Insurance is like a foreign language to most people. A foreign language most people think they should somehow already know; as if their mother had sung to them when they were in her belly and they should primordially remember the way she crooned the “Replacement Cost” lullaby to them, or later taught them the “My-mother-has-the-very-best-Ordinance-Coverage-and-you-are-not-it” jump rope chant. Alas, no. While insurance certainly is a language of its own, very few of us were actually taught anything about it, aside from the fact that we need it.

Well, I think insurance education is very important. It is the key to buying the best insurance coverage for your Association. So I compiled the following “Insurance from ACV to Z” list, written with as little “insurance-ese” as possible:

ACV – Actual Cash Value – Will reimburse for a covered loss the value of the item (Replacement Cost) minus the use you have gotten out of it (Depreciation). This amount usually isn’t enough to go buy the item and replace it.

Building Ordinance & Law – An excellent friend to have on your team. What if your building was built in 1973, and you have a fire and need to rebuild a large portion of it? There have been many ordinances and laws passed since 1973 regarding the requirements to build a structure. When you rebuild your building, you must comply with the current code (not the code from 1973). This coverage gives you extra money for things like sprinkler systems, fire walls, fire-retardant roofs and other items that increase your cost of construction due to ordinances and laws that have been passed since your building was originally built.

Contents Coverage – Does this mean Mrs. Smith’s laptop computer? After all, she lives in a condo, and the master policy covers these condos, right? Wrong. The master policy (or the Association’s package policy) is in place to cover the Association. Items owned by the Association as a whole that are not a part of the building structure are covered under this limit. That would include workout equipment in the gym, or the furniture in the clubhouse, but would not include personal items belonging to the individual unit owners.

D&O – Why can’t insurance folks just spell things out? This is Directors’ and Officers’ Liability coverage. This coverage protects the Board Members, Directors and Officers should they inadvertently make a decision (or fail to make a decision) on behalf of the Association that damages or injures another party. The architectural request that was approved by the Board, that has unforeseen consequences is the perfect example.

Extended Replacement Cost – While replacement cost will “put you back where you belong,” Extended Replacement Cost puts you back where you belong, and then some. This coverage gives the policy holder an additional percentage above their building limit. So if the Association is insured to value at $10,000,000 and they have 125% replacement cost, the policy will actually pay out up to $12,500,000 if it is needed to reconstruct the Association’s buildings.

Fidelity Bond – Also known as a Crime policy, or an Employee Dishonesty policy, this protects the Association in case one of the Board Members decides that Jamaica is nice this time of year, and they clear out the Association’s reserve funds to make it happen. Managers should be covered under this policy as well, but oftentimes new language has to be added to the policy to make sure the coverage applies to them.

General Liability – Also known as Commercial General Liability or CGL. This coverage comes into play when someone trips and falls on Association property and sues the Association. If you have the correct amount of insurance according to the Davis-Stirling Act, the claimant cannot sue each individual owner, keeping the individual owner from having to take on the expense of getting their own attorney, going through depositions, etc.

Hired Auto Liability – If the Association hires a truck to haul something away, and that truck causes an accident, what will stand up and protect the Association when the injured party exercises their right as a Californian and sues the Association (since the truck was hired by them)? The policy carrying Hired Auto Liability, that’s what.

Insurance – As much as it may seem obvious, it’s nice to spell it out in a way that may help to create a new perspective. Insurance is “the promise of payment (of a claim) in return for a premium.”

Jewelry Rider – This has absolutely nothing to do with an Association insurance policy – but coming up with something that started with a “J” was almost impossible. This rider is for jewelry on a personal homeowners’ policy (HO-6) and provides coverage in the case of theft. Once again, since this is an individual’s possession, it could not be covered under the Association’s policy.

Key Coverage – Also known as Master Key Coverage will pay up to the limits for that coverage to replace locks when necessary – such as after a break-in where it looks like the burglar may have had a key to the premises.

Loss of Income – Let’s say the Association is lucky enough to own one of their own condos and they rent it out as a way of producing income. If a meteorite slams into that building and disintegrates it, the Association not only needs money to rebuild the structure, but they also need money to replace the rental income they aren’t receiving because the unit isn’t exactly rentable. With Loss of Income coverage they are reimbursed for that by the insurance company up to the limits of that coverage.

Maintenance Fees Receivable – Now if the other unit owners in that meteorite-demolished building get annoyed that they are paying Association dues and yet have no place to live so they stop paying their dues, what does the Association do? Well, first off, they do their darndest to get those unit owners to pay their dues. But if all else fails, an insurance policy with Maintenance Fees Receivable (also known as Association Income) will reimburse the Association for those fees up to the limits for that coverage.

