The Importance Of Loss Assessment Coverage
CONDO INSURANCE
Maximizing Your Condo Insurance
The Importance Of Loss Assessment Coverage
BY : DEBBIE TORRES , CISR ELITE , CPIA , SENIOR CLIENT MANAGER , JGS INSURANCE , A BALDWIN RISK PARTNER
BY : DAVID VELASCO , EBP , ADVISOR , JGS INSURANCE , A BALDWIN RISK PARTNER
I
n most condominium communities , the association carries an insurance policy that provides coverage for incidents that occur outside of a unit owner ’ s personal unit as well as inside the unit , depending on statutory and bylaw requirements . This is commonly known as a Master Policy .
At times , some unit owners mistakenly assume the coverage the association carries is adequate to cover all incidents that occur in a shared area of the property such as lobbies , stairwells , pools , clubhouses , and outdoor spaces .
However , in the event damages from an incident exceed the limits of the association ’ s Master Policy , all residents may be assessed the uninsured portion of the loss , even if they were not at fault . To avoid an out-of-pocket expense , loss assessment coverage is a critical add-on to the HO6 or an HO4 policy that all condominium residents should consider .
WAIT A MINUTE ! WHAT IS AN HO6 OR AN HO4 ?
An HO6 policy is homeowner ’ s insurance for owners of a condominium or shareholders of a cooperative ( co-op ) unit . As a condominium owner , the owner is likely at least responsible for insuring the improvements and betterments they make or acquire from a previous owner , but depending on how the bylaws are written , they may also be responsible for insuring the entire interior of the unit . Cooperative shareholders may not actually own the improvements they make as those may belong to the association unless the governing documents indicate otherwise .
An HO6 policy usually does not cover the exterior or common areas of the condominium complex as those are typically covered by an association ’ s Master Policy .
HO4 is the technical term for renters ’ insurance . While a landlord insures the dwelling with an HO6 policy described above , an HO4 policy protects the personal property of a tenant if it is damaged under certain circumstances . Most HO4 policies also provide liability insurance . This is needed if someone is injured on or in the rental property and if the tenant is found negligent for the injuries sustained . This policy may cover legal expenses and medical expenses that the tenant may be held responsible for . Liability coverage can also cover reimbursement for any visitor ’ s property that is damaged while visiting a tenant in a community .
WHAT IS LOSS ASSESSMENT COVERAGE ?
Loss assessment coverage can be added as an endorsement to either type of policy . It provides much-needed protection in cases where residents of a shared property are held responsible for a significant portion of the costs associated with a covered incident but where the association ’ s policy limits do not fully cover the loss , defense , or indemnity . Examples of this may include the following :
• A major hailstorm causes $ 1,100,000 worth of damage to a condominium building . While the association has a Master Policy , the policy ’ s limit is $ 1,000,000 , leaving owners with $ 100,000 of uncovered damage . Owners are collectively assessed the uninsured portion of the loss .
• A visitor to a condo property sustains a very serious injury when he trips on uneven pavement . The injury bills — totaling $ 6,250,000 — exceed the association ’ s liability coverage and umbrella combined limit of $ 6,000,000 , creating a major financial burden for condominium ’ s residents ($ 250,000 ).
• A fire destroys a building within a multi-building association . The association ’ s property coverage doesn ’ t fully cover all the damages , and owners are forced to pay a portion of the repairs .
WHAT LOSS ASSESSMENT COVERAGE IS NOT
Loss assessment coverage is not a policy that you purchase to cover a Special Assessment .
Imagine that an association faced an exceptionally bad winter and finds it has overspent on snow removal . The association is $ 50,000 over budget for the year . The Board of Directors decides to special assess the homeowners for the deficit . This is not a covered loss under a loss assessment endorsement .
COVER YOUR ASSET
Simply put , loss assessment coverage provides a safety net for condominium owners , ensuring they do not have to pay for incidents that exceed an association ’ s policy limit ( s ). Loss assessment coverage can be applied to property damage , liability , injuries that occur on condo property , or deductible responsibility . Each situation is different , so residents should discuss the specifics of their situation with their personal line insurance agent . +
4