It is becoming more and more common place. A condominium association has a few claims on its insurance policy over the years and premiums start to rise. In order to purchase affordable casualty insurance to cover the common elements and the portions of the units the association is obligated to insure per the governing documents and/or law, the Board of Directors has to make a tough decision to choose a policy with a higher deductible. In many cases, we are seeing associations with deductibles of $5,000, $10,000 or even $25,000.
Skip then to the situation where a fire damages just one or two units. With a $25,000 deductible, for example, there is a large amount of damage to be repaired out of someone’s pocket. The question that then lands at our office is “who has to pay for the repairs that fall within the deductible portion of the association’s policy”?
The answer to that question may be document-specific, depending on whether the association’s declaration addresses the allocation of the deductible. If not, for post-CCIOA communities, CCIOA allows associations to adopt non-discriminatory policies regarding the allocation of the deductible, allows for the allocation of a deductible against a negligent owner, and permits the allocation to multiple unit owners if more than one unit is damaged. 38-33.3-317(6) of CCIOA
Regardless of whether your association is pre-CCIOA or post-CCIOA, however, it is important for your association to have either adequate provisions in the declaration or a resolution related to the allocation of the association’s deductible, which should cover situations when the damage is over or under the amount of the deductible. Why is it important to have the allocation of the deductible spelled out either in the declaration or in a policy?
First, it puts owners on notice of when they may be responsible for payment of the deductible amount. It also helps to guide the Board and the manager in handling specific loss situations. And, probably most importantly, it can enable that risk to be shifted to the owner’s HO-6 policy. In a case where an owner’s unit is damaged and the deductible is being assessed for damage to the interior of the unit, Coverage A (building coverage) of the owner’s HO-6 policy should cover the owner for the allocation of that deductible.
Therefore, it is important for the owner to make sure that the Coverage A carried is sufficient to cover any such possible allocation of the deductible. If the Association has a resolution or an adequate declaration provision regarding the allocation of the deductible, it should be provided by the owner to his or her own insurance agent to ensure that the owner is adequately insured to cover that deductible. Contact your association’s attorney for questions related to reviewing your governing documents to determine how the deductible is to be allocated and or about drafting an allocation of deductible policy.