How Homeowners Associations Can Put Your Assets at Risk

JULY 5, 2022

There are approximately 355,000 homeowners associations (HOAs) in the U.S., exposing millions of members to potential liabilities from property and casualty losses. Lawsuits against HOAs are increasing in frequency, and the verdicts are escalating in severity. Consider the following recent jury awards against HOAs:

• $20 million verdict against an HOA in Nevada 2018
• $41 million verdict against an HOA in Florida 2019
• $34 million verdict against an HOA in Florida 2021
• $997 million settlement against insurance companies, developers, adjacent buildings and other defendants in Florida in 2022 (awarded to families of victims of the Surfside Condo collapse)

Homeowners should be aware of the risks created by HOAs — and implement methods to address said risks. The HOA board members may have liability coverage in place; however, the recent explosive rise in court awards raises concerns about exhausting insurance limits before the damages have been fully covered. Prior to moving into a home in an HOA community, review USI’s HOA and Condo Association Checklist.

You Pay Your Fees — Should You Still Be Worried?

Associations collect fees from homeowners for services and amenities.  These fees also go toward a community insurance policy, called the “master policy.” The master policy covers losses in common areas up to policy limits. If a claim or loss is not fully covered by the master policy, HOA members may be responsible for paying a share of the outstanding balance.

When Are You Liable for the HOA's Debts?

There may be instances where the HOA master policy will not be sufficient to cover verdict awards. If such a verdict is rendered, the HOA has the option of filing a bankruptcy. The HOA bankruptcy will not protect the homeowners from the association’s judgment creditors. Even though homeowners are not parties to litigation, HOA governing documents permit the association to pass debts owed to creditors (including judgment creditors) to homeowners via assessments.

What Does Loss Assessment Cover?

Typically, loss assessment coverage is an optional endorsement that can be added onto your homeowner’s policy. This coverage affords protection when a common area or building has been involved in a claim that either exceeds the master policy limits or is damaged by a peril that is excluded from the master policy. For a nominal fee, the loss assessment coverage amount can be increased from $1,000 to $100,000 or more.

If a homeowner in an HOA community receives an assessment related to liability costs, medical expenses or property damage, loss assessment may cover these charges. Loss assessment will not respond to assessments for property improvements such as installing a new tennis court, building a clubhouse or common area maintenance.