If you live in a home in a developed area or subdivision, there’s a reasonable chance that you are a member of a homeowner’s association. The same is true if your pad is a condominium.
Association membership has its benefits. In return, members of the association are sometimes asked to contribute funds to help maintain the integrity/value of the common elements. Those common elements—a garage or clubhouse, for example—are those items of property commonly owned by all members. “Asked” may be too soft a word—such contributions usually are collected through mandatory assessments.
What are some things for which you as an association member can receive an assessment? Good question. The answer is typically found in association bylaws. In some states, laws will have something to say about the extent an assessment can be charged and for what it can be charged. However, such statutes do not exist everywhere.
Here’s another question: If you receive an assessment from your home or condo association, will your home or condo policy help you pay for it?
The answer, well, depends.
Most home and condo insurance policies have very similar language in how they address coverage for loss assessment. There are a few things you will need to know before coverage can be determined.
What Caused the Assessment?
The home or condo policy only will kick in to pay an assessment that is charged to you for a reason that would be covered by your insurance. For example, if the assessment were charged to help cover the cost of damage to the clubhouse caused by a fire, your policy would pay due to the fact that fire is a covered loss under your policy. However, if earth movement damaged the same building, your policy would not pay if earth movement is not a covered loss under your policy.
If an assessment is charged to cover the cost of painting the exterior of the clubhouse simply because the association decided it was time to paint, your coverage would not kick in due to the fact that there has been no covered loss.
Assessments are not only charged to cover claims of damage to common elements. Members also may be assessed for claims of bodily injury or property damage against the association’s master policy. For example:
A guest suffers a permanent head injury after slipping on a damaged walkway. The bodily injury claim against the association is $1.5 million. The association’s policy will cover the injury up to its policy limit of $1 million. The association assesses its members to cover the remaining $500,000.
In this example, your insurance policy would kick in to help pay the assessment. Why? Bodily injury is covered by your policy.
Which Policy Covers the Assessment?
Your home/condo policy says that it will only pay the cost of assessments that are charged during the policy period. This is important to note because it’s possible that the actual assessment may not be charged until months after the loss causing the damage occurred. For example, say the hurricane happens in August, when Company X insures you. In September, you switch your coverage to Company Y. The assessment for the portion of the hurricane damage that isn’t covered by the association’s master policy arrives in October. Company Y’s policy would kick in as it was in effect when the assessment was charged.
How Much Will My Home or Condo Policy Pay?
Most policies are issued with a limit of $1,000 to cover loss assessments. This limit is the most your policy will pay for a single loss, regardless of how many assessments are charged for it. For example, if the clubhouse is damaged by a hurricane, it’s possible that members may be assessed first to cover the cost of the association master policy’s deductible—and again to cover the cost of the repair that exceeds that policy’s limit of insurance. Since both assessments are charged due to the same hurricane, the total paid by your insurance would not exceed $1,000.
That $1,000 Seems Too Low. Can I Increase My Assessment Coverage?
Yes. Most home and condo insurance companies offer you the opportunity to add more coverage for loss assessments. It’s important to know that while the dollar amount may be increased, the terms of the policy still apply (i.e. you will still need the assessment to be charged due to a covered loss).
If you choose to purchase additional assessment coverage, proceed with caution. Most loss assessment endorsements will still only allow you a maximum limit of $1,000 if the purpose of the assessment is to cover the master policy’s deductible.
Loss assessments can be expensive. Having the right home or condo insurance policy to help cover some of the cost could save you big bucks. For more information, call Jon Jepsen at SentryWest Insurance (your Trusted Choice® insurance agent) today.
Jon Jepsen, CIC