Glossary of HOA Insurance Terms

By | September 4, 2012

By Béat Koszinowski, CIC, CIRMS

No insurance resource would be complete without a comprehensive glossary of terms. We’ve compiled a list of terms and their definitions to better help you navigate the sometimes confusing world of insurance.

Advertising Injury-This coverage pays for damages done in the course of oral or written advertisement that disparages libels or slanders a persons or organizations goods, products or services. Coverage for these offences is provided under advertising injury coverage only if they occur during the course of advertising the named insured’s own goods, products or services. Also see Personal Injury.

Actual Cash Value – Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.

Actuary – A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics. (Americanism: In most other countries the individual is known as “mathematician.”)

Adjuster – A representative of the insurer who seeks to determine the extent of the insurer’s liability for loss when a claim is submitted.

Agent -individual who sells and services insurance policies in either of two classifications:

Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage.

Direct or career agent represents only one company and sells only its policies.

Aggregate Limit or General Aggregate Limit– Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.

Approved or Not Disapproved for Surplus Lines – Indicates the company is approved (or not disapproved) to write excess or surplus lines in this state.

Building Coverage – The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.

Casualty – Liability or loss resulting from an accident.

Catastrophic Insurance-Earth Quake and Flood Insurance– These are commonly excluded under a standard policy and have to be purchased via a separate endorsement or policy.

Casualty Insurance – That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others.  Also see General Liability Insurance.

CIC – Certified Insurance Counselors  – A Prestigious Designation and the Most Practical Continuing Education The Certified Insurance Counselors (CIC) Program has been the insurance industry’s premier, proven source for practical, real-world education since 1969.

CIRMS- Community Insurance and Risk Management Specialist– The CIRMS designation recognizes a demonstrated high level of competency within the risk management profession. The CIRMS designation specifically addresses the needs of community associations risk management and insurance needs.

Claim – A demand made by the insured, or the insured’s beneficiary, for payment of the benefits as provided by the policy.

Coinsurance – For homeowners and other property insurance clients it requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. At the time of loss if the value of the property is below the stated coinsurance penalty the insurance company has the right to reduce the claim amount payable  as determined by the penalty clause. In most cases this is not permitted as stipulated in the governing documents, lender insurance requirements and the SB167.

Community Owned Property– Community owned property such as clubhouse furnishings, gym equipment, pool furniture etc.

Coverage Basis- Typically this is the Replacement Cost for the damaged property with like kind materials and work. Also refer to Guaranteed Replacement Cost.

Crime Insurance-This protects the homeowners association from theft or embezzlement of HOA income or reserve funds by a trustee, employee or manager.

Damage to Rented Premises or Fire Damage Limit-The fire damage limit provides coverage for fire damage caused by negligence on the part of the insured to premises rented to the named insured. If a fire occurs because of negligence of the insured and causes damage to property not rented to the insured, coverage would be provided under the occurrence limit.

Deductible – Amount of loss that the insured pays before the insurance kicks in.

D&O Insurance- Directors and Officers Insurance– This is legal protection for defense expenses or certain monetary damages due to board member or trustee negligence or omissions.  Also go to Non-Monetary Damages.

Each Occurrence- See Occurrence

Earned Premium – The amount of the premium that has been paid for in advance that has been “earned” by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

Employers Liability Insurance – Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers’ compensation law. Even if you do not have employees you could be subject to this.

Environmental Impairment or Pollution Cleanup and Removal Coverage –This is an aggregate first party coverage that applies to your expense in extracting pollutants from land or water at your location, if the release of the pollutants is caused by or results from a covered loss.

Exclusions – Items or conditions that are not covered by the general insurance contract.

Exposure – Measure of vulnerability to loss, usually expressed in dollars or units.

Extended Replacement Cost – This option extends replacement cost loss settlement to personal property and to outdoor antennas, carpeting, domestic appliances, cloth awnings, and outdoor equipment, subject to limitations on certain kinds of personal property; includes inflation protection coverage.

Flood Insurance- Flood is considered any water above or below the ground entering a structure and causing damage to contents or a structure including causing mold. This is a common exclusion under most if not all property forms. A  Flood Insurance Policy can provide some level of protection for this. However most flood policies have high deductibles such as $ 25,000.

Fidelity Bond- Go to Crime Insurance

General Liability Insurance -Insurance designed to protect homeowners associations, business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured’s premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.

Guaranteed Renewable – A policy provision which guarantees the homeowner association the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policy owner.

Guaranteed Replacement Cost– Guarantees the replacement of the damaged property with like kind of materials and work regardless of any policy limit stated.

Hazard – A circumstance that increases the likelihood or probable severity of a loss. For example, the fence around the pool needs to be replaced due to old age.

Hired Auto-Coverage is provided only for autos owned, leased, hired, rented or borrowed for use in the named insured’s business. Non-Owned Autos-Coverage is provided only for autos not owned, leased, hired, or borrowed by the named insured. Coverage includes autos owned by the insured’s employees or members of their households, but only while used in the named insured’s business or personal affairs.

Inflation Protection – An optional property coverage endorsement offered by some insurers that increases the policy’s limits of insurance during the policy term to keep pace with inflation.

Insurable Interest – Interest in property such that loss or destruction of the property could cause a financial loss.

Insurance Adjuster – A representative of the insurer who seeks to determine the extent of the insurer’s liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an “as needed” basis and might work for several insurance companies at the same time. Independent adjusters charge insurance companies both by the hour and by miles traveled. Public adjusters work for the insured in the settlement of claims and receive a percentage of the claim as their fee.

Liability – Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.

