If you live in a condo, you already know that you share in the maintenance and upkeep of common areas. However, how does insurance coverage work if those common areas are damaged in a natural disaster?

This is what loss assessment coverage is meant to cover. It covers your portion of the financial responsibility for any losses that are assessed to the group of homeowners in your condo development. Loss assessment coverage will cover you for claims that are divided among the group for damage (or liability claims) that occur in common areas.

A simple definition of loss assessment coverage is: insurance coverage purchased by a homeowner who is part of a development with shared areas of financial responsibility (such as a condominium development, homeowners association (HOA), or co-op) that provides protection for losses or claims to common areas. It also provides liability coverage if someone is injured in a shared area. Loss assessment coverage is typically part of your condo insurance coverage.

Members of the home or condo community pay fees for certain services or amenities in the shared community. These fees refer to a community HOA insurance policy or a master insurance policy. If you're a property owner in a shared community, loss assessment coverage can help you pay for liability costs, medical expenses, and property damage. However, this coverage doesn't pay for property improvements.

Is loss assessment coverage covered by the condo development’s master policy or HOA policy?

This is a frequently misunderstood aspect of what a master or HOA policy covers. Generally speaking, the master policy does cover potential damage to common areas, but the deductible for the master policy is usually set quite high. This means that the homeowners will typically share in the payment of the deductible and any expenses that exceed the coverage limits.

Your HOA agreement should include how and when a deductible is shared, and by whom. There is no real “standard” for sharing a master policy deductible because design can vary.

A condo development with multiple buildings might stipulate that condo owners within a building will share the deductible for damage that occurs to the building. However, all condo owners in the development would share in the deductible for liability for a shared amenity, like a pool, tennis courts, or fitness center. With so much variation, it’s important to pay attention to your HOA agreement and read over the details of the master policy.

How does loss assessment coverage work?

Here’s a scenario to provide an example of how loss assessment coverage would work for an individual condo owner. A building with 10 condominium units in it has a master policy with a $10,000 deductible and $400,000 in property damage coverage. If a windstorm causes $200,000 in damage to common areas, it will be covered by the policy and each condo owner will share in the payment of the deductible, with each unit responsible for $1,000 of the total.

However, if a tornado comes through and causes significantly more damage, for example, $500,000 in damage exceeding the coverage limits, each condo owner would be responsible for not just their portion of the deductible, but also for the damage that exceeded the coverage limit. In this example, that would include the deductible ($1,000) and the portion of the damage that exceeded ($10,000). Loss assessment coverage is designed to protect condo owners from that $11,000 bill.

Is loss assessment coverage for condo owners important?

In short, yes, loss assessment coverage is important for condo owners. While the example provided above deals with a major weather event, there are other events that could result in damage or losses that would also be covered by loss assessment coverage. Consider the three most common types of problems or hazards that could impact a condo’s common areas: Damage to exterior areas: While common areas can vary dramatically depending on the design and amenities of a condominium building, there are virtually always shared areas that could be damaged in a storm or by another covered peril.

1. Damage to exterior areas: While common areas can vary dramatically depending on the design and amenities of a condominium building, there are virtually always shared areas that could be damaged in a storm or by another covered peril.
2. Damage to interior common areas: Again, this will depend on the design and amenities of your condo complex, but if there are shared common interior areas from hallways and elevators to recreation or community buildings, there’s a chance for damage. Repairs from even a minor fire can be costly.
3. Visitor injuries in common areas: If a guest in your condo is injured in your unit, your condo insurance policy would cover liability claims. However, if your guest is injured in a common area, that liability claim would be shared by the owners.

As you can see, the potential for an event that results in damage sufficient enough for a claim is fairly possible. Condo owners risk facing significant bills if they decide to forego loss assessment coverage.

What doesn’t loss assessment coverage cover?

As with any insurance product, it’s important to know the details of what your policy covers and what it excludes. Loss assessment coverage for condos will have some exclusions similar to a standard homeowner policy.

Loss assessment coverage typically won’t cover for losses that you didn’t purchase coverage for in your condo insurance policy. For example, if you decided not to purchase earthquake insurance coverage and a common area is damaged by an earthquake, your loss assessment coverage likely won’t cover that claim.

It’s always important to know exactly what your condo insurance policy covers. If you live in a condo, it’s just as important to understand loss assessment, including both what the master policy says about your responsibility in the event of damage to a common area, and what loss assessment coverage you have and what it does and doesn’t cover.

One might believe that sharing the cost of a loss would reduce the burden on an individual condo owner. However, with many common areas and the potential to be exposed to litigation, condo complexes present a different set of risks. Understanding your financial exposure to these risks is essential in determining how much loss assessment coverage would be right for you.

To learn more about condo insurance, you can read Clearsurance’s condo insurance blog post.

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