A senior living condo community in Florida with a homeowners association (HOA) increased its hurricane deductible to 5% and passed the deductible back to the individual owners, who are now responsible for the roofs.
Several years ago, a senior living condo community in Florida with a homeowners association (HOA) opted out of the 2% hurricane deductible and increased it to 5%. Each building has its own 5% deductible. The HOA passed the deductible for each building back to the individual owners, who are now responsible for the roofs.
Q: In the event of a loss, will the loss assessment coverage under the HO6 be applied to the individual building owners' deductibles?
Response 1: HOAs make the assumption that their premium-saving decision of increasing the deductible could be passed to the individual unit owners by having the owners increase their loss assessment limit on their HO6 policy. Unfortunately, to determine if there is any coverage for a deductible assessment, each individual unit owner has to ask their agent if their HO6 would respond.
First, the loss must be due to the perils the owner purchased. But add a myriad of issues to that, including but not limited to:
- What ISO HO edition does the condo owner have?
- If the HO6 is prior to the ISO 2011 edition, does the endorsement, increasing their loss assessment limit, have the usual deductible condition limiting coverage to only $1,000 for assessments due to the HOA's deductible?
- If the owner includes the value in their Coverage A limit, how does their carrier interpret the “other insurance" clause if the HO6 is an ISO edition that is prior to the 2011 edition?
- Does the condo owner have a proprietary HO6 form that modifies the usual ISO policy and endorsements?
Response 2: You have the wrong understanding of loss assessment. See the article, “
Assessing Loss Assessment," by Karen O'Connor Corrigan, one of the top condo policy gurus.
Response 3: Whether loss assessment or dwelling Coverage A responds depends on the ownership of the roofs. These sound like they might not be a condominium where the owners own the roof and siding. If these are condos, then loss assessment can respond because it only pays for items owned collectively.
These might be attached homes owned individually, including the roof. In that case, Coverage A can respond. There is nothing in the ISO HO6 language that limits Coverage A to the interior of the unit if it is the owner's insurance responsibility.
Response 4: Recent editions of the ISO HO6 do provide that the increased loss assessment coverage is available to pay for loss assessments due to an HOA's deductible. Previous editions, as well as many insurers' proprietary forms, do not. Only the $1,000 automatic loss assessment additional coverage in previous ISO editions is available to pay for deductible assessments.
Response 5: The HOA's master policy would need to state that the individual owners are indemnified. Read the policy. Some loss assessment coverages apply to deductibles and some don't. What triggers coverage is usually an assessment from the HOA due to a covered cause of loss—and which causes of loss are covered is dependent on the individual's HO6.
Response 6: In a standard form, loss assessment can be paid for such losses if the assessment limit is sufficient and the cause of loss is covered by the individual condo policy. The assessment is paid from the policy in force at the time of the assessment, not the date of loss, so if the condo owner leaves, their next policy should continue the assembly coverage until there is no more chance of an assessment.
This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.
This article is intended for general informational purposes only, and any opinions expressed are solely those of the author(s). The article is provided “as is" with no warranties or representations of any kind, and any liability is disclaimed that is in any way connected to reliance on or use of the information contained therein. The article is not intended to constitute and should not be considered legal or other professional advice, nor shall it serve as a substitute for obtaining such advice. If specific expert advice is required or desired, the services of an appropriate, competent professional, such as an attorney or accountant, should be sought.
