The recent catastrophe at the Champlain Towers South has raised questions regarding condominium unit owners HO6 Coverage and various inquiries regarding loss assessment coverage. Last week, I published a post in the Merlin Law Group Condominium Insurance Law Blog, Condominium Owners Purchasing Insurance Beware! Buy The Right HO6 Policy From a Qualified Agent, suggesting that HO6 polices have numerous options through endorsements which can broaden the amount of HO6 found in the basic and cheap form of coverage many agents sell.
Loss assessment coverage has been discussed in an IRMI article, 10 Steps to a Well-Designed HO 6 Policy, which noted:
[C]overage for loss assessments is inadequate in two ways. This can be loss assessments that are association-wide, such as those that arise when a lawsuit for serious injuries ends up in a judgment that exceeds the association’s general liability coverage limit, and the excess is assessed to all unit owners. This also can include loss assessments made against specific unit owners when a loss is caused by the unit owner’s negligence, such as a kitchen fire, and the entire association master policy property insurance deductible is assessed against that unit owner. An HO 6 policy usually comes with only $1,000 of loss assessment coverage. But, even if limits for loss assessment coverage are increased to, say, $25,000, in most cases, assessments for deductibles are still only covered for $1,000 under the increased loss assessment policy endorsement.
Another shortcoming of the basic HO 6 policy is the minimal amount of coverage—usually $1,000—for assessments made against all unit owners for uninsured or underinsured property or liability claims. Three examples, assuming 100 units in the association, follow.
• The complex, insured for $5 million, is destroyed by a tornado and costs $8 million to rebuild. The $3 million shortfall would be assessed to the 100 unit owners—that is, $30,000 each.
• A drowning occurs at the complex swimming pool. A lawsuit ensues, resulting in a $4 million judgment. The association carries $2 million of liability coverage, resulting in each unit owner being assessed $20,000.
• Heavy rains lead to a massive sewer backup in the complex. Cleanup costs and repair costs total $75,000. The association board did not purchase sewer backup coverage, leading to an assessment of $750 to each of the unit owners.
Under the basic HO 6 policy, with $1,000 loss assessment and named perils coverage, our hypothetical unit owner will be personally out of pocket for $29,000 from the tornado assessment, $19,000 from the lawsuit assessment, and $750 from the sewer backup assessment (not a covered ‘named peril’).
Because additional loss assessment coverage is so inexpensive, I recommend always including at least $25,000–$50,000 additional limits with each HO 6.
Loss assessment coverage is usually determined on a claims made basis meaning that the date of the assessment rather than the date of the occurrence controls coverage. This was noted in an FC&S article, Date of Loss, Date of Assessment, and Policy Effective Date, with the following question and answer:
Customer receives loss assessment from condo association regarding Hurricane Wilma damages. Assessment is submitted to insurance carrier; the date of the loss assessment is March 1, 2007. The date of the actual loss is 10/24/05, related to hurricane Wilma. The date of loss of the claim is set up at the insurance company for 3/1/07 and the policy is in effect for that time. The insurance carrier submits claim to CAT Reinsurance for money back.
The reinsurers auditor disputes that they owe for the assessment since the date of loss was not during the policy period. Question:
Do they owe for it with a date of loss of 3-1-07 even though the loss assessment was for Wilma?
The ISO HO 06 loss assessment coverage states, ‘we will pay up to $1000 for your share of loss assessment charged during the policy period against you.’ The policy says nothing about the date of the loss, just the date of assessment. If the assessment is made during the policy period, the assessment should be paid from that policy.