Loss Assessment Endorsement for Unit Owners

When a major loss happens in a common area, the building itself, or in a shared structural area of the condominium, the financial loss has to be made up somewhere.

Oftentimes, when the damage exceeds the coverage available on the master policy or if the damage is not covered at all, the owners of the individual units will share liability for what is not covered. This is called a loss assessment.

The Loss Assessment Endorsement at Work

While the expense is shared, this is an unexpected expense and that can be quite costly for a unit owner. Loss assessment coverage is an endorsement that can be purchased under your HO6 (unit owners insurance) policy that can cover you when the HOA policy can’t pay. For example, a hail storm strips away major parts of a 50-unit building, leaving $600,000 in damages. The HOA master policy only carries $500,000 worth of property damage. The extra $100,000 is divided by 50 owners to create a $2,000 loss assessment per owner. That’s money for insurance, groceries, cash, medical payments, etc. While unfortunate, this situation highlights the importance of the HOA having a robust master policy with adequate coverage for all circumstances.

The following is a list of common areas where your loss assessment policy may come into play: Lobbies, corridors, hallways, stairways, swimming pools and other amenities, laundry rooms and appliances, roof of condominium, elevators, bathrooms in common area, driveways, parking lots, ramps, landscaping, storage rooms, and electrical, plumbing and heating areas.

Does Loss Assessment Cover All Assessments?

This depends on your insurance policy. If damage caused by a specific peril is excluded, your loss assessment coverage will not pay for the assessment imposed by the association. Named perils policies are more stringent than open peril policies. It’s a good idea to add endorsements that change perils from named to open whenever possible!

Loss Assessments and Master Deductibles

When the master policy deductible becomes payable in a claim, loss assessment coverage can pay off some of that deductible. However, there is a special limit of $1000 that is strictly enforced. A separate endorsement, referred to as the HO 04 35, can increase the general limits of your loss assessment coverage, but it cannot increase the limit associated with the deductible of the association.

How Much Coverage Do You Need?

The governing documents are the best place to look for information about what is covered, for how much, and what areas are deemed “common areas” by the association. It’s not easy to predict what life will throw your way, but H&K Insurance can help you find a proper policy that should not affect your budget too significantly.

As for the property manager, it’s equally important to educate your unit owners on the importance of obtaining a proper HO6 policy. Get “in the know” by giving Brian Kilcoyne a call at 617-612-6515 or email him at briankilcoyne@hkinsurance.com.