Homeowners’ associations (HOAs) are very common in Texas as the number of shared interest developments increases. A shared interest development consists of separate tracts of real estate in which the owners of several adjacent tracts share the right to control the development. A common example of a shared interest development is a condominium or a residential development in which a board of directors elected by the homeowners makes important decisions about the design and structure of new units, permitted uses of common areas and individual units, overall design and upkeep of individual units. One of the most important functions of the board of an HOA is the purchase of appropriate insurance. HOAs are exposed to a number of insurable risks, not all of which are obvious.
The need for insurance
HOAs are exposed to a number of risks for insurance may be necessary. The most obvious risk is general liability insurance to cover damage to buildings and to common areas. HOAs also need regular liability insurance to cover the obligation owed by the HOA to third parties who are injured while on the HOA property or common areas. Most HOA officers and directors are volunteers who serve without compensation; most HOAs therefore provide what is known as directors and officers (D&O) coverage to protect the volunteers from all kinds of liability.
Specific types of insurance
Many HOAs operate clubhouses and social gathering places where members and their guests meet for social activities. Some HOAs also rent their party facilities for weddings and similar events. If alcohol is served in the party facilities, the HOA may need coverage for social host liability, that is, any injury that is caused directly or indirectly by the serving of alcoholic beverages on the HOA property. If the HOA has employees, it must purchase workers’ compensation insurance to cover any injuries suffered by these workers in the course of their employment. Many HOAs have the power to obtain liens for unpaid assessments. If an HOA attempts to foreclose on such a lien, it may be faced with a claim that the enforcement proceeding is an example of unlawful discrimination based on race, religion or gender. Insurance that pays for the defense of such claims may be necessary.
Any HOA that has questions about insurance coverage may wish to contact an attorney who is experienced in representing HOAs in various kinds of lawsuits. A knowledgeable lawyer can review the HOA’s status and provide advice on the types of coverage that may be helpful.