By: Elina B. Gilbert, Esq.
Perhaps one of the more confusing concepts when it comes to HOAs is the difference between having an insurance obligation and having a maintenance obligation. In what particular circumstances do you apply each? It is precisely this confusion that often lands associations in hot water for either failing to submit insurance claims or requiring owners to pay for repairs that should have been covered by the association’s insurance policy.
In this article, we will discuss the difference between the two concepts and when each one should be utilized. So if you’ve ever been completely confused as to when insurance obligations apply and when maintenance obligations apply, read on.
Maintenance and Repair Obligations
The obligation to maintain, which carries with it the obligation to repair and replace, is exactly that: the duty to repair various building components when they are damaged. Anytime a physical component in a community requires repairs, the first thing the association should do is review its governing documents to determine who is required to repair such component. Sometimes the maintenance obligations are straight forward, but most of the time they are not and a legal analysis will be required to make this determination.
Once the repair obligation is determined, the association must conduct the next analysis, which is whether the damages are to be repaired by the person/entity having the repair obligation (as set forth in the governing documents), or whether the damages must be submitted as an insurance claim.
In order to determine whether an insurance claim must be submitted, it is important to understand what insurance is exactly. HOA “insurance” is nothing more than a contract between an association and an insurance company in which the insurance company agrees to indemnify the association in the event the association incurs damages as a result of a specified loss. The underlined terms often confuse associations, and warrant further discussion.
The concept of indemnification is a requirement for the insurance company to pay for damages incurred by an association. What type of damages? This includes any physical damages to real property within the community, including but not limited to, exterior and interior building damages.
However, it’s the “specified loss” aspect of coverage that tends to create the confusion. Not every need for repair is a “specified loss” under insurance policies. In fact, specified losses tend to be some sort of catastrophic events—not wear and tear damages. Examples of covered losses can include fires, wind and hail, exploding boilers, sewer backups, and the like. Therefore, it is important to realize that just because a portion of a building is damaged in your community, this does not mean it will automatically rise to a claim under an insurance policy.
If you’re unsure whether particular damages should be submitted as an insurance claim, check with your insurance agent who can advise you on whether such damages would constitute a covered loss and whether it makes sense to submit a claim.
Never . . . .
As a final word of warning, never ever refuse to submit an insurance claim because the damage was caused by the negligent act of an owner, or an owner’s guests or tenants. Negligence is irrelevant to the analysis of whether to submit an insurance claim, but it is relevant in determining who will pay the deductible. However, if in doubt, consult with your legal counsel and insurance professionals.
If you have questions or would like additional information concerning association insurance obligations, please contact a Altitude Community Law attorney at 303.432.9999.