One of the more confusing concepts in HOA world is insurance and knowing when to submit a claim. All too often associations get in trouble for failing to submit claims and requiring an owner to pay for damages out of pocket instead of using insurance proceeds. In this article, we will discuss how to determine if a claim must be submitted.
In order to determine whether an insurance claim must be submitted, an analysis must be conducted answering the below three questions:
- Does the association have an obligation to insure the damaged component(s)?
- Was the damage caused by a “named peril” or a “non-excluded peril”? and
- Was the total dollar amount of damages more than the deductible?
If the answer to all three of the above questions is yes, the association must submit a claim to its carrier.
Question 1: Associations are not always clear on what their insurance obligations are; unless you have a maintenance and insurance chart prepared by an attorney, it may be necessary to consult with legal counsel to confirm whether a specific component is required to be insured by the association. Furthermore, there are statutory requirements when it comes to insurance that you may not be aware of.
For example: if you manage or sit on the board of a post-CCIOA condominium community, your association is statutorily required to insure the condominium units (minus finished surfaces and owner upgrades) regardless of what your documents may provide.
Question 2: What is meant by “named peril” and “non-excluded peril”? A “named peril” insurance policy only covers incidents specifically named in the policy; these incidents generally include, but are not limited to, fires, wind/hail storms, sewer backups, theft, accidental damage, vandalism, and the like. The key is that the peril must be specifically named in the policy to trigger coverage.
Another type of coverage carried by associations is called “all risk” insurance coverage. When an association carries an all risk policy, such policy will cover all perils/incidents as long as they are not explicitly excluded in the policy.
Regardless of which form of insurance your community carries, it is important to understand that covered perils all tend to be types of catastrophic events—not damages caused by normal wear and tear. If you are unsure whether a particular incident constitutes a “named peril” or a “non-excluded peril”, check with the association’s insurance representative for guidance.
Question 3: Even if the association has a duty to insure a component and the damage was caused by covered peril, it makes no sense to submit a claim to insurance if the total damage amount is less than the deductible because the association will not receive any proceeds. For this reason, associations should try and get a ballpark idea of the damage amount before deciding whether to submit a claim.
You may have noticed that the three questions discussed above made no mention of whether the damages were caused by an owner’s or someone else’s negligence. That’s because negligence should never be used as a factor in this decision.
An association must never refuse to submit an insurance claim because the damage was caused by the negligent or willful act of an owner, or the owner’s guests or tenant. Negligence is irrelevant to the analysis of whether to submit an insurance claim, although it does become relevant in determining who pays the deductible.
Given the complexity surrounding the decision of whether to submit a claim to your carrier and determining who pays the deductible, associations should seriously consider adopting a policy addressing the claim submission process and payment of the deductible, your legal counsel can prepare.
If you have questions or would like additional information concerning submission of insurance claims, please reach out to an Altitude attorney at 303.432.9999 or [email protected].