Whether you are on the board of a Condominium or Homeowner’s Association (HOA) or own property in one, you should take the time to understand the By-Laws of the Association and how the insurance policies in place for that Association work at the time of a claim.
In the State of Illinois, depending on the number of units, Condo Associations/HOAs are required by law to carry specific types of insurance – you can read the details HERE (link to blog).
Where it often gets confusing to many homeowners and board members is who is responsible for the deductible when a claim occurs – the Association or the Unit Owner(s)? There isn’t a cut-and-dry answer because it all depends on how the By-Laws of the Association are written.
Examples
- During a strong wind and hailstorm, a tree falls on a Condo Association’s clubhouse – a common area – causing significant damage to the building and fixtures. A claim would be placed against the Association’s business property insurance policy and the association would pay the deductible. The Association, based on the By-Laws could then ASSESS the unit owners for that deductible or absorb it as a common expense.
- A water leak happens in the bathroom of a 3rd-floor unit. That leak ruins the ceilings, floors, and personal property of other units that may or may not include common areas. Before we put a claim into any insurance carrier – we refer back to the By-Laws of the Association but more often than not in this case here’s how it would go:
Where the issue originated would be the base of the claim – and that insurance policy would need to cover the repairs for all the units and common property.
A question we often get asked is: Can an Association levy an assessment to cover deductible costs to specific unit owners and not everyone after a claim. The answer again goes back to the By-Laws.
Consider the scenario in a multi-unit condo complex when due to extreme cold weather a common pipe burst but only caused water damage to five of the 40 units. The Association files a claim against its master policy, covers the deductible, and then levies an assessment against only the 5-unit owners where the damage occurred. Can they do that?
Sadly, the answer is yes – even though the unit owners were not at fault. Section 12(c) of the Condominium Act governs insurance deductibles and states that in the case of a claim for damage to a unit or the common elements, the board may pay the deductible amount as a common expense; after notice and an opportunity for a hearing, assess the deductible amount against the owners who caused the damage or from whose units the damage or cause of loss originated; or require the owners of the units affected to pay the deductible.
In this case, the Association followed the script of the State of Illinois Statute, but we often see bylaws written where the Association in the above would cover the deductible as a common expense because it wasn’t the fault of the owner.
Read the fine print
The lesson: Associations have an ethical responsibility to ensure unit owners not only receive copies of the By-Laws of the Association that governs them but understands the details of those laws and regulations – specifically when it comes to insurance coverage and deductibles.
As an owner, before you purchase a unit governed by a Condo Association or HOA, make sure you are clear on what happens when a claim occurs – what’s covered, what isn’t, and how assessments are levied against individual unit owners.
At Power Risk Management – we are always happy to do a risk review of your current policies – be it an Association’s policy or individual unit owner. We work with the top carriers in Illinois and can offer you the coverage you need at a competitive price.
Feel free to stop by or call us at one of 3 convenient locations
Chicago Office: 5343 W. Devon Avenue, Chicago, Illinois 60646 | 773-273-8777
Bourbonnais Office: 1410 Argyle Ln N, Bourbonnais, IL 60914 | 815-922-4754
Denver Office: 1400 16th Street, Suite 400, Denver, Colorado 80202 | 720-779-1190
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