Lloyds Organizations – These organizations are voluntary unincorporated associations of individuals. Each individual assumes a specified portion of the liability under each policy issued. The underwriters operate through a common attorney-in-fact appointed for this purpose by the underwriters. The laws of most states contain some provisions governing the formation and operation of such organizations, but these laws don’t generally provide as strict supervision and control as the laws dealing with incorporated stock and mutual insurance companies. In most cases you only see this insurance in catastrophic types of insurance such as earth quake or flood or if the property is a high risk operation due to losses or exposure.

Loss Control – All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and noninsurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring, and other techniques that minimize the risks of a business, individual, or organization.

Loss Reserve – The estimated liability, as it would appear in an insurer’s financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.

Losses Incurred (Pure Losses) – Net paid losses during the current year plus the change in loss reserves since the prior year end.

Medical Expenses or Medical Payments Coverage-The insuring agreement states that the insurer will pay all reasonable and necessary medical and funeral expenses incurred by an insured because of bodily injury caused by an accident. The insured is the named insured, the insured’s employees and guests, and any other person occupying a covered auto. These payments are made without regard to fault.

Named Perils – Perils specifically covered on insured property. Not used very often and in most cases it is not permissible to use this due to SB167 and the governing documents.

Non-Monetary Damage Claim-This refers to a Directors and Officers Policy claim and accounts for over 70% of a nonprofit HOA D&O claims. This could be for items such as breach of contract, failure to govern according to the CC&R’s or applicable law, improper HOA elections,  violation of zoning laws, wrongful or incorrect enforcement of rules, discrimination, harassment or personal injury.

Non Compensated Officers Included– This a specific endorsement added to your crime policy or fidelity bond that protects you from theft of funds by a non compensated officer or trustee.

Non Profit WCF– This is Workers Compensation Insurance for non-compensated officers, trustees or community volunteers.

Occurrence – An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn’t have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected not intended by the insured.

Ordinance or Law Coverage –In many jurisdictions, once a building or structure has been substantially damaged or destroyed, even if the cause of loss is covered by a property insurance policy, significant additional expenses may be incurred by the insured as a result of local ordinances or laws.  If you the governing documents require 100% replacement cost or if you are subject to SB167 you need to carefully evaluate the potential exposure for expense.

An unendorsed property policy does not protect the insured for those additional costs required by law and for which the insured has no option but to comply with if he/she wishes to remain in operation at that location. Coverage may be obtained for losses that result from the enforcement of laws or ordinances which do not permit restoring property to the same condition as existed prior to damage. The endorsement available is titled: Ordinance or Law Coverage. These types of losses may result from:

Loss of value of an undamaged portion of the existing property that must be destroyed (not directly from a covered cause of loss) from the operation of building or zoning laws.

Costs of demolition of the undamaged portion of the property; AND

Increased expenses to:

Replace the property so as to comply with current building, zoning or land use laws or ordinances.

Repair the undamaged property so that it complies with current building, zoning or land use laws or ordinances.

Personal Injury- Personal Injury means injury other than bodily injury. Coverage is provided for injury resulting from offenses such as false arrest, malicious prosecution, detention or imprisonment, the wrongful entry into, wrongful eviction from and other acts of invasion, or rights of private occupancy of a room. Coverage for libel and slander is also provided in the policy.

Product Liability Insurance- Provides coverage for claims arising after a product is sold.  The coverage is known as Completed Operations Liability Insurance for contractors, a wide variety of businesses including community associations and provides insurance for claims resulting after a construction project is completed.  Manufacturers are sued years after selling a product. Distributors are named as defendants simply because a product passed through their warehouse. An HOA could be held liable for their involvement in commissioning a contractor that caused injury long after a project has been completed.  Contractors have been held liable decades after they have “Completed

Operations “on construction projects.

Property Form-Blanket or Scheduled- The method of insuring HOA property under the insurance policy by either listing each building or getting a blanket amount for the entire project. It is advisable to use a blanket amount.

Reinsurance – In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn’t fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.

Renewal – The automatic re-establishment of in-force status affected by the payment of another premium.

Replacement Cost – The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

Reserve – An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.

Risk Class – Risk class, in insurance underwriting, is a grouping of insured’s with a similar level of risk.

Risk Management – Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.

SB167– This bill applies to certain home owners associations in Utah with insurance renewals after 7/1/2011. The bill requires the HOA master insurance policy to provide 100% replacement cost for all buildings and any unit/s including any permanent installed fixtures to the unit or common are by the unit owner/s. This could be wall covering, floor covering, cabinets, countertops, plumbing or electrical fixtures etc.

Special From Coverage– This type of insurance policy intents to cover all risk of damage or loss. The forms intention is to provide the broadest possible coverage, however the exclusion must be considered. No insurance policy offers coverage for everything.

Subrogation – The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.

Third Party Coverage-This a specific endorsement added to your crime policy or fidelity bond that protects you from theft of funds by a third party such as the manager.

Tort – A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.

Total Loss – A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.

UCCAI Membership-The Utah Chapter of the Community Association Institute is part of Community Association Institute the nation’s largest trade organization for people living in or dealing with community associations. They provide valuable resources, education and community advocacy services. For more info go to and become a member or sign up for one of their educational events.

Underwriter – The individual trained in evaluating risks and determining rates and coverage’s for them. This can also refer to an insurer or insurance company.

Underwriting – The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

Underwriting Guide – Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter.  Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.

Umbrella Policy-In most cases this actually an excess policy and provides additional liability limits above the current policy limits of the policy. It could also include employer’s lialbity, commercial auto liability, and D&O insurance.
This article and the attachment provide general coverage of its subject area. It is provided free, with the understanding that the author, publisher and/or publication do not intend this article to be viewed as rendering legal advice or service. This article does not guarantee any insurance coverage or limits. The actual policy will prevail. If legal or professional advice is sought or required, the services of a competent professional should be sought. The publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.


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