A unit owner’s policy (HO-6) may include coverage of loss assessments by the association. This article is to help you understand if there is coverage in your policy.
Triggering Loss Assessment Coverage
Assessment coverage is typically triggered by a sudden, rapid event. ;Examples are fire, hailstorms, or sudden water damage. The insurance policy will say coverage requires an “otherwise covered event”, or “peril we insure against”, or words to that effect, which means some kind of event that is covered in other sections of the policy.
To see if there is assessment coverage I first turn to the declarations page of an insurance policy. Declaration pages are almost always at the front of a policy that is many pages. There is often (but not always) a separate line item in the declarations for loss assessment coverage. There can be separate policy limits or a separate deductible for this coverage.
I also look within the policy itself to find any assessment coverage. Assessment coverage is usually found in the section called “supplemental coverages” or “additional coverages”. Sometimes it will be in a separate endorsement or an amendment to the main policy form. These sections contain important language for understanding the extent of coverage.
Loss Assessment Language
Not all loss assessment sections are written the same. Here are two examples of how different insurers write assessment coverage:
We will pay up to $___ for your share of any loss assessment charged against you as the owner or tenant of the residence premises by an association or corporation of property owners if the assessment is made as a result of direct physical loss caused by a peril we insure against to property owned collectively by all members of the association or corporation. Coverage is included for loss occurring during the policy term if the assessment is charged against you after the policy term.
Another insurer writes loss assessment coverage as follows:
We will pay up to $____, unless an increased amount is shown on the declaration certificate or otherwise provided by the policy, for your share of any loss assessment charged against you, during the policy term, as owner or tenant of the resident premises by an association or corporation a property owners or tenants if the assessment is made as a result of direct loss caused by a Peril We Insurance Against to property owned or used by all members collectively. We will not pay for any loss assessments charged by a governmental body.
Note these sections differ. The first section specifically says it will pay for assessments charged after the policy term expires, so long as the loss (triggering event like fire, etc.) occurs during the policy term. The second section states there is coverage of assessments charged “during the policy term”, notwithstanding when the loss occurred. These differences can be important to coverage.
Statute of Limitations
Another important issue is the statute of limitations that applies to this coverage. Some policies will state that coverage is triggered on the date of the assessment and not the peril (windstorm or hailstorm). It is fortunate when a policy is that specific. Other policies are silent on this issue, leaving the insurance company the opportunity to argue the loss event (fire, hailstorm, etc.) triggered the running of the statute of limitations, and now it’s too late to pursue coverage. Is that a proper reading of state law and the policy? That depends on the law and policy.
Loss assessment coverage requires the unit owner to closely read the policy. Policy limits can be confusing. In one policy the declarations page states that the coverage is $25,000, while the main policy form states the limits are $2,500. To understand coverage in such a lengthy policy you need to read three separate pages that are found at the beginning, middle and end of the policy.
Contact me if you need help reading your policy and understanding loss assessment coverage.