things, the more information I get, the more I can go to my insurance providers say guess what, this is a Association, I want to give them the best coverage with all the credits there as opposed to again, most associations will be that are not that sophisticated, not that knowledgeable. Okay? As a result, what happens is their rates are low heart and need to be because they don't take that little extra effort to just have a maintenance schedule that we this what we're doing on a regular basis, we're taking care of our property. If you say that, then all of a sudden from an insurance point of view. That's the kind of account that I want to right.

Robert Nordlund:

Kevin, I love that. And looking at the clock, I think that's a great place to stop. So we talked about a participation there's responsibility, but also the board members ability to participate in taking good care of the association and the under three words, maintain, protect and enhance, what am I doing to take care of it, to protect it, and to not only take care of it this year, but be ready for the future, the next board of directors that we're going to hand it over to, and then making sure I get to maximize value when it's my turn to sell. Absolutely fantastic stuff. Well, this is all great help. You talked about understanding the customization aspect, what are the risks at our association? Now in a future episode, I'd love to go down the path of a hearing you talk about what you think and how you think insurance is changing how insurance is evolving, and other larger trends in our industry. Talk about where we are going, I think that would be a fascinating discussion. Well, we want to make sure all our board members here are prepared for all the changes in the world and the things that are ahead of them. So again, make sure you've subscribed on your favorite podcast platform in order to catch all upcoming episodes. Well, we hope you've learned something from our discussion today that helps bring common sense to your common areas. If you have a topic you'd like to have us address a story that you'd like to tell, or questions that you'd like us to answer, please call us at 805-203-3130 or email us at podcast@reserve study.com You can also go to the podcast homepage at www.commonareas.org. We look forward to having you join us for another great episode. Next week.

Announcer:

You've been listening to Hoa Insights: Common Sense for Common Areas, you can listen to the show on our podcast website, HOAinsights.org, or subscribe on any of the most popular podcasts platforms. You can also watch the show on our YouTube channel. Check the show notes for helpful links. If you liked the show, and want to support the work we do, you can do so in a number of ways. The most important thing you can do is to engage in the conversation. Email your questions or voice memos to podcast@reservestudy.com Or leave us a voicemail at 805-203-3130. If you gain any insights from the show, please do us a HUGE favor by sharing the show with other board members you know, you can also support us by supporting the brands that sponsor this program. Please remember that the views and opinions expressed by the podcast do not constitute legal advice. You'll want to consult your own legal counsel before making any important decisions. Finally, this podcast was expertly mixed and mastered by Stoke Light video and marketing. With Stoke Light on your team. You'll reach more customers with marketing expertise that inspires action. See the show notes to connect with Stoke Light.

Complicated HOA Property Damage for Insurance
What does your HOA insurance cover based on your type of community?
HOA Liability Insurance and the HOA Board of Directors responsibilities
Insurance is for accidents, not normal life
Things you can do to help your HOA