Who Pays The Deductible In The Event Of A Loss

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During my time as an on-site manager, the question of who pays the master policy insurance deductible came up several times. Today, I work as an Insurance Counselor and have a bent toward condominium insurance because of my CMCA certification; I hope to unravel these mysteries for both my fellow managers and insurance counselors. I experientially understand that most managers dislike interpreting their master policies. Yet, the reverse is also true; Insurance Counselors dislike writing condo policies because they need to interpret association By-laws and State laws, too. I just happen to enjoy both, so I'd like to bridge the gaps in our understanding.
Let me present an example: Your master policy has a $5000 deductible. A fire caused $7500 worth of damage. The insurance will cover $2500, and someone else is responsible for paying the $5000 deductible. Who is responsible for paying the deductible? If your governing docs (By-laws or even State laws) deem deductibles as common expenses, then the association pays the deductible. Yet, if an owner negligently started the fire, your governing docs may allow the Board to collect the $5000 deductible from that unit owner.
If repairing the damage is less than the amount of the master policy deductible, if it were only $4500, then who pays? The unit owner will be responsible for paying the $4500 because they are responsible for repairing and maintaining their unit, and since the damage is not enough to warrant a master policy insurance claim. This will be true: (a) even if the owner was not negligent or otherwise responsible for causing the damage, and (b) even if the condominium documents say that the association pays the deductible (no claim = no deductible). If the unit owner negligently caused the damage, and it affected neighboring units, the affected owners will be able to recover the repair costs from the negligent owner, but that may require a lawsuit. And, thus far, we've only referred to damage repair costs; we haven't even considered the potential costs of debris removal, bodily injury, permanent disability or death.
A growing trend in this economy is showing that associations are reducing their monthly premium costs by increasing their deductibles from $5000 to $20,000 or even $50,000 to transfer the expense and the risk to the unit owner's HO6 policies. Unfortunately, many unit owners don't carry HO6 insurance and will have to pay that $20,000 or $50,000 out of pocket...and don't know it!
Certainly, no one wants to pay thousands of dollars out of pocket; therefore, a collaborative approach to transferring risk through insurance coverage involving the association, the owners and the renters, should be implemented. The manager should make the following recommendations to the Board: (1) to ensure sufficient funds are available to cover common element damage repairs or the master policy deductible; (2) to highly encourage, or even require, the unit owners to purchase HO6 with building/dwelling coverage as a way to cover master policy gaps or when the unit owner is responsible for paying the master policy deductible*; (3) unit owners should require renters to carry HO4 policies as a requirement of their lease.
In conclusion, both the manager and the insurance counselor should be in tune with the details of the governing docs and the master policy. Yet, most importantly, the risk of being uninsured should be sufficiently communicated with the unit owners, as carrying an HO6 policy only costs a few hundred dollars annually and provides protection and considerable peace of mind.
* A bare-bones HO-6 policy usually covers only the unit owner's personal possessions (furniture, household effects, clothing, etc.), and may cover some unit improvements made by the owner, but does not provide any coverage for repairing walls, floors, ceilings, cabinets, fixtures, windows, doors, or other "building" components of the unit.
Irene K. Anderson, is a both a CMCA and an Insurance Counselor. For further guidance or a free evaluation of your insurance needs, please email her at irenekanderson@gmail.com.

Article Source: http://depositarticles.com/

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