The only logical basis for liability for the HOA, and thus its insurer, is as you suggest: that the HOA was responsible for GZ’s actions because it either sponsored, or condoned his work as Neighborhood Watch Captain, and that he was acting in that capacity when the shooting occured.
This has interesting implications. If the HOA accepts the argument that GZ was acting as its agent, why isn’t the HOA liable for the cost of GZ’s defense? It could argue that he was conducting himself negligently, or willfully improperly, but if the insurer feels the HOA was $1 Million + responsible for his conduct, that wouldn’t seem to hold water.
Good Point. GZ may be suing the HOA next for that and maintaining an unsafe neighborhood watch environment.