By Pat Wilderotter, CIRMS, VP, CCIG
Moving into a community association can be perplexing for new unit owners. What insurance do they need to purchase? Although only a small percentage of people ever read the governing documents (CC&Rs) of the association they are moving into, those declarations will let each owner know what coverage they need to purchase under their personal HO6 policy. The association’s insurance responsibility on the interior of each unit can range from bare walls coverage where the association is only responsible to replace the dry wall and sub-floors, to “all in” coverage where the association has to replace the unit as it was at the time of the loss. From that wide range of options, throw in replacement to original construction, add in exclusions/inclusions for items such as floor coverings, appliances, cabinets and countertops, and what’s covered can be very confusing. Without reviewing your declarations with your personal insurance agent, you could be found devastated after a property loss with what is and is not your responsibility to insure and what is replaced in your unit.
When you see insurance as part of your monthly assessments, that only means that portion of the community that the association is required to insure according to the declarations. When it comes to personal property, the association cannot insure what it does not own or is legally responsible to cover. Additionally, make sure you have adequate liability coverage. When someone enters your home, you become liable, so a slip and fall on your throw rug can result in a law suit against you personally.
Also, review the association’s deductible policy. Some associations can assess the property deductible back to the individual unit owner or owners involved in a property claim. In this case, make sure you have added enough property coverage under your building/property coverage (typically section A) of your HO6 policy to cover this deductible.
In a situation where the entire community is assessed for a deductible, coverage is generally available under the loss assessment portion of the HO6 policy. Confirm with your personal agent that there is not a sub-limit if going to pay for an association’s deductible or that the coverage is offered under a special endorsement. This coverage is essential under your personal insurance. Due to the number of hail claims over the past several years, with May 8th of last year coming in as our most severe with over $1.4 billion in damages, we have seen many carriers non-renewing or leaving the habitational marketplace. Those companies remaining are typically going to a percentage deductible, with 5% of the property value becoming the norm although we still have carriers offering 2% or a specific dollar amount. Adding adequate loss assessment coverage is relatively inexpensive under your HO6 policy, so just make sure your limit is adequate to cover your potential assessment. Simply take the building limit times the percentage and divide by the number of units in your community to determine your potential assessment. For example, a $10,000,000 building with a 5% deductible has a $500,000 wind/hail deductible. If you have 50 units in the building, each owner could be assessed $10,000. If you have a 2% deductible, the association has a $200,000 wind/hail deductible and each owner could be assessed $4,000.
Again, check with your personal agent to make sure there are no sub-limits or special endorsements needed to insure the association’s wind/hail deductible.
There are some policies, generally through Lloyds of London, that offer a buy down product that will cover the wind/hail deductible down to a deductible like $50,000. These policies however are very expensive, have gone up significantly in cost over the past two years, and often cost as much as the package policy for the association. If the association does not want to have to raise monthly assessments to cover these buy down policies, the Board often wants to make sure each member is informed of the their potential portion of the wind/hail deductible so they can purchase adequate insurance through their HO6.
CCIG is a Denver-Based insurance brokerage firm. Pat Wilderotter, past president of the Rocky Mountain Chapter of CAI and one of approximately one hundred in the country to hold the designation of CIRMS (Community Insurance and Risk Management Specialist) heads their HOA team.