Assuming the CC&Rs are silent on the issue, boards may adopt a policy on how to handle the deductible in the event of a loss. If, for example, the association's property damage insurance has a $5,000 deductible and an owner suffers a $20,000 loss due to water damage from the unit owner above, the deductible can be handled in one of the following ways:
1. Origin of the Loss. If a loss can be attributable to an owner's negligence or intentional acts that result in a claim against the association's insurance, the owner that caused the loss pays the deductible. That means the person in the upper unit that flooded the lower unit (if due to his/her negligence) pays the $5,000 deductible. The board can hold a hearing and impose the cost as a reimbursable special assessment against the owner that caused the loss.
2. Benefit of the Coverage. The lower unit that benefited from the association's insurance pays the deductible. In reality, the person does not actually pay the deductible, the $5,000 is deducted from the $20,000 loss so the amount paid to the lower unit is only $15,000 instead of $20,000. If the person in the lower unit wants to recover the $5,000 withheld from the payout, he can sue the owner of the upper unit in small claims court.
3. No Negligence. If no negligence or intentional act caused the loss, the deductible is apportioned against all claimants according to the percentage each claim bears against the total of all claims for the loss. For example, the unit owner suffered a $20,000 loss to his unit, and the association suffered $10,000 in damages to the common areas. That means the unit owner is responsible for 2/3 of the deductible ($3,333) and the association is responsible for the remaining 1/3 ($1,667). As noted above, no one actually pays the deductible, the proportional amounts are deducted from the respective payouts.
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