HOA Insurance Victimization
by Richard Thompson
Wednesday, June 20, 2012
While victim frustration and irritation always results, the most natural reaction is looking for someone to blame. However, this is a crime that usually has no perpetrator. Rarely does someone consciously set out to flood the neighbors. This is one of those irritating events controlled by unseen forces commonly referred to as "S**t Happens". What now?
Of the two entities that victims would like to blame, the neighbor or the HOA, both have legitimate alibis. The neighbor's toilet supply line probably broke when the neighbor was gone so there is considerable damage done their unit as well. And the event was nothing they had control over. Your neighbor may have even called his insurance agent about fixing his and your damage. The agent often replies either, "We'll fix yours but not your neighbor's" or "Call the HOA's insurance carrier. They'll pay for the damage to both". Technically speaking correct, but practically speaking, wrong advice.
Like the neighbor, the HOA usually isn't negligent in causing the damage. Things happen. And unless the result is catastrophic, involving many units and tens or hundreds of thousands of dollars of damage, the HOA's insurance should not be involved in the repairs even if the policy covers it. Why? Insurance companies set their rates according to the number of claims filed and the dollar value of those claims. HOA insurance and rates assume that it will rarely be needed. To keep premiums even lower, higher deductibles like $2500-10,000 are opted for. This encourages the board not to file small claims which may jeopardize the HOA's insurability. Too many claims result in cancellation.
All unit owners are required to carry homeowner insurance for a good reason: to spread the risk around and ensure that each owner has the correct amount and appropriate kind of insurance. Some need relatively little and some need more to cover valuable contents, home businesses and other special needs. It is important that owner insurance be the first line of defense when possible. In the scenario discussed here, unless either the neighbor or HOA was negligent in some way, the owner victims would file claims on their own insurance and pay the deductible out of their own pocket.
The HOA can assist in sorting out claims and responsibilities by enacting an Areas of Responsibility Policy which clearly defines who is responsible for insurance and maintenance according to building and grounds components. This one page document establishes the guidelines for the board, owners and insurance agents and eliminates most disputes. A sample is available to Gold Subscribers of www.Regenesis.net in "Policy Samples" section. Once adopted, the board should be careful to follow it. Fixing unit damage that the HOA is not responsible to fix will establish an expensive precedent.
Avoiding insurance victimization is a matter of proper planning and notification. Make sure all owners know what's what with an Areas of Responsibility Policy. Then, owners won't get caught with their insurance pants down.
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