The catastrophe in 2021 at Champlain Towers South in Surfside, FL, raised a lot of questions about loss assessment coverage and condominium unit owners’ HO-6 policies. In this blog, we cover some of the basics about loss assessment in typical HO-6 policies and why the coverage offered is usually inadequate to protect the policyholder.

What Is Covered in an HO-6 Policy?

An “HO-6” — short for the ISO’s Homeowners Policy Unit Owners Form 6 —is a homeowner’s insurance policy designed to cover a condominium or a co-op unit. A typical HO-6 policy includes:

  • Unit/Dwelling/Building coverage
  • Personal Liability coverage
  • Personal Property/Theft protection
  • Additional Living Expenses (ALE)
  • Loss Assessment coverage

What Is Loss Assessment on an HO-6 Policy?

Most of the coverage above applies to the unit from the walls in. Personal property coverage protects your possessions from damage or theft; dwelling coverage protects you from burst pipes, storms, fire, smoke, etc.

However, loss assessment coverage kicks in when you, as the unit owner, are responsible for costs shared by the condo association that aren’t covered by the association’s insurance policy.

In “10 Steps to a Well-Designed HO-6 Policy,” Jack Hungelmann notes that coverage for loss assessments is typically inadequate to protect the policyholder. Most HO-6 policies have a very minimal amount of coverage for assessments made against all unit owners for uninsured or underinsured property or liability claims: usually just $1,000. Even when the limit for loss assessment coverage is increased to $25,000, in most cases, assessments for deductibles are still only covered for $1,000 under the increased loss assessment policy endorsement. These limits apply both to an association-wide loss assessment in which a judgment exceeds the association’s general liability coverage limits and the excess is thus assessed against all unit owners, or to a loss assessment made against a specific unit owner when a loss is caused by that person’s negligence and the entire association master policy property insurance deductible is assessed against that unit owner.

Examples of HO-6 Loss Assessment Coverage

Hungelmann cites some useful examples assuming a complex with 100 units:

· The complex, insured for $5 million, is destroyed by a tornado and costs $8 million to rebuild. The $3 million shortfall would be assessed to the 100 unit owners — that is, $30,000 each.

· A drowning occurs at the complex swimming pool. A lawsuit ensues, resulting in a $4 million judgment. The association carries $2 million of liability coverage, resulting in each unit owner being assessed $20,000.

· Heavy rains lead to a massive sewer backup in the complex. Cleanup costs and repair costs total $75,000. The association board did not purchase sewer backup coverage, leading to an assessment of $750 to each of the unit owners.

Under the basic HO 6 policy, with $1,000 loss assessment and named perils coverage, our hypothetical unit owner will be personally out of pocket for $29,000 from the tornado assessment, $19,000 from the lawsuit assessment, and $750 from the sewer backup assessment (not a covered ‘named peril’).

It’s worth noting, also, that loss assessment coverage is usually determined on a claims-made basis, meaning that the date of the assessment, rather than the date of the occurrence, controls coverage. This was noted in an FC&S Expert Coverage Interpretation article, “Date of Loss, Date of Assessment, and Policy Effective Date,” in which a policyholder received a loss assessment from their condo association regarding Hurricane Wilma damages. The date of the loss assessment was 3/1/2007, but the actual date of loss was 10/24/05, prior to the start of the policy. Their client was still responsible for the loss assessment, however, because the policy states “we will pay up to $1000 for your share of loss assessment charged during the policy period against you,” without any mention of the date of the actual loss.

Recommendations for Getting Better Loss Assessment Coverage for HO-6 Policies

A few years ago, we published a post on the Merlin Law Group Condominium Insurance Law Blog, Condominium Owners Purchasing Insurance Beware! Buy The Right HO-6 Policy From a Qualified Agent. In it, we mentioned that HO-6 policies have numerous options through endorsements which can broaden the amount of HO-6 found in the basic and cheap form of coverage many agents sell. Check out that article for 10 recommendations on how policyholders can make sure they’re better protected by their policy.

At Merlin Law Group, our attorneys have decades of experience making sure policyholders are properly protected. Contact us to see how one of our attorneys can help you.

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Thought For The Day

When you live in a condo complex with people next door, I don’t know how you can be dead for four months without anybody noticing you not coming and going.
—Laura Schlessinger