Events of casualty damage, even when some of the damage is covered by an association’s insurance policy, can be very expensive for condominium and homeowners associations, primarily because association insurance deductibles are typically tens of thousands of dollars per claim.  The deductible expense is really just the portion of the cost to repair that is not covered by insurance, and is often a common expense paid by all owners.  Whether an association can pass that expense—often the amount of the association’s deductible—directly to the owner who caused the damage, or to the owners whose units were damaged, often depends on the provisions of an association’s recorded declaration.

Numerous associations have amended their governing documents to include language requiring the owners of units involved in the claim (either by causing the damage, or by sustaining damage)to pay for the amount of damage up to the association’s deductible, as well as other uninsured amounts.

In fact, based upon advice from experienced brokers and community association insurance professionals, associations characterized uninsured amounts, including the association’s insurance deductible, as a “loss assessment” to be paid by the impacted owner(s).  Ideally, the owners would turn around and file a claim under their HO6 insurance policy, pay a deductible that was at most a couple hundred dollars, and the HO6 insurer would provide coverage for the loss assessment.  The arrangement seeks to place responsibility for uninsured damage under the association’s policy with the at-fault or affected parties, who could, in turn, rely on their own insurance for coverage to cover these amounts.  Associations benefit by avoiding large common expenses, and owners protect themselves by limiting their out of pocket expenses for the association’s deductible by obtaining their own insurance respecting their units.

In response, HO6 insurers have started to eliminate or drastically roll back the individual unit coverage described above.  Recently, we were made aware of the following language in an HO6 policy issued by a major insurer: “We will not pay more than $1,000 of your assessment per unit that results from a deductible in the insurance purchased by the association of property owners.”  In other words, an owner who has a policy with this language, who is assessed the cost to repair damage not covered by their association’s insurance (i.e., the association’s deductible), may be required to pay thousands and thousands of dollars as a result of this change.

From a condo or homeowners association’s perspective, these changes are an opportunity to encourage owners to know what is in their HO6 policies.  The mechanisms of the governing documents will be carried out regardless of whether owners’ policies have this new limitation or not, and they will be charged with the association’s deductible and potentially other uninsured amounts.  Proactive associations will begin a conversation with their owners on how repair costs are allocated, what insurance looks like, and use it as an opportunity to encourage owners to evaluate who they purchase insurance from.

If your association needs assistance with insurance issues, whether related to deductibles or anything else, Barker Martin has assisted dozens of association in Washington and Oregon with their insurance matters, and is here to help.