By Ella Washington & Kelly Hart, Ella Washington Agency, Inc., and American Family Insurance
Party wall agreements, from an insurance perspective, can be confusing for any homeowner. Many things can go wrong behind the walls of our home. So, what happens from an insurance perspective if something does go wrong and there is an insurance claim? Are you covered under your insurance policy or would you be covered under the Association’s insurance policy? Below, I will use water damage claim scenarios as examples of how insurance carriers handle claims differently based on the unique situation.
Association declarations (also known as the CC&Rs: Covenants, Conditions and Restrictions), discuss homeowner’s responsibilities to maintain components within the party walls of their PUD (planned unit development). These legal documents should also have a clear-cut explanation of what the Association should insure versus what a homeowner should insure in terms of the structure of the building and common areas of an association. All insurance carriers use these declarations to determine how claims are paid. Interpretation of these agreements and obligations can be challenging to understand, therefore, it’s important for a homeowner to get clarification from their association manager and/or their board of directors. In many situations, a legal opinion from the association’s attorney is recommended.
Scenario 1: A slow water leak in the shower wall of a homeowner’s bathroom. What if a homeowner ignores a maintenance problem and damage occurs? An insurance carrier could deny a claim due to an on-going leak that causes damage over a long period of time. Most insurance carriers have language in their insurance policy that covers claims that occur “sudden and unforeseen.” In this case, it’s most likely the homeowner would have to pay out of pocket for his/her damages. It is always important to get advice from your insurance agent or open a claim to have a licensed insurance adjuster investigate the claim to assure the best chance of getting a claim covered.
Scenario 2: Now let’s say that a homeowner was hanging a picture and punctured a hole into a plumbing pipe that causes water damage in their unit, along with damage to the home below. This is an example of a sudden and unforeseen water loss. However, this is also an example of negligence or liability. Insurance claims like this are usually covered by the homeowner’s personal home policy (in accordance with the Associations CC&Rs). Furthermore, if water damages in between the walls (party walls or common areas) and to the homeowner’s unit below, this too should be covered under the homeowner’s personal home policy. Liability coverage is usually built into every admitted home policy filed with the State.
Scenario 3: A washing machine hose deteriorated causing water damage inside of a unit, the adjacent party wall and to the homeowner’s unit below. Because there is no negligence on the homeowner that owned the washing machine, their insurance will only cover damages to their home (no liability exists). Unfortunately, the Association would have to file a claim under the Homeowners Association’s insurance policy to get the common wall or party wall damage fixed. As for the homeowner below, they too would have to file a claim under their personal home policy for their damages. Situations like this always seem to cause frustration for all parties involved because everyone is out their deductible, and everyone needs to file their own claim or absorb their own damages. As you can imagine, this results in bad feelings and sometime litigation between homeowners (as the public believes that insurance should cover all damages, from the unit the water originated from). Unfortunately, this is just not the case.
Our recommendation is to be active in your Association’s meetings. Suggest for legal interpretation of your Association’s CC&Rs if the language is unclear or ambiguous. Request annual insurance reviews with both your personal insurance agent and the Association’s insurance agent. And lastly, ask the HOA’s insurance agent to write annual educations for the homeowners (education on changes within the insurance industry could benefit everyone).
Ella Washington is an insurance agent specializing in homeowners associations. She has been representing associations nationally for over 25 years. Being an advocate for her Association Managers and Board of Directors is her passion.
Kelly Hart is a licensed claims manager with over 40 years’ experience in HOA claims and interpreting Association Declaration language.