Property insurance, by definition, is a guarantee of compensation for a specific loss or damage to physical property or equipment. Within that broad and simplified explanation there is room for multiple interpretations—and more than enough confusion to go around. An all-volunteer association board of directors may be intimidated just thinking about what constitutes adequate coverage, reasonable costs, and possible liabilities. Most board members are not insurance professionals, so it's even more crucial that they recognize and understand some basic insurance terms and concepts, despite the challenge that may present.
Fortunately, there are experts in the field of insurance willing to share their knowledge and guide a motivated board, around the learning curve to a comfortable understanding of the best and most affordable options available in today’s market.
A Little History
The insurance industry is not a new business. As a matter of fact, the practice of spreading risk around to relive the burden on individuals dates back to the earliest Chinese and Babylonian societies. Property insurance as we know it today can be traced back to 1666 in England; the first insurance company in Colonial America dates back to 1732. By 1752, Benjamin Franklin had standardized the practice of property insurance. However, the U.S. government did not mandate any form of insurance until the passage of the Social Security Act in 1935. After World War II, VA home loans were underwritten by the federal government to include an insurance clause as a means of protecting the banks and lending institutions against avoidable losses.
Where Does Responsibility Lie?
John Bickley III is a principal with the law firm of Chicago-based Kovitz Shifrin Nesbit. Bickley is a former Assistant Attorney General for the state of Illinois, and has practiced law since 1978. His primary advice for board members in any community association or HOA is to review their specific governing documents to determine their community's obligation to insure, versus the obligation of individual residents to cover their own property. “A mistake in this regard may ultimately result in liability for the individual board members,” he says.
George W. Keys, principal of Keys Claims Consultants in Naples, Florida, echoes the same advice. Keys is a current board member of The Florida Association of Public Insurance Adjustors (FAPIA), and has served twice as president for the organization. He cites common property versus unit owner’s responsibility to insure as the number-one issue to be determined.