Homeowner "HO-6" Insurance Policy
Condominiums. Owners can be required to carry an HO-6 policy ("Homeowners 6" or "Condominium Unit Owner Policy"). Without it, condominium owners are exposed to loss and are more likely to sue the association to cover their losses. Moreover, the secondary mortgage market (Fannie Mae) now requires protection for owners. Owners' insurance should cover the following:
- Personal Property. This coverage insures unit contents such as furniture, clothing, dishes, appliances, computers, etc. Owners with high-value jewelry, art, or collectibles need a "scheduled or unscheduled floater."
- Personal Liability. Although associations carry premises liability insurance for the common areas to cover claims for bodily injury or property damage, it does not cover injuries or damage inside an owner's unit. Condo owners must carry personal liability insurance if someone is injured in their condo. This should also cover injuries in neighboring units caused by fires or floods originating in an owner's unit.
- Loss of Use. This protection covers extra expenses (hotel, restaurants, etc.) while the owner's home is uninhabitable due to damage.
- Loss Assessment. Loss assessment coverage covers the owner's portion of special assessments levied by the association resulting from insured losses.
- Walls-In. To satisfy FHA requirements, an owner's real property coverage must be a "walls-in" policy instead of "bare walls." It insures improvements not covered by the association's master policy, such as hardwood floors, carpet, kitchen cabinets, plumbing, and electrical fixtures, etc.
- Earthquake Loss Assessment pays for losses related to an earthquake.
Loss Assessment Insurance. Loss assessment insurance covers an owner's portion of special assessments levied by the association to cover losses that exceed the association's policy limits. Following are two examples:
- A child is seriously injured in the association's swimming pool, and $5 million in damages are awarded, but the association is only insured up to $2 million
- A director defames a homeowner, and a court awards damages that exceed policy limits.
- A fire causes significant damage to the clubhouse, but the association is underinsured for the loss; the cost to repair exceeds the association's policy limits by $300,000.
In each case, the association must levy a special assessment to cover the difference between the policy limits and the loss suffered. If a homeowner carried "loss assessment" coverage, they would pay their share of the special assessment.
Loss assessment insurance is purchased by individual homeowners, not the association. It can be a stand-alone policy, but more often, it is a rider added to an underlying policy purchased by the owner. Its availability is uncertain:
- If an association does not carry earthquake insurance, loss assessment coverage (if available) will pay for special assessments related to earthquake damage. (See the California Earthquake Authority (CEA) website for more information and talk to an insurance broker.)
- Only pays up to the amount of coverage purchased by the owner. If an Owner buys a $1,000 policy and the owners are hit with a $9,000 special assessment, the policy will only pay $1,000. The homeowner will be responsible for the remaining $8,000.
- We will not cover special assessments for deferred maintenance.
- May or may not cover an owner's portion of the association's deductible. If an association has a $50,000 deductible, homeowners will be assessed separately to cover it.
Renter "HO-4" Insurance Policy
Renters must carry their own insurance to cover their personal property and to cover personal liability against named perils. It also includes liability insurance for property damage or injuries to other people in the rented dwelling.
Amend CC&RS to Require Insurance
Associations should amend their CC&Rs to require owners and tenants to carry insurance. To avoid potential liability, the amendment should also relieve the association of enforcement requirements related to the amendment. In addition, boards should regularly publish reminders that owners and renters must carry their own insurance.
Forms of Homeowner Insurance
"HO" in the following policies stands for "Homeowner." Exclusions for each policy generally include: war, nuclear hazard, earth movement, neglect, ordinance or law, flood, off-premises power shortages, and intentional acts.
Each policy includes property damage and general liability. The differences in the forms are primarily in the covered perils in the property damage portion of the policy.
HO-0: Dwelling and Fire. Provides coverage to an owner's home against fire, explosions, smoke, hail, lightning, windstorm, vehicles, and civil unrest. There is no coverage for personal property, personal liability, or medical expenses.
HO-1: Basic Form. Protects the dwelling against eleven named perils: fire, lightning, hail, windstorm, theft, vandalism, damage from vehicles and aircraft, riots and civil commotion, volcanic eruption, and glass breakage. It does not cover floods and earthquakes.
HO-2: Broad Form. This policy specifically covers perils listed in the policy and no others. There are 17 perils listed on a broad form policy: the 11 covered under an HO-1 policy, plus protection against falling objects, the weight of ice or snow, and malfunctioning electrical and other household equipment. It also provides living expenses if the dwelling is uninhabitable.
HO-3: Special Form. Designed for single-family homes, it covers any damage to a house or other structures unless the peril is specifically excluded. Floods and earthquakes are excluded. Coverage for personal property is for named perils only.
HO-4: Renters. Covers a tenant’s personal property and personal liability against named perils. It also includes liability insurance for property damage or injuries to other people in the rented dwelling.
HO-5: Comprehensive Form. As long as the cause of damage is not excluded on the policy, any damage to the dwelling and its contents is covered.
HO-6: Condominiums. Designed specifically for condominiums and cooperatives, it does not cover the structure, which is covered by the association. Instead, it covers improvements to the airspace, such as carpeting, wallpaper, built-in appliances, and kitchen cabinets. It also provides coverage for personal property and personal liability. All perils covered in an HO-2 policy are similarly covered by an HO-6.
HO-7: Mobile Homes. This policy protects mobile and manufactured homes and covers the structure, adjacent structures, and personal belongings. Liability coverage for accidents can be included.
HO-8: Older Houses. The policy is similar to an HO-3 policy, but modified to meet the needs of the older home since it would cost more to repair than its market value. It pays for the repair or replacement of damaged property using common construction materials. For example, plaster walls would be replaced with drywall.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with community association issues, subscribe to the Davis-Stirling Newsletter.