North Carolina G.S. 47F-3-113: HOA Insurance Rules

Quick Answer

G.S. 47F-3-113 requires a planned community association to carry, to the extent reasonably available, property insurance on the common elements (at least 80 percent of replacement cost) and liability insurance in reasonable amounts. Policies must meet specific terms, proceeds are held in trust, and damaged common elements must be repaired unless an 80 percent vote says otherwise.

At a Glance

What the Law Says

Required coverage (a) and (b)

Beginning "not later than the time of the first conveyance of a lot to a person other than a declarant," the association must maintain, to the extent reasonably available:

• Property insurance on the common elements against "all risks of direct physical loss commonly insured against including fire and extended coverage perils," in a total amount after deductibles of "not less than eighty percent (80%) of the replacement cost" at purchase and at each renewal (excluding land, excavations, foundations and similar items).
• Liability insurance "in reasonable amounts" for death, bodily injury and property damage arising from use, ownership or maintenance of the common elements.

If the coverage is not reasonably available, the association must promptly notify all owners by hand delivery or prepaid U.S. mail. The declaration may require other coverage, and the association may carry other insurance.

Policy terms (c)

Policies must provide that each owner is an insured to the extent of the owner's insurable interest, that the insurer waives subrogation against owners and household members, that an owner's act or omission (unless acting for the association) will not defeat recovery, and that the association's policy is primary if an owner has other insurance for the same risk.

Proceeds, certificates and cancellation (d) to (f)

Losses are adjusted with the association, and proceeds are payable to a designated insurance trustee or the association, not to mortgagees. They are held in trust for owners and lienholders and used first for repair or restoration. Owners may buy their own insurance. Insurers must issue certificates to the association and, on written request, to any owner or mortgagee. Cancellation or nonrenewal requires 30 days' notice mailed to the association, each owner and each mortgagee holding a certificate.

Repair and replacement (g)

Damaged or destroyed insured property must be promptly repaired or replaced unless the community is terminated, repair would be illegal, or owners decide not to rebuild by an 80 percent vote (including 100 percent of owners assigned limited common elements not to be rebuilt). Costs beyond proceeds and reserves are a common expense. Subsection (h) says the section may be varied or waived for communities where all lots are restricted to nonresidential use.

What This Means in Practice

For boards

Put the 80 percent replacement-cost test on the renewal calendar, because it applies "at each renewal date." Ask the broker whether the policy has the owner-insured, waiver of subrogation and primary-coverage terms. Keep a notice template ready for the case where coverage is unavailable.

For owners

Owners can request a certificate of insurance in writing. Our reading: the association's policy covers the common elements, not each owner's lot and home, so owners should review their own coverage and the declaration.

What the law does not say

• It does not set liability limits ("reasonable amounts").
• It does not require directors and officers or fidelity coverage. Whether to carry them is a board and declaration decision. Open question: confirm needs with your insurance professional.
• We did not read the parallel condominium insurance section, which is different in structure.

Timeline

Related North Carolina Law

• G.S. 47F-3-102: association powers
• G.S. 47F-3-103: board and budget
• G.S. 47F-1-102: applicability
• Chapter 47C: Condominium Act overview
• North Carolina HOA laws complete guide

Board Checklist

• Confirm the property policy limit is at least 80 percent of replacement cost at each renewal.
• Obtain a current replacement-cost estimate for insured common elements.
• Confirm the policy has the owner-insured, subrogation waiver and primary-coverage terms.
• Review the declaration for any extra required coverage.
• Keep certificates ready for owners and mortgagees who request them.
• Calendar the 30-day cancellation notice requirement and watch for notices.
• If coverage becomes unavailable, send the written notice to all owners promptly.

Frequently Asked Questions

What insurance must a North Carolina HOA carry?

Property insurance on the common elements and liability insurance in reasonable amounts, to the extent reasonably available.

How much property coverage is required?

Not less than 80 percent of replacement cost, after deductibles, at purchase and each renewal, excluding land and items normally excluded.

Who gets the insurance proceeds after a loss?

They are payable to an insurance trustee or the association, not to mortgagees, and held in trust for owners and lienholders.

Must damaged common elements be rebuilt?

Yes, promptly, unless the community terminates, repair is illegal, or owners vote not to rebuild by 80 percent.

Can an owner get a certificate of insurance?

Yes. Under subsection (f), the insurer must issue certificates or memoranda of insurance to any owner who asks in writing.

What if insurance cannot be obtained?

The association must promptly notify all owners by hand delivery or prepaid mail.

Where We Stand

Our position: we support this law. A replacement-cost floor and owner notice duties protect owners from under-insured communities, and the statute leaves room for boards to buy more. Tip: order a replacement-cost appraisal on a regular cycle and share the renewal summary with the board before the policy expires. This is Association Property Managers' operating view as a management company, separate from the legal summary above, and it is not legal advice.

Where This Comes From

This page is based on the text of G.S. 47F-3-113 and G.S. 47F-1-102 in Chapter 47F on ncleg.gov. We did not read court decisions on this section or the condominium insurance statute.

How APM Helps

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Legal disclaimer: This article is general information, not legal advice. Laws change and associations differ. Confirm the current statute text and how it applies to your governing documents with a licensed North Carolina attorney before acting.