Non-Owned Auto Liability – This coverage is similar to Hired Auto Liability above, but applies when an auto that is not owned by the Association is used for Association business. Once again, when the injured party discovers that the Board President (who rear ended them at a red light) was on his way to make copies for a Committee Meeting and was therefore on Association business and they decide to sue the Association, this coverage will step up and defend the Association.

Occurrence – What is an “occurrence?” My insurance company keeps telling me I have to pay my deductible every time there is an “occurrence” – what’s that? Well, the best definition that I have come across is “A series of losses arising out of one event.” So the meteorite striking the building at 12:37 am on January 13th is an event. The pursuant fire that is caused is one of the losses, the rain water coming in through the meteorite-damaged roof and soaking the walls is another loss, etc. But all of those losses were caused by that one event.

Property – There are two main kinds of “Property” that affect Associations, and neither of them refers to the land upon which the Association is built. One is Contents Property (see Contents Coverage above) and the other is Building Property. Building Property is the actual structure – things that are built-in and bolted down. The limit for Building Property should reflect the cost to rebuild that structure, not to sell it.

Quake Insurance – Better known as Earthquake Insurance (getting creative with “Q”). Earthquake insures the building property of an Association in the case of damage due to an Earthquake. Isn’t the structure already covered under the Master Policy you ask? The Master Policy has an exclusion for Earthquake and Earth Movement. Coverage must be purchased separately.

Replacement Cost – This is the cost today to replace an item that is damaged by something the insurance policy covers (like fire). The item that it is replaced with will be of “like kind and quality.” So, if that carpet cost you $12/square foot when you bought it five years ago, and it costs $16/square foot to replace it now, the insurance company will pay the $16/square foot (after any deductible you have, of course) up to the limit on the policy.

Scheduled Coverage – When insuring Association structures, there can be a blanket limit that spreads out over all of the buildings, for use wherever it is needed, or each individual building can have its own limit. When each building has a separate limit as to the amount of insurance it can access, that is called Scheduled Coverage.

TIV – This limit represents what it would cost to replace (rebuild) the entire Association. The value is used in rating the Master Property Policy, or by Earthquake carriers in determining the amount of exposure they are willing to entertain. When used on earthquake policies, the Association may have a different Stop Limit, or limit up to which they want to insure the Association, (less than the TIV) while the deductibles (written as percentages) are figured as percentages of the TIV.

Umbrella Liability – Also known as Excess Liability. This policy adds additional coverage to the Association’s current Liability policies. If the Association has a million dollars worth of coverage for their General Liability, Directors’ and Officers Liability and Hired and Non-Owned Auto Liability, and they buy an Umbrella for an additional one million dollars; the Association has access to that additional million dollars worth of coverage once the limit runs out on any one of their underlying policies.

Vendor & Subcontractor Requirements – While insurance companies don’t require you to place requirements on your vendors and subcontractors, here are some common requirements we’ve seen in the industry. Most Associations require that a vendor or subcontractor provide them with a Certificate of Insurance showing at least $1,000,000 worth of Commercial General Liability coverage, as well as $1,000,000 worth of coverage in Workers’ Compensation coverage. The association should always require they be named as an Additional Insured on the vendor’s or subcontractor’s policy.

Workers’ Compensation Liability – Worker’s Compensation coverage is required by the State of California for any company that has employees. It serves to protect employees and provides them with medical coverage should they be injured while performing their job duties.

X-tra Expense – Also (or really) known as Extra Expense . This coverage is usually teamed up with Association Income coverage. If extra expenses are required to continue the operation of the Association after a covered cause of loss (or damage) has occurred, this coverage will pay out up to its limit. An example would be the need to rent a space in which to hold a Board Meeting if the Clubhouse was damaged by fire and therefore unusable.

You – “You” (as defined by the Association’s policy) will usually refer to the Association, and the Board of Directors. You will need to make sure that in the case of Directors’ and Officers’ Liability and Fidelity Bond coverage that the community manager is included in the definition of “you” and is therefore covered as well. Different insurance companies do that in different ways, so communicate with your Broker or Agent.

Zoning Coverage – This coverage is needed when Zoning laws change and you can no longer re-build after damage the same way the Association was built originally. See Building Ordinance and Law.

And there you have it. An ACV to Z listing of insurance terminology. And while it may still feel a bit like a foreign language, at least now you are familiar with the alphabet!

Kimberly Lilley and Michael Berg are representatives for Berg Insurance Agency.