When you purchase a home, condo, or townhome with an association you also become an owner in the association and any common areas. If your community has 100 homes, then you would typically own 1/100th of the association. Likewise, you are also are responsible for 1/100th of the liabilities of the association. For example, if a child drowned in your community pool, the association’s general liability policy would cover the claim, right? That’s right, but only up to the policy limits. Many associations purchase a $1M general liability policy. So what happens when a jury awards the parents of the deceased child $5M? The remaining uninsured balance of $4M will be assessed by the association’s board of directors back to its members as a special assessment. So you’re thinking, no problem, I have liability insurance. Sorry, but the personal liability coverage on your homeowners or condo-owners insurance policy only protects you from liability claims, such as bodily injury or property damage, for which you are directly legally liable. Your personal liability coverage will not cover a business entity, such as the association, that you are an owner of. So how could this claim scenario be covered? By Loss Assessment Coverage on your home or condo insurance.
Importance of Loss Assessment Coverage for Claims Exceeding Master Policy Limits
Loss Assessment coverage protects homeowners against special assessments that an association may levy against its members as the result of liability claims, such as bodily injury or property damage lawsuits. Unfortunately, most homeowners and condo-owners insurance policies only come with $1,000. However, most insurance companies give you the option to increase the coverage, up to $100,000, for a minimal charge. Also, Loss Assessment coverage will not cover claims for perils not covered in your policy. For example, a special assessment from your association to repair a building, or upgrade the playground equipment, would not be covered.
How Are HOA Special Assessments Paid?
What happens if you receive a special assessment and you don’t have Loss Assessment coverage, or you don’t have sufficient coverage? Your association board of directors can place a lien on your property. If you fail to satisfy the lien within a period of time, they can force your home into foreclosure and recover the special assessment when your property is sold at auction.
An Actual Loss Assessment Claim Example
But this never happens, right? Unfortunately, it does happen. A Las Vegas homeowner association recently found itself at the center of the news when a $20M judgment was awarded against them. The lawsuit and judgment are a result of the HOA’s failure to properly maintain playground equipment which led to a severe injury. The HOA involved in this story, Lamplight Village, reportedly carries a $2M general liability policy. That means each homeowner in the association could be faced with a special assessment for the uninsured balance of $18M. Divided out, each homeowner would be responsible for $88,000! The severity of the injury and size of the jury award highlight the importance of loss Assessment coverage on a homeowner or condo-owners policy.
Get a Loss Assessment Coverage Quote Today!
Unfortunately, many people have insufficient Loss Assessment coverage because they believe a claim will never happen to them. Don’t fall into this thinking. Make sure you understand the importance of loss assessment coverage. Contact the insurance professionals at Safeguard Insurance at 702-638-0022 to make sure you have adequate Loss Assessment coverage on your homeowners or condo-owners insurance policy.