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Loss Assessment Coverage
Loss assessment insurance covers an owner's portion of an special assessments levied by the association a loss is covered by the association's insurance but exceeds the association's policy limits. Following are two examples:
  • A child is seriously injured in the association's swimming pool and $5 million in damages are awarded but the association is only insured up to $2 million

  • A director defames a homeowner and a court awards damages that exceed policy limits.

  • A fire causes significant damage to the clubhouse but the association under-insured for the loss, i.e., the cost to repair exceeds the association's policy limits by $300,000.

Special Assessment. In each case, the association would be required to special assess the membership to cover the difference between the policy limits and the loss suffered. A homeowner's loss assessment coverage would pay his share of the special assessment.

Owner Insurance. Loss assessment insurance is coverage purchased by individual homeowners not the association. It can be a stand-alone policy but more often is a rider added to an underlying policy purchased by the owner. Owners need to be aware that loss assessment coverage:
  • If an association does not carry earthquake insurance, loss assessment coverage will pay for special assessments related to earthquake damage. See California Earthquake Authority (CEA) website.

  • Only pays up to the amount of coverage purchased by the owner. If an Owner buys a $1,000 policy and owners are hit with a $9,000 special assessment, the policy will only pay $1,000. The homeowner will be responsible for the remaining $8,000.

  • Will not cover special assessment to cover deferred maintenance.

  • May or may not cover an owner's portion of the association's deductible. If an association has a $50,000 deductible, homeowners will be special assessed to cover the deductible.

RECOMMENDATION: Homeowners should add loss assessment coverage to their policies and should talk to their insurance agents to determine the appropriate levels to carry.

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