Who Insures What in the Planned Development?

By Kelly G. Richardson, Esq. CCAL, HOA Homefront Column

Kelly: Can a Planned Unit Development purchase "Bare Walls" fire insurance for residences since the HOA does not own them? R.M., Vista

Dear R.M.: The term “Planned Development” is used in California and is found in Civil Code Section 4175. Although the term “planned unit development” is often used, it isn’t found in California law. Planned developments normally involve the homeowners owning a separate piece of property called a “lot,” which is normally created under the Subdivision Map Act. The lot may have attached or detached housing. It’s important to note that attached townhouse-style planned development residences are often mistaken for condominiums – read your CC&Rs to be sure.

The HOA’s obligation to obtain property damage insurance normally arises through the CC&Rs. Sometimes in attached planned developments, the CC&Rs require the HOA to insure all the “improvements” on the property, even though the structures are individually owned. Some such HOAs conduct membership votes to amend their CC&Rs to reduce the coverage to just “bare walls” or even eliminate the insurance completely, which places the responsibility completely upon the individual homeowners. This is a serious decision in which the HOA’s legal counsel should be involved before submitting it to the homeowner membership. If the CC&Rs do not require the HOA to insure the individually owned homes, it would be a very good idea to give homeowners substantial advance notice before this is changed. Thanks, Kelly.

Mr. Richardson,

You have NO idea how much your weekly articles have assisted the betterment of our association. Is the manager or our board responsible for ensuring that ALL residents have a personal insurance policy in effect within our condo complex? Insurance premiums have gone through the roof, and we've had a recent severe increase of our HOA monthly dues, as a result of 2 fires within condos. Apparently, the two owners of those 2 condos had NO insurance to cover all the damage, thus all other association members paid the wrath, with increased monthly dues increases. Are not ALL residents in an HOA required to have insurance coverage for damage related to the adjoining attached units, if it was fires caused by the resident and at no fault coverage under the HOA’s guidelines and responsibilities ?

Respectfully, J.H., Fullerton

Dear J.H.: Thanks for your kind words. It is gratifying to know I can make a difference for HOAs. As to individual condominium insurance, mortgage lenders normally require homeowners to have such insurance in place. Many HOA CC&Rs or rules also require individual unit owners to carry insurance. This requirement is cumbersome to enforce since it would require the manager to track the expiration dates of all the various individual policies and to have copies of all the insurance information on file.

An individual insurance policy should protect not just against damage but also liability- if something within the unit results in damage to another unit such as a fire or leak from within the unit.

When drafting CC&R revisions requiring individual unit insurance, I make sure the HOA is not required to insure those interiors and I add a “consumer advisory” alerting members that their failure to keep that insurance could result in a great financial hardship to them in the event of a loss.

Best regards, Kelly