Does Condo Insurance Cover Special Assessments?

Condominium ownership provides a unique blend of individual property rights and shared community responsibilities. Unit owners collectively share in the maintenance and financial well-being of common areas through homeowner association (HOA) fees. Occasionally, condominium associations levy “special assessments,” which are unexpected, substantial charges imposed on unit owners beyond regular fees, typically to cover unforeseen expenses or large projects. This article explores whether a personal condo insurance policy, specifically an HO-6 policy, provides coverage for these assessments.

Understanding Condo Insurance Policies

Condo owners should understand two primary types of insurance policies. The unit owner policy, often referred to as an HO-6 policy, is purchased by the individual condo owner. This policy provides coverage for personal belongings, personal liability, and the interior structure of the individual unit, from the “walls-in.”

The master condo policy is held by the condominium association. This policy covers the common areas of the building, such as hallways, roofs, and shared amenities, as well as the overall structure. The extent of coverage provided by a master policy can vary, ranging from “bare walls-in” coverage for the building’s exterior and common areas, to “all-in” coverage that includes interior fixtures within individual units. Understanding the scope of both policies is crucial for determining how special assessments might be handled.

When Unit Owner Policies (HO-6) Cover Special Assessments

An individual HO-6 policy may cover special assessments under limited circumstances. Coverage applies when an assessment is levied due to damage to common elements caused by a covered peril, such as a fire or a windstorm. For example, if a fire in a common area necessitates a special assessment for repairs, an HO-6 policy might offer some relief.

For this coverage to apply, the HO-6 policy requires a specific endorsement, such as “Loss Assessment Coverage” or “Special Assessment Coverage.” This endorsement extends coverage to a portion of the special assessment. It has its own sub-limit, which is lower than the overall dwelling or personal property limits, typically ranging from $1,000 to $50,000. Any claim made under this endorsement is also subject to the HO-6 policy’s deductible.

Situations Not Covered by Unit Owner Policies

Many special assessments are not covered by an HO-6 policy. Assessments for routine maintenance, capital improvements, or upgrades not due to covered damage fall outside HO-6 coverage. For instance, an assessment for a new roof installation due to age or for landscaping enhancements would not be covered.

Assessments arising from the homeowner association’s financial shortfalls, mismanagement, or insufficient reserve funds are also excluded. If an association imposes an assessment due to inadequate budgeting or lack of reserves, individual HO-6 policies do not provide coverage. If the special assessment amount is less than the loss assessment coverage deductible, or if the “Loss Assessment Coverage” endorsement is absent, no coverage applies.

Role of the Master Condo Policy in Special Assessments

The condominium association’s master policy serves as the primary insurance for the building’s structure and common areas. When damage occurs to these shared elements due to a covered peril, the master policy pays for the necessary repairs. For example, if a major storm damages the common roof, the master policy covers the repair costs.

The master policy also has a deductible, which can be substantial, typically ranging from $10,000 to $100,000. If repair costs for common elements are less than this deductible, or if the association absorbs a portion, the HOA may levy a special assessment on unit owners to cover this amount. An individual HO-6 policy’s loss assessment coverage may then partially cover the unit owner’s share of the master policy deductible. If damage costs exceed the master policy’s coverage limits, any remaining balance may be assessed to unit owners, and this excess amount may also be partially covered by an HO-6 endorsement.

Verifying Your Special Assessment Coverage

To verify your special assessment coverage, begin by reviewing your HO-6 policy’s declarations page. Look for endorsements such as “Loss Assessment Coverage” or similar wording to see if this protection is included. Note the sub-limit for this coverage, which is independent of other policy limits, and understand how your policy’s deductible applies to these claims.

For clarification on your policy’s terms regarding special assessments, contacting your insurance provider or agent is recommended. They can explain the conditions under which coverage applies and its limits. Reviewing the homeowner association’s master policy summary and declarations also provides insights into their coverage, including their deductible and overall limits, helping understand potential special assessments.