There are many benefits to living in an HOA community, and many residents enjoy the perks of not having to worry about lawn care, snow removal, and the perks and amenities like parks and swimming pools. However, being part of an HOA community means that you own a part of all of those community spaces—which also means that you are, in part, legally liable for those spaces.
Responsible HOA communities will have liability insurance in place to help protect the community in event of any lawsuits, but it still might not be enough to completely cover residents. Let’s say that, hypothetically, someone in your community is injured in a community-owned space like a parking lot or a park and they choose to sue to the HOA. After the legal battle, the injured party is awarded $1.5 million in damages, but your HOA’s liability insurance only covers $1 million. That means that every member of your community—including you—would then be hit with a special “loss assessment,” meaning that you would be responsible for a share of the leftover $500,000.
This is why residents living in HOA communities need to consider adding loss assessment coverage to their own insurance policies. To be clear, loss assessment coverage is something that you obtain from your insurance, and has absolutely nothing to do with your community’s insurance policy. However, you do need to be knowledgeable about your community’s policy because most loss assessment policies are only valid in HOA communities that are accurately covered to begin with.
Additionally, if the association’s insurance policy was excluded, the association only provided defense and not indemnity coverage, or the association’s policy has lapsed, loss assessment coverage will not be available. Most coverage is only triggered when an item would have been covered under the association’s policy, but there were insufficient funds.
If you live in an HOA community and feel the need to look into loss assessment coverage, here are the next steps you should take:
- Know your risks as a member of an HOA community
- Ask your neighbors about their homeowners coverage and if they have loss assessment coverage (it’s typically an add-on)
- Ensure that your association has all the coverage that it needs to protect both the association and its community members
- Determine how much loss assessment coverage you need