Loss Assessment Coverage
Many homeowners are not aware of additional insurance coverage that is available for their protection and is vital for necessary financial safety when living in a common interest development. Loss Assessment Coverage is available at very minimal cost for the protection and peace of mind it provides.
What exactly is Loss Assessment Coverage?
Loss Assessment Coverage is an insurance coverage that can be added to your individual homeowner’s insurance policy through your individual insurance agent or broker. Loss assessment coverage will pay for certain types of assessments that would be assessed to each unit owner in the event of an insurance loss, where the money for the loss would be either nonexistent or not enough from an insurance company. There are actually two types of loss assessment coverage, however:
More Coverage Information
In the event that your homeowner association would suffer a loss, such as someone being injured on the common area, and the amount of insurance carried by the HOAs master policy was not sufficient to pay this person’s injury. The CC&R’s of almost all homeowner association require that the Board make a special assessment to each owner to cover the shortfall of money needed to settle this matter. Remember that if an injury occurs on the common area, you, as the owner of a home within a homeowner association, are responsible for your fair share of that injury should the association be found guilty or at fault.
Example of a Condo Association Claim
As an example, an association (condo) had a person severely injured in an accident in their pool several years ago. This individual sued and won a judgment of $5,300,000 from the homeowner association. Each homeowner in the association owns a portion of that pool and is also liable for anything that happens in the pool or on the common area. The association’s master policy carried $2,000,000 of insurance and the settlement was $5,300,000 so they were $3,300,000 short. There were 100 homes in the development and each unit owner was assessed $33,000. Three owners were unable to come up with the money, and therefore the board was forced via the CC&R’s to place a lien on their property and ultimately ended up foreclosing on two homes.
Even though this example was for a condominium association, the same principle applies to town homes and single family homes. The board of directors will come to the owners to cover any shortage of insurance coverage for claims on the master policy.
Another Example of a Common Area Claim
Another case reported by an insurance agent was about a children’s play area. A woman was swinging on the swing set, which broke letting her fly into a concrete berm around the perimeter of the swing set area. She became paralyzed and sued the condo association. As in the above case, the jury awarded her damages as the berm was clearly too close to the swing set. The condo association, again, did not have enough insurance to cover the award and had to go to the owners to cover the loss.
By purchasing insurance through your individual home owner insurance policy, if your board of directors was to come to you and ask you to pay for an assessment like this, your own personal insurance company would step in and pay the bill (up to your covered amount) – if you had Loss Assessment Coverage. The cost of loss assessment insurance coverage can be as little as $10 – $25 per year, providing up to $100,000 or more of insurance coverage.
Earthquake Loss Assessment Coverage
As you may or may not know, we live in a Class A earthquake area (One of the top three in the country – Alaska, California and then Nevada). Your individual policy can provide for Earthquake Loss Assessment coverage from one of those carriers who continue to provide this coverage. Some of the larger carriers have withdrawn their coverage since the big Southern California quake several years ago, but there are many in Nevada who still provide the coverage.
It is recommended that you consider both types of insurance for further protection. Please talk to your personal insurance agent about this coverage. As this author found, your agent may not be aware that loss assessment coverage is available. Please have them call their underwriter for verification if they say it is not available as it may be called by something else. Give them a copy of this article if necessary. It’s worth your time to see what types of loss assessment coverage are available from your carrier for your personal protection.
Deductible’s charged to the Unit Owner and how it applies to your coverage:
Super IMPORTANT! More and more associations are adopting deductible rules that will pass the expense of the deductible back onto either the affected units or the causing unit. Couple this with rising deductibles being chosen by your association board of directors and you have a real exposure! It is not uncommon for a unit owner to lose their unit via foreclosure when this happens.
What every unit owner needs to know is that there is coverage available at a reasonable price. When you purchase loss assessment coverage there is often a line item inside this coverage that says if you as an owner are ‘assessed’ or charged the deductible in a loss your personal insurance policy will pay a certain amount. You need to do your homework though as some limit the amount they will pay to $1,000 which is not enough in most cases.
On the other hand if you were negligent and caused a loss you should be ok as this would fall under your personal liability coverage which usually has no deductible.
Contact Balsiger Insurance for Loss Assessment Coverage
Give us a call: 1-866-872-0156
Call one of our expert independent insurance agents at Balsiger Insurance to help you review your loss assessment coverage to make sure you are protected.
If you are a community manager or board of directors for an association get some help from a qualified broker to write an article for distribution to all of the unit owners and occupants. It is best to educate up front to avoid having to try to collect after a disaster strikes! Learn more about loss assessment by speaking with Balsiger Insurance.