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More HO Loss Assessment Misunderstandings

Author: VU Faculty

Can a condo association assessment for a deductible be paid by the HO policy without the entire association being assessed? An agent reports that one company will not pay unless the entire association has been assessed even if it is written into the by-laws that a single unit owner may be responsible for the association deductible. 

 

Question..."Can a condo association assessment for a deductible be paid by the HO policy without the entire association being assessed? An agent reports that one company will not pay unless the entire association has been assessed even if it is written into the by-laws that a single unit owner may be responsible for the association deductible. They claim that they are not required to abide by the by-laws of a condominium association. Please help!"

Answer?Questions like this sometimes make one wonder whether some insurance company staffers ever bother to read their own policy forms. Given that this is the HO 00 06 10 00, the answer is clear and unambiguous, as outlined by our faculty below.

Faculty Response
The language of the policy is to pay for assessments. It doesn't say all owners must be assessed. It should be covered if it was assessed based upon the CC&Rs of the association.

Faculty Response
What policy language is the company citing to deny coverage? The policy pays up to $1,000 for “your share of a loss assessment charged…against you as owner….by an…association of property owners.” As long as the assessment is made due to a loss to collectively-owned property and caused by an insured peril, there should be coverage. Where in the policy does it specify which of the owners should be assessed and how much?

Associations often won’t assess owners in other buildings for loss that occurs in just one building. What’s different about one unit-owner being assessed? I’m sure the insurance company doesn’t like the assessment being “targeted” at the policy's additional coverage, but unless there’s somewhere in the policy that says it’s not covered, it is covered.

Faculty Response
The HO-6 (2000 edition) states this:

We will pay up to $1,000 for your share of loss assessment charged during the policy period against you, as owner or tenant of the "residence premises", by a corporation or association of property owners. The assessment must be made as a result of direct loss to property, owned by all members collectively, of the type that would be covered by this policy if owned by you, caused by a Peril Insured Against under Coverage A.

A literal reading of the form shows that it does not require that all members be assessed. The key is an assessment by the corporation of property owners “against you….” It says, "your share" of the loss assessment but doesn't say that can't be 100%. The damaged property has to be owned by all members, but that wording does not appear when speaking of who is assessed. 

On a side note, here in Florida our Division of Condominiums just ruled that a condo association cannot require just one unit owner, a group of unit owners, or anything less than all unit owners to pay the master deductible. That’s due to the way the statutes read here. 

Finally, here is a loss assessment article from our Florida Association. We are still involved with loss assessment claims from 2004 hurricanes.

Faculty Response
The association bylaws may not mandate that they do something, but their insurance contract does. One of their claims personnel should take a few minutes to read the loss assessment coverage in their HO-6 policy:

7. Loss Assessment. We will pay up to $1000 for your share of loss assessment charged during the policy period against you by a corporation or association of property owners, when the assessment is made as a result of direct loss to the property, owned by all members collectively, caused by a Peril Insured Against under COVERAGE A – DWELLING, other than earthquake or land shock waves or tremors before, during or after a volcanic eruption.

This coverage applies only to loss assessments charged against you as owner or tenant of the "residence premises."

We do not cover loss assessments charged against you or a corporation or association of property owners by any governmental body.

The limit of $1000 is the most we will pay with respect to any one loss, regardless of the number of assessments.

Condition 1. Policy Period, under SECTIONS I and II CONDITIONS, does not apply to this coverage.

As you can see, nothing — absolutely nothing — in this coverage provision requires that the assessment be made against ALL members of the association. There are only three requirements:

1.  The assessment must be made during the policy period.

2.  The damaged property must be jointly owned by the association members and of a type covered by the policy.

3.  The cause of loss must be due to a peril covered by the policy.

The denials you describe are not based on the policy language of the ISO form. I suspect you can confirm this by consulting IRMI, FC&S, and/or PF&M manuals. If the insurance department was aware of denials such as those you describe, they might order that payment be made for past denials.

Faculty Response
Another often misunderstood aspect of Loss Assessment coverage is the trigger. It doesn't matter when the loss occurred, but rather when the assessment is made. Loss Assessment coverage is similar to liability claims-made coverage in that the policy that responds is the one in force at the time of the assessment, not the occurrence of loss. Here is a VU article that addresses this issue:

Here is an even more comprehensive article on loss assessment:

If you'd like to dig a little deeper, here is an example of a more specific article about a particular Loss Assessment problem: 

Faculty Response
Thanks for your comments. One more condo-related question if I might....I had another adjuster turn down a loss assessment for a client whose condo association assessed them for damage to property items such as the clubhouse, fencing, etc. because there was no Coverage B on the policy for "Other Structures." Obviously, I had written coverage A & C, but nothing for B since the HO-6 doesn't include it. The contention of the adjuster is that the client would have to have Other Structures coverage for them to pay the loss assessment claim.

Faculty Response
The HO-6 doesn’t have any Coverage B. Read the form and Coverage A in the HO-6 covers what Coverage B in the HO-3 would. The trigger for coverage is damage to property owned collectively by a covered peril. Period. Again, the refusal to read (or the inability to understand) simple contract language can be extraordinarily frustrating.

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