Condo Owners – Do You Have Loss Assessment Coverage?
Wondering what loss assessment coverage actually covers? Let’s assume for a minute that your condo complex has a common area swimming pool. And no one wants to think about it, but unfortunately, tragedies happen. For purposes of this example, suppose a child drowned in the swimming pool and the parents of the deceased child decide to file suit against the association.
After deliberation, the jury awards the family a $3 million settlement. Keep in mind, you own one of the units in this condo complex, and in addition to finding out about the tragedy, you discover the condominium association only carries a $2 million liability limit on its commercial policy. How is the association of this 100-unit condominium complex going to pay the additional $1 million to satisfy the remainder of the $3 million settlement?
Since each unit owner has a proportionate ownership interest in the common area swimming pool, there is a good chance the Board of Directors will call a meeting and decide to assess each unit owner a portion of the remaining $1 million (i.e., $10,000 each).
If you have a basic condominium policy, you might have some coverage (commonly $1,000) for this assessment but that leaves you with a $9,000 out-of-pocket expense, to make up the remainder of the per unit assessment. This is often referred to as a coverage gap in the insurance industry.
Could this coverage gap have been avoided? Yes, in the above example, this gap in coverage could have been avoided in a couple of ways:
- Some insurance companies provide higher amounts of loss assessment coverage in their condominium policy – such as $10,000.
- Often times, coverage for loss assessment can be added to your basic condo policy for an additional premium.
It’s important to note, this type of loss can apply to homeowners that reside in a planned community or neighborhood that has a homeowners association to maintain common areas such as a pool, park, playground, etc…
As always, it’s important to consider these types of situations before a loss actually occurs. If you have concerns, discuss them with your agent – there’s no reason to suffer sleepless nights worrying about what could put a serious strain on your finances when insurance coverage is available to protect you.