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HOA Master Policy Blues – What Happens When Coverage Runs Out

Live in a condo or home in a HOA? Find out in this article what happens when the master HOA policy runs out of coverage after a loss. If you live in a condo or a home and belong to a HOA – what will you do when the master HOA policy doesn’t pay because […]



Live in a condo or home in a HOA? Find out in this article what happens when the master HOA policy runs out of coverage after a loss.

If you live in a condo or a home and belong to a HOA – what will you do when the master HOA policy doesn’t pay because there isn’t enough coverage after a loss? Hopefully you’ll simply submit a claim to your condo owners (HO6) or homeowners (HO3) individual policy and let your own insurance company pay for the special assessment levied against you, using the “loss assessment” coverage in your policy. You’ll pay nothing other than your policy deductible, typically $1,000 or $2,500 and walk away.

But wait, did you know that most – the majority of condo and home policies sold in the industry – include just $1,000 of loss assessment coverage? Sure, if there is a fire and the master HOA policy runs short of coverage because the repair estimates from the contractor were 40% higher than the master policy limits….maybe an assessment might be $10,000 to each owner and you’re on the hook for just $9,000. The reality is that there are many worse losses than this every year involving condos, homes and the common areas surrounding them. The most common serious losses involve injuries/fatalities at the pool, spa, gym, walking/riding trails and tennis courts. A recent settlement from a slip and fall within the association’s common exercise area resulted in a jury awarding $2 million MORE than the limit on the HOA master association liability policy.

The old axiom is true: there’s safety in numbers. For example, if you live in a 100-unit condominium association or master planned home community and your association is forced to levy a special assessment against unit owners because of a $2 million shortfall in the master policy due to the slip and fall loss just mentioned, this $2 million is split 100 ways for a special assessment of $20,000 per owner. Oh, but what if the same thing happened in a 20-unit condominium or master planned home association? The special assessment would be $100,000 per owner.

If you are wondering what you can do to protect yourself against being on the hook for a large special assessment by a condo or home HOA association, the answer is simple. Purchase a condo owners or homeowners policy that includes an “automatic” loss assessment limit of $50,000 (the maximum typically available). The policies sold by or endorsed by Farallone Pacific Insurance Services include this $50,000 limit for condos or homes belonging to a HOA. Once the special assessment is levied, you’ll contact Farallone Pacific and ask that a claim be submitted to your own condo or home policy and $50,000 is going to go a lot further than the standard $1,000 included in most policies.

I encourage you to take a look at your condo or home policy right away if you belong to a HOA, see exactly what the loss assessment coverage limit is. If the policy states $1,000, you should contact me immediately and I will help you to purchase a better policy, likely for the same or less premium than you are paying now. Our agency represents a number of preferred insurance companies and I’m confident that one of our policies will meet or exceed your expectations.

To learn more about loss assessment coverage, please contact Ramona Johanneson at rjohanneson@fp-ins.com or by calling 415-493-2502.