Reader Questions - Is Exclusive Use Area Insured?

Dear Kelly,

You recently addressed a question about HOAs granting “exclusive use” to those individual owners requesting expanded control and use of parcels contiguous to their units. Our HOA has done so.

However, since the exclusive use area is still technically owned by the HOA, how do we insure those newly created “back yards?” Should the unit owner purchase extra coverage for that newly acquired space or should the HOA add to its existing coverage, or a combination of both?

Thank You,

RF, Palm Springs

Dear RF,

Exclusive use common areas are defined by either the governing documents or statute (Civil Code 4145) as areas used by an owner to the exclusion of other owners. An association can grant additional exclusive use areas to members, if it complies with Civil Code 4600, as yours apparently did. Such areas are still owned in common by all the owners. Some confusion arises because many owners do not understand that although they solely use it, it is still common area under association control. Another example of the confusion arising from this hybrid area is the recently passed Assembly Bill 968, which starting in 2017 clarifies that the association repairs such areas unless the governing documents state otherwise. The new law will in 2017 change nothing, because HOA lawyers have long understood implicitly what the law will then make explicit.

So, who insures this hybrid area? I posed your question to three leading insurance brokers known for serving common interest developments (“HOAs”).

Michael Berg, of Berg Insurance Agency in Lake Forest, writes: “The majority of condominium unit owner policies will include language defining this additional open space as part of the insured location. The language would read something like ‘Insured location’ means the residence premises and any premises you use in connection with the residence premises.” In my opinion, the unit owner would not need to purchase additional insurance to protect against liability in this new exclusive use common area. But, conservatively, one might contact an insurance professional to discuss the additional exposure.”

A veteran insurance agent preferring to be anonymous writes: “I am assuming the concern is for any liability exposure. The (association) Master Policy should provide protection for liability exposures in the common and exclusive use areas. In addition, the individual owner’s personal insurance policy should extend to the area they actually own as well as exclusive use area if they were to be sued from a liability issue in that area.”

Scott Litman, of the Scott Litman Insurance Agency in Woodland Hills, writes: “For both property and liability coverage it comes down to what the CC&Rs say. Since an injury could still be considered on the HOA ‘common’ area, the HOA could still be liable, without an agreement defining the duties of the unit owners. The HOA could cover the fences, trees walkways etc. depending on what the CC&Rs say regarding the exclusive use of the new “non-common area”.

The consensus among these experts is that the HOA policy should cover exclusive use areas, but that an individual unit owner’s insurance policy also would cover liability arising there, and this is a good topic for homeowners and associations to discuss with their insurance brokers.

Thanks for your question, (and thanks also to these experts),
Kelly

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®.