If you live in a condominium or other multi-family dwelling that is governed by a homeowners association (HOA), you should investigate loss assessment coverage. The HOA is responsible for insuring the common areas of the building, but sometimes losses can exceed the amount of coverage in place. When that happens, members of the association are called upon to contribute the uninsured portion of the loss. This amount can be substantial and will be a significant financial hit to individuals unless they have loss assessment coverage on their home insurance policy.
The New Jersey Cooperator, a publication dedicated to issues surrounding HOAs, published an article about the benefit of loss assessment coverage. In their example, the HOA was hit with a $1.5 million judgment arising out of a personal injury claim on the HOA’s property. This exceeded the amount of insurance available to the HOA and individual owners were each required to contribute $50,000 to make up the shortfall.
How would you handle a similar situation if you were called upon to contribute $50,000 out of pocket to fund an HOA issue? Many, if not most, homeowners would have tremendous difficulty paying a similarly large assessment. Thankfully, loss assessment insurance is available to help you with these types of situations. However, you should carefully review your home insurance policy to understand the nature and extent of the loss coverage that is on your current policy.
Most condominium insurance policies will provide some loss assessment coverage. However, it’s the limit of coverage that should be your first area of review. If the standard policy limit is a very low amount, such as $1,000, there’s really not much benefit being provided. Discuss with your insurer or agent the amount of coverage that they are willing to provide. Keep in mind the assessments can be for both first party property and third party liability claims. If there is damage to your condo building that is insufficiently covered by the HOA’s policy, individual owners will be assessed the remainder of the cost. Consider both types of claims when evaluating how much loss assessment coverage you should purchase.
The other aspect of loss assessment coverage you should evaluate is the type of coverage available. Keep in mind that most policies can only cover claims that would otherwise be covered under the condo policy. If the loss assessment is the result of a loss that normally would not be covered by the HOA’s policy or your own condo policy, it’s fairly likely the loss assessment coverage would not apply. As a result, you should also understand the insurance coverage maintained by the HOA. The most effective way to prevent loss assessments is to verify the HOA maintains sufficient insurance coverage. As a homeowner member of the HOA, you have the right to know what coverage is in place regardless of where you live – Charlotte, Arlington, Cleveland, Jacksonville, Long Beach, etc. Request a copy of the policy from the HOA or the HOA’s property manager so that you can review its coverage terms.