The HOA Board Quarterly Fall 2014 Issue #11 | Page 11

But the Unit Owner Caused the Damage… By Michael Berg T he unit owner caused the damage, why does the HOA insurance policy cover the cost? After over 40 years of service to the community association industry, this is still one of the most common issues we hear from board of directors and community managers. Before we answer that question, let’s try to change our perspective of insurance just a little. review the Maintenance section of the CC&R’s, but the insurance requirements for the HOA are detailed in the Insurance section. It may come as a surprise, but more often than not, the Insurance section requires that the HOA insure property that a unit owner is responsible to maintain. Oh, that makes perfect sense! The term “caused” implies an action that leads to, or results in, damages. Typically, however, the “cause” of damage is an event that an owner, or anyone for that matter, could not have anticipated or avoided. Most often, this topic comes up specific to property damage of the interior of a unit from water that escapes out of a burst pipe. Before we get into that, let’s look at a similar example from the Association’s point of view. So, the short answer to “why does the HOA policy cover that” is because the CC&R’s state that the HOA must carry the insurance. The unit owner, because he or she pays assessments and those assessments (in part) pay the premium on the HOA policy, is subsequently an insured on the HOA policy. He or she is entitled to the coverage afforded under the HOA policy. Once that coverage is exhausted, he or she can approach his or her own insurance carrier for coverage of damaged property that was not addressed by the HOA insurance carrier. A tree falls in the common area because of a windstorm, and the tree lands on a car. The association is responsible for the maintenance of the tree, so did the association “cause” damage to the car? No. Actually the wind knocked the tree down, and the tree caused the damage. Somebody, quick, sue the wind! As long as the association was not negligent in the maintenance of the tree, the association is not responsible for the damage that occurs. The parties responsible for each piece of property (the association for the tree; the car by the owner) will address their damaged property accordingly. So turn that example back into something that relates to the interior of a unit. Replace the story of a tree with a water line that burst inside a wall. Did the unit owner negligently maintain the water line? Hard to say it should have been cared for differently, considering the pipe is inside a wall. Unless you’re Clark Kent! The cause of damage to property is water escaping from a burst pipe that couldn’t have otherwise been avoided. The parties responsible for the maintenance of the damaged property will address the damage. In a condominium unit, unlike a single family home, there are (hopefully) two insurance policies covering the interior of the unit. One is purchased by the HOA, based on the requirements of the CC&R’s. The other is purchased by the unit owner. The unit owner is an insured on both of policies. The HOA policy comes first when it comes to property damage, and the unit owner’s policy picks up where the HOA policy leaves off. That is why the HOA policy paid the cost of repair when the unit owner “caused” the damage. Keep an eye out for the next issue of the HOA Board Quarterly where we discuss the action a board can take to better line up the association insurance responsibility with the maintenance responsibility of the unit owner. HOA Michael Berg is President and CEO of Berg Insurance Agency and may be reached at 949.830.4590 x216 [email protected] or visit them at www.berginsurance.com This is where an additional point of confusion may come in. All this other stuff may be completely understood. The question now is why doesn’t the unit owner use his or her own insurance policy, or his or her own money, to fix the damaged property? It’s because HOA policy comes first when addressing property damage. The HOA policy is written to meet the requirements of the CC&R’s for the association. Most readers will Fall 2014 | Issue #11 | The HOA Board Quarterly | 11