HOA & COA Members: What is a Master Policy?
Condominium association (COA) and homeowners association (HOA) bylaws govern the association’s operations. Bylaws include laws on the board’s responsibilities, from elections to operational procedures. HOAs and COAs aim to maintain the community lifestyle, protecting owner-members’ investments. Part of protecting that investment is risk control using insurance.
The board maintains the association’s insurance. In all cases, your board should use a knowledgeable insurance agent to advise them on the right policy. This ensures they’re in compliance and appropriately protected against liabilities and damages.
This insurance coverage is called the “master policy.”
The purpose of an association’s master policy
HOA and COA master policies cover shared spaces and buildings owned by the association’s community. This coverage mainly includes:
Some states have laws on the type of insurance HOAs and COAs must have.
A master policy ensures community buildings and equipment can be repaired after a catastrophe like a fire or storm. It also protects the association from lawsuits.
Without a master policy, owners would have to pool money to cover repairs, legal fees and settlements. This could force the association into bankruptcy, leaving residents with ongoing legal battles or dilapidated structures to pay for out of pocket.
While master policies are critical to protecting the community, they must have the right coverage for its risk exposures. An association with a pool and recreation facilities will have more liability exposure than one with only laundry facilities and a game room. They’ll fall short if they don’t have adequate insurance against liability. And the association will turn to resident members to make up the difference.
A mismanaged association and master policy can mean financial ruin and plummeting property values.
Important: An association’s master insurance policy does not cover you
Even though your association’s master insurance policy is funded by a portion of the fees your association collects, it doesn’t include coverage for your property or belongings. You’ll need individual home insurance for that.
Understanding who’s responsible for what insurance coverage is critical. Ideally, you should review the master policy and bylaws before you buy your home. Your lender will probably require copies for the lending process and closing. Also, you’ll need to understand the master policy and bylaws to ensure you’re getting the right insurance.
Master policies play different roles for different property types
Here are a few things to consider based on the type of property you own:
Single-family homes belonging to an association
You’re responsible for your home’s structure, your personal belongings and what happens on your property (your liability). However, your HOA’s bylaws might have rules that affect how you rebuild, like the materials you can use or how long you can take to rebuild.
They might also have rules on dispute resolution or maintaining outdoor walkways. These can affect how an insurance company handles your coverage. Things like property lines, landscaping and other exterior factors come into play. For example, if your HOA is responsible for tree trimming and landscaping, make sure their insurance covers any damages or injuries related to their work.
Townhomes belonging to an association
Depending on how a townhome complex is structured, it could be considered a COA or an HOA.
Townhomes might share only one wall or several walls between unit owners. Like condos, townhomes may have shared common areas that cover landscaping and snow removal. But unlike condos, townhomes might also have individual yards they’re responsible for in addition to common greenspace. You’ll need to understand where your individual unit’s property lines end. This can affect your liability, especially if someone injures themselves on your property.
Condominiums belonging to an association
Insurance can be more complex with condominiums because ownership and responsibility are divided between units and the building. Condo owners have individual insurance to cover their units and personal belongings. At the same time, their COA carries a master policy covering the common areas and building structures.
There’s more to consider when there’s a claim. Determining the source of the damage can be challenging.
How a COA master policy affects condominium coverage
Condos are probably the most affected by master policies because of the shared building structure. That’s why some associations require member-owners to maintain a minimum amount of insurance on their homes.
They often require members to provide a certificate of insurance and renew it annually to prove they’re insured to the association’s standards. This protects the owners and the associations.
If unit owners fail to carry enough insurance on their condos, they might be unable to rebuild. This would affect the building’s investment value. You should understand what losses are covered so your insurance complements the master policy.
All-in coverage master policy
This type of master policy is the most comprehensive. It covers shared structures, the building’s exterior, all common areas and the fixtures within your condo unit. These include walls, drywall, paint, flooring, ceiling, cabinets, built-ins, windows, plumbing fixtures, attached lights and ceiling fans.
It does not cover unattached fixtures or personal belongings, like furniture, clothes or electronics. Most all-in master policies only cover the fixtures original to the unit. So if you’ve upgraded from a standard kitchen to luxury appliances or average carpet to imported cork flooring, you’ll need extra insurance.
Studs-out coverage master policy
This type of master policy is the least comprehensive. It covers shared structures, the building’s exterior, all common areas and everything up to where your unit begins. Anything within your condo is your responsibility
as the owner. This includes walls, drywall, paint, wallpaper, flooring, sound-dampening materials, built-ins, cabinets, plumbing fixtures, attached lights and ceiling fans.
Some master policies include provisions that prevent associations and tenants from suing each other. These are called “waivers of subrogation.”
A note on waivers of subrogation
Many HOA and COA master insurance policies include a “waiver of subrogation” clause. The purpose of a waiver of subrogation is to prevent disputes and litigation among unit owners and the association after a loss. It decides in advance who covers what type of loss to avoid legal battles later.
This clause prevents an insurance company from seeking to recoup losses by suing the third party responsible. It also protects the association’s insurance company from being sued by other unit owners. However, damage or loss caused by gross negligence or illegal activities usually negates a waiver of subrogation.
The specifics can vary widely depending on the policy, so it is crucial to scrutinize any insurance policy documents. Some states have laws that require HOAs and COAs to include waivers of subrogation. Your insurance agent or real estate attorney can help you understand the limits of the waivers in your state.
Contact your board and your agent
Getting the right insurance for your situation means understanding your association’s master policy and bylaws. Contact your building management or board. They can answer your questions, such as:
Review the master policy and bylaws annually or whenever the board changes them. That way, you can adjust your home insurance policy if necessary. Don’t assume you have coverage, especially if you’ve never reviewed your master policy against your home insurance.
Call your agent for a review of your home or condo insurance. Best-case scenario, your agent will tell you you’ve got adequate protection. Worst-case scenario, your agent will change your policy to close any coverage gaps. In either case, you’ll have peace of mind.
This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem.
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