I just attended my monthly association meeting and the association’s board advised the members that the association was just hit with a $1,500,000 judgment due to skateboarding accident in the parking lot of the association. That news was tragic and bad enough. Unfortunately, the bad information was to follow. The association only had $1,000,000 general liability coverage for this incident. Accordingly, the remaining $500,000 will have to be satisfied pursuant to a “special assessment” levied on the membership. With 10 members in the association, each member will be assessed $50,000 per member. My neighbor sitting next to me said: “thank goodness I have loss assessment coverage.” I turned to my neighbor and said: “what is that?” I said my broker told me I have full coverage. As I found out, the “full coverage” I was told I had did not include “loss assessment” coverage.
As specialists in the area of Community Association insurance, we are also concerned with the needs of the community association members. As we provide coverage to thousands upon thousands of community associations nationwide for their directors’ & officers’ liability coverage, it never ceases to amaze us that association members are still confused as to what the association is responsible for and what they as an individual association member are responsible to cover on their own. Although this would seem simple for many, not all consumers are sophisticated.
At this time, the Community Association Institute estimates approximately 260,000 community associations nationwide, and the number is growing. Many of these are growing due to the fact that we have many senior communities develop as our society is aging. Many of our seniors very often rely heavily on their agents and brokers. What association members must understand is that not all insurance professionals are experts in the area of community associations. What you as an association member must be is an “advocate” for you and your position. This is not as difficult as it sounds. At a minimum, if you are buying insurance for your condominium, cooperative apartment, single-family home in an association, you must ask the insurance agent some basic questions.
There is one thing that is for certain – no matter what you may think, you will need some form of insurance yourself. “Loss assessment” coverage falls into this category of insurance that you will absolutely need that is not provided within the association coverages. This is necessary whether you are in a condo, coop, or single family home. If you are in an association, you need this coverage.
In brief, loss assessment coverage pays on your behalf your share of an assessment charged against all members as a result of a covered loss. This would cover the $50,000 assessment set forth above in most cases, assuming that the association had proper insurance in place. What you must keep in mind is the following:
- This is coverage “YOU” purchase from YOUR insurance company and has nothing to do with the association’s insurance policy.
- Although this is coverage that you purchase, it is contingent on the association have proper coverage in place. When you live in a community association, you have chosen to share duties and obligations with others. Thus, you cannot blindly sit by and be completely confident that you are fully protected.
- Not all “loss assessment” coverages are created equal. Specifically, just because your policy includes this coverage does not mean you are fully protected. For example, is it limited to a minimal amount such as $1,000? If so, are higher limits available, and if so, how much. Some carriers provide coverage as high as $50,000.
- In some states, the law is such that the same level of loss assessment coverage may not be necessary. Specifically, some states provide law that protects individual members from being found personally responsible where the association maintains certain levels of insurance coverage. The question is whether your state has this law, and if not, it may not be a bad law to advocate.
As indicated above, most loss assessment coverage is triggered where the item would have been covered under the association policy terms and conditions, but there were insufficient limits. Accordingly, if it would not be covered under the association policy because: (1) it was excluded, (2) the association only provided defense and not indemnity coverage, or, (3) the association policy lapsed.
What we recommend is the following:
1. Make sure your insurance professional has fully explained to you what your exposure is as a member of a community association. If he or she cannot, find one who can.
2. Speak with your neighbors to find out whom they use for their homeowners’ coverage and whether they have loss assessment coverage.
3. Determine your comfort level when determining how much loss assessment coverage you need.
4. Make sure your association has all the insurance it properly needs, not only to protect the association, but also to ultimately make sure you are adequately covered.