In 2024, the Minnesota Legislature clarified which insurer must pay a loss assessment. That is helpful for everyone involved in condo and townhome insurance.
Condominium and townhome associations carry insurance to protect against sudden occurrences such as fire, hail, and water events. All such events are referred to as losses. Association insurance is often limited to common areas and requires the unit owners to carry insurance for inside the unit. Associations must pay a deductible under their insurance policy. The deductible can be very high, resulting in a significant expense for associations when a loss occurs. In turn, associations (empowered by their governing documents and statute) assess this deductible to unit owners. This is known as a loss assessment as it is derived from a loss event such as fire, pipe bursts, etc.
Many unit owners find insurance for a loss assessment. The unit owner’s policy, often referred to as an H06 policy, can include a specific section that covers an association’s loss assessment. Note that such coverage is not a given and ought to be considered by the unit owner and his or her broker when obtaining insurance.
In my ten plus years representing property owners with their insurance claims, I have often seen the scenario where different H06 insurers dispute who should pay the loss assessment coverage. A loss assessment may occur months or years after the loss event, and during that time, the unit owner may have found a different insurer. For example, a fire may occur in 2020. Later in 2022 the association assesses to unit owners the cost of its deductible for the 2020 event. If the unit owner has separate insurers in 2020 and 2022, neither may want to pay the assessment. The 2020 H06 insurer may issue a policy to only cover assessments issued in 2020, so this insurer will not pay an assessment in 2022. The 2022 H06 insurer may write a policy to not cover any assessment derived from a loss occurring before coverage is bound. The result: no coverage at all.
In 2024, the Minnesota Legislature addressed the problem and hopefully fixed it. The Legislature passed Minn. Stat. § 65A.3025 which holds that if an H06 carrier offers loss assessment coverage, that coverage is triggered when the loss event occurs, not the subsequent assessment by the association. This is how coverage operates no matter how the policy is written. This statute will be very helpful in clarifying The Legislature passed Minn. Stat. § 65A.3025 which holds that if an H06 carrier offers loss assessment coverage, that coverage is triggered when the loss event occurs, not the subsequent assessment by the association.coverage.
The statute is not an absolute guaranty of coverage for unit owners. For example, if the insured never bought loss assessment coverage, the statute does not apply. There is also a unique scenario for when a unit owner sells the property after a loss but before an assessment. As always, summaries of statutes are helpful, but there is no substitute for reading it had how it applies to a given scenario.
If you would like help in understanding the statute, please email me at: ed@beckmannlawfirm.com.