Personal Condominium Insurance and the Master Policy Deductible . . . Who does what to whom???
Disclaimer- This information only applies to Massachusetts
For those who
sell Homeowners Policies..... don't miss our HO-2000 change courses
presented in September and at our Annual Convention in October.
Condominium Master Policy deductibles ... can they be deadly for personal lines clients who live in condominium units? Yes!
First ... in a
condominium arrangement, who insures what??????
receive "common" ownership in the non-individual or common areas
such as land, roof of building, common walls, common beams, swimming
pools, etc. In
How does the individual unit get insured? That depends. It depends on the bylaws or insuring agreement in the condominium documents. Sometimes the bylaws only require the Association to insure commonly owned areas, and the individual unit owner must insure ALL of his/her individual unit. The individual unit owner accomplishes this through the purchase of large amounts of Coverage A - Dwelling value under the HO-6 Unit-owner policy. This can be expensive for the unit owner, but insurance coverage can be easily obtained.
In other situations, the Association agrees to "take on" the responsibility of insuring individually owned unit-building items through a discussion in the bylaws. The Association may insure ALL building items in the individual units or just some of the individually owned unit-building items. One must read the bylaws carefully to determine what, if any, insurance responsibility is left for the unit-owner. Does the Association OWN the items in the individual unit? NO, NO, NO!!! But, through the bylaws, a contract, an insurable interest is granted to the Association allowing the Association's commercial policy to apply to individual unit-owner items.
the Association, through its bylaws, has chosen to accept
responsibility for insuring the individually owned items. The
Association buys a Condominium master policy to cover the building
items whether common or individually owned . . . hopefully on a
Special Form basis. Suppose the
This is a point that the unit-owner should address when purchasing his/her unit. Or, you should have them look into this issue when you sell them their Unit-Owner Policy covering their contents and liability exposures. If the Association chooses to pay the deductible, great! If the Association makes the unit-owner responsible for the deductible . . . $250 out of pocket for the unit-owner shouldn't be too much of a hardship!
What if the Association has a $5,000 deductible for all losses . . . and the loss - a kitchen fire - happens entirely in your client's unit. Who pays the deductible amount here? Again, your client should check into this issue with the Association. Quite often, the Association bylaws state the Association will provide insurance for unit-owner building items, but will NOT cover the deductible. Generally, a loss that is contained in a specific unit is NOT assessed to other fellow unit-owners. The individual unit-owner suffering the loss is expected to pay for the deductible.
How do we cover
the deductible in this situation????
1. The alterations, appliances, fixtures and improvements which are part of the building contained within the "residence premises";
2. Items of real property which pertain exclusively to the "residence premises";
3. Property which is your insurance responsibility under a corporation or association of property owners agreement; or
4. Structures owned solely by you, other than the "residence premises," at the location of the "residence premises."
the unit-owner CAN insure his/her building items. However, it
appears that the Other Insurance Provision of the HO-6 is being used
to NEGATE the individual's right to insure his/her own property. The
Other Insurance Provision has always stated that if the Association
Insurance. If a loss
covered by this policy is also covered by other insurance, except
insurance in the name of a corporation of association of property
owners, we will pay only the proportion of the loss that the limit
of liability that applies under this policy bears to the total
amount of insurance
Unfortunately, ISO has chosen not to interpret their policy in the way that many other insurance professionals or company adjusters have. ISO and some carriers have stated that the unit-owner is only covered for the amount of the loss that EXCEEDS the amount RECOVERED by the association under its policy. This interpretation believes that Coverage A can ONLY be available for the "high-end" . . . not pick up any master policy deductible. This is a DANGEROUS interpretation for your clients.
If the master
policy bylaws do NOT insure certain items for the unit-owner, then
Coverage A will be the PRIMARY and the ONLY coverage responding to
the loss. If the Association bylaws covers some or all of the
unit-owner building items, then Coverage A will NOT pick up any
What should you
How can this
loss under the Master Policy deductible be covered?
Under the HO-2000 ISO "addressed" this situation by creating an endorsement to "fix" the Other Insurance Provision. If the provision was "broke," it's a pity the HO-2000 HO-6 couldn't have been WRITTEN to fix it! The endorsement that ISO created to fix this situation is HO 17 34. I've had a couple of lawyers read this, and they wonder what the point of the endorsement is since the policy language shouldn't be a problem in the first place! But, nevertheless, this endorsement supposedly fixes the gap. Will your carriers sell it? Who knows. It can't be sold until the carrier utilizes the HO-2000 program . . . unless they make their own filing.
association should be requested to LOWER its deductible?
How is the
Master Policy deductible paid when the loss happens to COMMON
unit-owner insure his/her assessment responsibility?
This coverage applies only to loss assessments charged against you as owner or tenant of the "residence premises."
We do not cover loss assessments charged against you or a corporation or association of property owners by any governmental body
If a loss that would be a covered peril under the unit-owners HO-6 damages COMMON property, then the loss assessment additional coverage will pay the unit-owners assessment responsibility up to $1,000. The unit-owner can increase this assessment coverage up to $50,000 with HO 04 35 Increased Loss Assessment Endorsement for only $25 or so.
The HO-2000 will RESTRICT Loss Assessment coverage to only respond to assessments for damage to property that would also be covered under the HO-6, but other than that, the coverage is still intact.
The assessment must be made as a result of direct loss to property, owned by all members collectively, of the type that would be covered by this policy if owned by you
What if the
Association has a Percentage Windstorm deductible and there is MAJOR
windstorm damage to common property??????
The endorsement should always be sold and it can be very helpful in other property assessment situations as well as many liability assessment situations, but it is NOT helpful in "deductible" assessment situations. The insured will ONLY receive $1,000 towards this assessment from his/her HO-6 unit-owner policy. The rest of the assessment will come "out of pocket."
The HO 04 35 under both the HO-91 as well as the HO-2000 program has a restriction for assessments that are due SOLELY to master policy deductibles.
SPECIAL LIMIT - We will not pay more than $1,000 of your assessment that results from a deductible in the policy of insurance purchased by a corporation or association of property owners.
Make sure that you address this restriction with your client when selling this endorsement. have to admit that I do agree this restriction is NECESSARY in this endorsement. Otherwise, the Association would buy commercial property EXCESS policies assuming that each loss will be assessed BACK to the individual unit-owner who has been TOLD to carry HIGH Loss Assessment coverage.
If you sell the Master Policy . . . perhaps you could suggest LOWER deductibles to the Association insurance decision making team?
So, back to the
original issue . . . Who pays the Master Policy deductible????