My guess is they want to know who to sue if it all starts on fire. I'd talk to a lawyer to see if they have the power to require this.
Agreed. The publicity around Chevy Bolt fires has people spooked, largely unnecessarily. (I read somewhere about a Bolt owner who was unplugged while charging at a public charging station with a snide note on the car about how charging the car unattended was a fire hazard.)
It's possible that your auto insurance would already cover property damage, but likely not up to the $500,000 value cited in the letter. If the EVSE is going in your own dedicated garage, then it's possible that your existing homeowner's insurance would cover it -- but up to what value depends on the value of the condo. If the EVSE is going in a shared parking facility, then I'd expect that insurance already held by the condo association would cover it, and the HOA's letter may reflect ignorance of this fact, or maybe an effort to get you to foot the bill for part of this insurance. (If the HOA does
not already have insurance on common areas, then that's a serious problem.) Asking your insurance agent(s), and maybe getting ahold of the HOA's insurance documents, will help clear this up. Of course, if the HOA is inserting this as a "poison pill" clause so that you drop your request to add an EVSE, then there won't be any reasoning with them. In that case, you might want to check out YouTuber Tesla Joy's video on how she convinced her condo association to add public charging:
The quick version: She had to get on the board and make a (perhaps optimistic) presentation about the benefits of adding public charging. She's promised to post more videos on this topic, but so far there are only two.