Bare Walls or Full Coverage: Insurance Brokers Weigh In

So-called “bare walls” insurance plans are often discussed in associations trying to limit the cost of water damage claims. In a bare walls approach, the HOA insurance does not restore unit interiors, but each owner to insures (via individual HO6 policy) or pays for their own cabinets, wall and floor coverings, and other interior finishes. I consulted several leading insurance brokers on the subject.

The experts did not agree on the desirability of a bare walls system. Steven Segal, of the Steven G. Segal Insurance Agency in Sherman Oaks, observed there is “too much exposure both to the association and the individual unit owner.” John Sinner, of the John R. Sinner Insurance Agency in Alhambra, disfavors bare walls insurance, because “it leaves the responsibility of proper interior insurance on the owners.” Sinner said if a unit owner had insufficient interior coverage, the association might have a damaged unit left only partially restored. Joel Meskin, Managing Director of McGowan Program Administrators, a national agency headquartered in Ohio, also does not recommend bare walls insurance, questioning whether unit owners will obtain their own HO6 insurance policies. He said further “I have much more confidence in the association taking care of the issues, and I think the [cost of] insurance obtained by the association will be ultimately be less than the totality of changing to bare walls.”

However, Michael Berg of the Berg Insurance Agency in Lake Forest, offered a differing view: “Bare walls is the most equitable sharing of the risk of damage to interior property. It most closely aligns with the maintenance and repair responsibilities of the HOA and the unit owner.” Steven S. Grane, of Alante Insurance Services in Irvine, said a bare walls policy “eliminates multiple claims against the HOA master policy. The more claims, the higher the premium.”

Is the total cost of all the individual HO6 policies and HOA “bare walls” insurance less expensive than a more comprehensive HOA policy? John Sinner believes it might not be, and could cost more. Steven Segal agrees, saying the increased cost to each owner may be more than the difference between “bare walls” and full HOA coverage. Per Michael Berg, the breakeven point will depend on the size of the insurance and how much the carrier is charging for coverage of property attached to unit interiors. However, Timothy Cline of the Cline Insurance Agency in West Los Angeles said that “simply adding an endorsement that broadens (“walls in”) or narrows the scope (“bare walls”) has virtually no impact on the rate.” Cline said the rate is more affected by the amount of property coverage.

The experts agreed that individual unit owners should have HO6 policies, regardless of the association’s insurance approach.

To save money on insurance premiums, Segal and Sinner recommended associations obtain a modification, or “endorsement,” to their policy which removes floor and wall coverings from the association insurance coverage. 

All this brings three conclusions. First, HOAs should discuss the costs and benefits of each alternative with their insurance broker and legal counsel. Second, condominium owners should have their own individual HO6 policies, regardless of what their HOA does (or doesn’t). Finally, one approach does not fit all – each association’s approach should be tailored to its needs and unique characteristics.

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.