HOA insurance necessary?

[DBarnesTX]

What is the name of your state (only U.S. law)? TX

We have some new members in our HOA that insist we need HOA insurance, but past research suggests we really don't. I was hoping someone could confirm, one way or the other.

Details about our HOA: we are small (25 properties). We are self-managed by elected, volunteer members (not by professional management company). We are unincorporated, both as a business entity (registered with county, but not inc.'ed), and outside of any city limits. We have no "common areas", ie. parks, swimming pools, etc. Our roads are private roads (not city/county maintained), and are the only thing that could remotely be considered "common". There are no annual dues, any assessments (occasionally, for road repairs) are by special ballot only.

Past research has suggested that anything that could possibly happen on the roads would already be covered by our individual auto and/or home owner's policies, and since we don't have any "common areas" that general liability HOA coverage isn't necessary.

Additional protections from HOA insurance would be D&O clauses covering the officers. Research previously suggested that volunteer officers, acting in good faith, have very little to worry about as executive maleficence is a tough case to make. (You can't be sued for screwing up, there has to be wrongful intent).

I can understand a "better safe then sorry" argument, but we don't have a running budget and a special assessment for something we don't really need seems foolish.

Can anybody provide an expert opinion, do we really need insurance?

A thousand thanks,
-DB

 

[justalayman]

So let's say a road fell into disrepair and a person, not living in the subdivision, was killed due to an accident caused by the poor condition of the road. Now the relatives of the decedent file a suit for $5,000,000.

Who is going to pay for the attorney and who pays the wrongful death award if one is awarded?

Obviously that is an extreme and highly unlikely situation but there is liability here. Your individual insurance policies will not cover it because no individual would be liable for the road. It would be the hoa. That means the members would end up paying out of pocket as an hoa debt for legal fees and any award.

 

[LdiJ]

So let's say a road fell into disrepair and a person, not living in the subdivision, was killed due to an accident caused by the poor condition of the road. Now the relatives of the decedent file a suit for $5,000,000.

Who is going to pay for the attorney and who pays the wrongful death award if one is awarded?

Obviously that is an extreme and highly unlikely situation but there is liability here. Your individual insurance policies will not cover it because no individual would be liable for the road. It would be the hoa. That means the members would end up paying out of pocket as an hoa debt for legal fees and any award.

You also should consider having some small annual or quarterly dues to cover just that sort of thing. $100.00 a year per property would more than cover that sort of incidental. If it was billed quarterly that would only be 25.00 a quarter. That would also cover some paper and ink and postage as well.

 

[DBarnesTX]

<snip>... but there is liability here. Your individual insurance policies will not cover it because no individual would be liable for the road.

Thank you for the replies, they are greatly appreciated.

Just to clarify, I (we) have considered that scenario, but these are private roads - every member owns up to the middle of the road along their road frontage (theoretically, anyway. In actuality, the roads don't follow the property lines exactly in many places!).

The thinking is that, being that the roads are owned by different individuals, their home owners policy would (should?) cover this case?

I know this sounds trivial, we should just go ahead and get it. But given the trouble we having in getting anything done, passing a special assessment or (gawd forbid) amending the By Laws to call for an annual assessment, and then collecting, then filing liens on the one or two that won't pay anything no matter what (yes, we have a few uber-Libertarians among us!)... just wanted to visit whether this is even needed again.

Does actually owning the roads change anything, in your mind?

Thanks for the responses.

 

[Stephen1]

Two thoughts about D & O Liability coverage:
- even assuming that you are correct that the likelihood of losing a lawsuit relating to the actions of the directors/officers of the HOA, who pays the thousands of dollars for the attorneys to defend them? This is one of the things that the D & O liability coverage would address.
- while the HOA may not have much value other than the roads, during such a lawsuit the personal wealth of the directors/officers can be at risk. You could end up with no one willing to serve on the HOA because of their personal risk.

If you can't tell, I'm in favor of the insurance.

 

[justalayman]

DBarnesTX;3364578]Thank you for the replies, they are greatly appreciated.

Just to clarify, I (we) have considered that scenario, but these are private roads - every member owns up to the middle of the road along their road frontage (theoretically, anyway. In actuality, the roads don't follow the property lines exactly in many places!).

to clarify? No, to change but the change is irrelevant since the row is most likely a legal right of way so the servient tenant of the right of way does not become liable for issues concerning the right of way.

The thinking is that, being that the roads are owned by different individuals, their home owners policy would (should?) cover this case?

I don't believe so but the simple answer would come from your insurance agent.



I know this sounds trivial, we should just go ahead and get it. But given the trouble we having in getting anything done, passing a special assessment or (gawd forbid) amending the By Laws to call for an annual assessment, and then collecting, then filing liens on the one or two that won't pay anything no matter what (yes, we have a few uber-Libertarians among us!)... just wanted to visit whether this is even needed again.

Does actually owning the roads change anything, in your mind?

let me ask you this; do you maintain the small section of road that is part of your lot or is there a shared cost of all members to pay for road costs?

 

[DBarnesTX]

let me ask you this; do you maintain the small section of road that is part of your lot or is there a shared cost of all members to pay for road costs?

The roads are a shared cost. We periodically (2-3 yrs) pass a special assessment for get money for road repairs.

 

[justalayman]

The roads are a shared cost. We periodically (2-3 yrs) pass a special assessment for get money for road repairs.

then it sounds like the roads are over a right of way. If so, the individual servient tenant is not the one that would be held liable so that means the individual insurance is not likely to cover any issues within the roadway. Call your agent and ask them to be certain.