HOA pays Master Policy Premium but not the Deductible?

5 Replies

I have a rental townhouse with an HOA. There is a master insurance policy for the area that covers common walls, roofs, etc. As expected, there is a deductible for this insurance coverage.

What is news to me is that the management company for the HOA is claiming each unit owner is responsible for the deductible of $10k if a loss happens at their unit. I was under the impression that the HOA is responsible for the deductible, paid for by the HOA reserves. What is normal?

I received this from my HOA when I asked to see my responsibility in writing:

Attached are the CC&Rs, page 20 outlines the insurance. It states that the premiums for such insurance are a common expense. However, it does not indicate that the association will pay insurance deductibles. Additionally, per statute and as indicated in the CC&Rs, any association expense must benefit all owners. Any expense, such as an insurance deductible that benefits fewer than all the residents is an expense to those who benefit from it. Unless the CC&Rs state that the association will specifically pay the deductible, then it is the owner’s responsibility. The reserves are strictly for capital expenditures, such as street maintenance, painting and roof, etc., not insurance deductibles.

Is it just me or does this seem quite grey? 

I had rentals condos and it's the CC&R that governs. If there are things in the CC&R that bothers you, such as the insurance deductible, start a petition and have other owners sign on. The rental condo I owned had quite a few of them through the years.

At the first condo I bought and lived in, the owners are mostly young professionals, and the HOA had problems with raising monthly fees. When they want to raise them, they were turned down each time. What happened? The monthly fees were low, but they couldn't pay for things such as common utilities, gas and electric, and were threatened with a shutoff. So a special assessment had to be made to pay the utility bills. Some condo owner bellyache about covering a deductible, HOA was no funds stashed away, well, another special assessment.

A rental condo I owned had a special assessment being discussed of $10,000 per unit for the replacement of the buildings roof, as the replacement cost $1 million due to it's landmark status. With 104 units, each owner would cover $10,000.

Of course the owners can vote to have the HOA cover the deductible. Keep in mind that you'll all have to chip in each time an incident happens, the HOA has no funds on hand, and boom, another special assessment.

I haven't check into it, but couldn't you get it covered under you own condo insurance, have them cover the deductible?

I have a condo in PA and that's how they operate.  Generally the way it works is that a claim will go to the owners policy which will cover up to the deductible, then the master policy kicks in and covers anything above the deductible.  If the owner doesn't have their own policy then they cover the deductible and the master policy kicks in after that.

There's many different ways to look at it, but it seems reasonable that the benefiting party, the claimant, would cover the deductible.  the entire Association is covered by the policy, but the specific member making the claim covering the deductible seems reasonable.  I'm guessing since the insurance companies, when they work together, operate under this principle (at least in PA), it's generally accepted (again, in PA - YMMV).

Your condo policy should have a loss assessment coverage that will pay your portion of the deductible assessed to each unit for a claim. You can ask your insurance agent to review it. Typically a small assessment coverage of 1k to 5k is included in the condo policy. I normally recommend my clients to raise it. 

Zee,

You need to see the bylaws to see how it is worded.  I've seen it in condo bylaws that if a loss occurred in a single unit, the unit owner was responsible.  Other wordings required that it was due to the unit owners negligence. 

Regarding the notion that the deductible benefits less than all the unit owners, that makes no sense if the claim payment on the same loss is considered to have benefited the whole association.  The deductible is a way for the whole association to pay a lower premium on the Master policy.  If the deductible was eliminated for the policy the premium would go up and everyone would pay more. 

As Dave Lin advised, make sure you have Loss Assessment coverage.  Also make sure you have Improvements & Betterments coverage for the parts of the building you own based on the bylaws. 

What matters is who is responsible for the damage. If you start a fire and cause $100k in damage, even if the HOA insurance policy repairs most of it the insurance company will come after you.

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