If you’ve lived in an apartment building, you know the owner and/or landlord usually owns the shared and structural parts of the complex, and shoulders the costs associated with significant repairs or replacement costs – think new boilers, repairing siding or roofing, and so forth. Owners needs not look worry about insuring the structure.
In an HOA on the other hand, you and your fellow residents are essentially business owners who jointly own property. By purchasing into a community, you have chosen to share duties and obligations with fellow homeowners, as well as a share of ownership. The breadth of shared property can include cooperatively-owned items: boilers, siding and the roof, parking lot/garage, lobby, common HVAC, sidewalks, clubhouse, etc.
Inevitably, “events” occur to the common property, such as (these vary by carrier and are not exclusive nor solely inclusive):
- Hail damage
- Accidental discharge, failure or overflow of boilers
- Environmental clean-up
- Injury on premises
- Claims for insurable events or situations (e.g. legal or otherwise)
- Sudden or accidental damage from smoke
- Sinkhole collapse
Because you own property in the community, without exception, owners are then responsible for paying the cost of the repair or replacement of major expense improvements of common areas and elements that are not covered by a master policy deductible. Loss assessment only covers community-wide events.
Say, for example, a storm destroys the roof. The replacement cost exceeds the HOA’s insurance limits. Every condo owner will have to cough up a share of the cost difference to meet the deductible, and if you can’t just whip out your checkbook and pay it, as an owner you should have an insurance company that will. All policies are different. All “perils” are different. In all cases, contact your insurance agent.
Another example: Your association is hit with a $1,500,000 judgment from an accident in the association-owned parking lot. While the association has general liability coverage for this incident, the remaining sum of the judgment (the deductible plus any costs in excess of policy limits) will have to be satisfied. In other words, the board may issue a special assessment for these costs – aka loss assessment costs. If your HOA policy had a $1million policy with a $50k deductible, the ownership may be on the hook for $550k divided between the ownership. Thankfully, owners can insure themselves against this.
Let’s say you, the homeowner, had the foresight to request and obtain loss assessment insurance. In this scenario, your loss assessment insurance covers you.
This insurance is purchased through your own insurance company, by you, and is not part of the association’s insurance policies. It pays whatever portion of the assessment is above the deductible and/or limit of the master policy (The $550k in this example). Even if you had the financial means to pay the loss assessment, you reviewed your HO-6 (Condo) policy prior to the incident, and found loss assessment coverage within that policy! In this example, the applicable portion of the loss assessment is paid by insurance.
Though it seemed an extravagant and unnecessary additional cost at the time, loss assessment coverage is now a life-saver.
Many exclusions and exceptions exist. We suggest speaking with your insurance agent to determine best-use of your insurance coverage. With much that can vary in a policy, the “direct loss to property” clause and applies to all homeowners.
Words of caution for emergency events that may require special assessments: Be patient but persistent in contacting your insurance agent, as you’re likely not alone in contacting them and knowing your own policy details beforehand will lend peace-of-mind. Store your insurance information somewhere safe. Make copies or scans as PDF documents to send when disaster strikes. Be aware of your policy contents, the “replacement cost” (item value minus the deductible) or the “actual cash value” (item costs at the time it was damaged or destroyed, minus the deductible).
Note: while we are proud of our insurance expertise; this post may have omissions and overall should not be viewed as legal or insurance advice in any manner.
By Ben Tryon