Mandatory assessments are part of being part of a homeowners association. If there's damage or necessary repairs/upgrades to a common feature - like a clubhouse - assessments are issued to all members of the association to cover the cost. If someone suffers bodily injury in a common area or there is property damage, an assessment might be issued for those reasons too.
- When they're permitted.
- When they're covered by insurance.
- Which policy covers the cost of the assessment.
- How much the policy will pay.
- Adjustments to how much the policy will pay.
When Your Association Can Issue Assessments Against You
Associations aren't permitted to stick you with assessment costs whenever they please. Instead, there are rules they must abide by.
Typically, these rules are found in association bylaws. These bylaws help the association form its master policy. However, some states have statutes that impact the bylaws. This is just fancy talk meaning that in some states, the state determines what an association may legitimately charge for by providing laws that guide the association.
When Assessments Are Covered (or Not Covered)
An easy rule of thumb is that assessments are covered by your insurance policy if the reason for the assessment is something that would be covered by your insurance.
If the assessment were charged to help cover the cost of damage to the clubhouse caused by a fire, your policy would pay because a fire is a covered loss under your policy. If the fire weren't a covered loss, then your policy would not help pay for the assessment.
Another example is bodily injury. Assume someone sustains an injury after slipping on a damaged walkway and the claim against the homeowners association is $1.5 million. The association's policy may cover $1 million of the claim, and the remaining $500,000 will be issued as assessments to the association's members. If bodily injury is covered by your policy, you're covered - up to a certain amount.
When a Policy Is Responsible for the Cost of the Assessment
Your homeowners policy says that it will only pay the cost of assessments that are charged during the policy period. This is important because it’s possible that the actual assessment may not be charged until months after the loss causing the damage occurred.
Assume there's a hurricane in August, when Company X insures you. In September, you switch your coverage to Company Y. The assessment for the portion of the hurricane damage that isn’t covered by the association’s master policy arrives in October. Company Y’s policy will kick in, as it was in effect when the assessment was charged.
How Much Your Policy Will Pay
Most policies are issued with a limit of $1,000 to cover loss assessments. This is the most your policy will pay for a single loss, regardless of how many assessments are charged for it.
If the clubhouse is damaged by a hurricane, it’s possible that members may be assessed first to cover the cost of the association master policy’s deductible, then again to cover the cost of the repair that exceeds that policy’s limit. Since both assessments are charged due to the same hurricane, the total paid by your insurance will not exceed $1,000.
When You Can Increase Assessment Policy Coverage
You can almost always increase your assessment policy coverage. However, adding additional coverage doesn't mean getting covered against more claims. The rule of thumb still applies: If it's covered by your policy, you're good. If it's not, you're still out of luck.
If you choose to purchase additional assessment coverage, proceed with caution. Most loss assessment endorsements will still only allow you a maximum limit of $1,000 if the purpose of the assessment is to cover the master policy’s deductible.
The Bottom Line
Loss assessments can be expensive. Having the right home or condo insurance policy to help cover some of the cost could save you big bucks. For more information, call your Trusted Choice® insurance agent today.