Adams Stirling PLC


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. If a homeowner were to carry "loss assessment" coverage, it would pay his share of the special assessment.

Owner Insurance. Loss assessment insurance is 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. It's availability is uncertain:

  • If an association does not carry earthquake insurance, loss assessment coverage (if available) will pay for special assessments related to earthquake damage. (See California Earthquake Authority (CEA) website for more information and talk to an insurance broker.)

  • 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 talk to their insurance agents to determine the appropriate levels to carry.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC