The recent disaster at Champlain Towers South has raised questions about tenant HO6 coverage and various inquiries regarding loss assessment coverage. Last week, I published a post in the Merlin Law Group Condominium Insurance Law Blog, Unitholders Who Buy Insurance Beware! Buy the right HO6 policy from a qualified agent indicating that HO6 policies have many options through approvals that can broaden the amount of HO6 available in the basic and inexpensive form of coverage that many agents sell.
Loss assessment coverage has been discussed in an IRMI article, 10 Steps to a Well-Designed HO 6 Policy which noted:
[C] surplus for loss assessments is insufficient in two ways. These can be loss assessments that are association-wide, for example those that arise when a lawsuit for serious damages ends up in a judgment that exceeds the association's general liability limit, and the surplus is assessed for all unit holders. This can also include loss assessments against specific unit holders when a loss is caused by the unit holder's negligence, such as a kitchen fire, and the entire association's main policy deductible property insurance is assessed against that unit holder. A HO 6 policy typically has only $ 1,000 in loss assessment coverage. However, even if the limits for covering loss assessment are increased to, for example, $ 25,000, deductible assessments in most cases are still only covered for $ 1,000 under the increased loss assessment policy.
Another shortcoming of the basic HO 6 insurance is the minimum amount of coverage – usually $ 1,000 – for assessments made against all unit holders for uninsured or underinsured property or liability claims. Three examples, provided that 100 units in the association follow, follow.
• The complex, insured for $ 5 million, is destroyed by a tornado and costs $ 8 million to rebuild. The $ 3 million deficit would be estimated at the 100 unit owners – that is, $ 30,000 each.
• A drowning occurs at the complex pool. A lawsuit follows, resulting in a $ 4 million fine. The association carries $ 2 million in liability protection, which results in each unit owner being estimated at $ 20,000.
• Heavy rain leads to a massive sewage backup in the plant. Cleaning costs and repair costs total $ 75,000. The association board did not buy spare cover for sewage, which led to an assessment of $ 750 to each of the unit owners.
Under the basic HO 6 policy, with $ 1,000 loss assessment and named hazard coverage, our hypothetical unit owner will be personally out of pocket for $ 29,000 from the tornado assessment, $ 19,000 from the trial assessment and $ 750 from the sewage safety assessment (not a covered one). "named risk").
Because additional coverage assessment is so inexpensive, I recommend always including at least $ 25,000- $ 50,000 additional limits for each HO 6.
Loss assessment coverage is usually determined by claim, which means that the date of assessment rather than the date for the event controls the coverage. This was noted in an FC&S article, Date of Loss, Date of Assessment, and Policy Effective Date with the following question and answer:
The customer receives a loss assessment from the apartment association regarding Hurricane Wilma damage. The assessment is submitted to the insurance company; the date of the loss assessment is March 1, 2007. The date of the actual loss is 2005-10-24, related to Hurricane Wilma. The date for loss of the claim is set in the insurance company for 2007-01-01 and the insurance is valid for that time. The insurance company claims CAT Reinsurance for the money back.
The reinsurer's auditor denies that they are guilty of the assessment because the loss date was not during the insurance period. Question:
Are they to blame for it with a loss date 3-1-07 even if the loss assessment was for Wilma?
ISO HO 06 Loss Assessment The coverage states that "we will pay up to $ 1000 for your share of the loss assessment charged to you during the insurance period." The insurance says nothing about the date of the loss, only the day of the assessment. If the assessment is made during the insurance period, the assessment must be paid from that policy.
I plan to give an update on the Champlain Towers Collapse, review issues with HO6 coverage, and talk about Wednesday's webinar with meteorologist Rocco Calaci on Tuesday @ 2 With Chip Merlin .
Thought for the day
When you live in an apartment complex with people next door, I do not know how you can be dead for four months without anyone noticing that you does not come and go.