By Debbie Torres, CISR Elite, CPIA – Senior Client Manager 
& David Velasco, EBP – Assistant Vice President
In most condominium communities, the association carries an insurance policy that provides coverage for incidents that occur outside of a unit owner’s personal unit as well as inside the unit, depending on statutory and bylaw requirements. This is commonly known as a Master Policy.
At times, some unit owners mistakenly assume the coverage the association carries is adequate to cover all incidents that occur in a shared area of the property such as lobbies, stairwells, pools, clubhouses, and outdoor spaces.
However, in the event damages from an incident exceed the limits of the association’s Master Policy, all residents may be assessed the uninsured portion of the loss, even if they were not at fault. To avoid an out-of-pocket expense, loss assessment coverage is a critical add-on to the HO6 or an HO4 policy that all condominium residents should consider.
Wait a Minute! What Is an HO6 or an HO4?
An HO6 policy is homeowner’s insurance for owners of a condominium or shareholders of a cooperative (co-op) unit. As a condominium owner, the owner is likely at least responsible for insuring the improvements and betterments they make or acquire from a previous owner, but depending on how the bylaws are written, they may also be responsible for insuring the entire interior of the unit. Cooperative shareholders may not actually own the improvements they make as those may belong to the association unless the governing documents indicate otherwise.
An HO6 policy usually does not cover the exterior or common areas of the condominium complex as those are typically covered by an association’s Master Policy.
HO4 is the technical term for renters’ insurance. While a landlord insures the dwelling with an HO6 policy described above, an HO4 policy protects the personal property of a tenant if it is damaged under certain circumstances. Most HO4 policies also provide liability insurance. This is needed if someone is injured on or in the rental property and if the tenant is found negligent for the injuries sustained. This policy may cover legal expenses and medical expenses that the tenant may be held responsible for. Liability coverage can also cover reimbursement for any visitor’s property that is damaged while visiting a tenant in a community.
What Is Loss Assessment Coverage?
Loss assessment coverage can be added as an endorsement to either type of policy. It provides much-needed protection in cases where residents of a shared property are held responsible for a significant portion of the costs associated with a covered incident but where the association’s policy limits do not fully cover the loss, defense, or indemnity. Examples of this may include the following:
A major hailstorm causes $1,100,000 worth of damage to a condominium building. While the association has a Master Policy, the policy’s limit is $1,000,000, leaving owners with $100,000 of uncovered damage. Owners are collectively assessed the uninsured portion of the loss.
A visitor to a condo property sustains a very serious injury when he trips on uneven pavement. The injury bills—totaling $6,250,000—exceed the association’s liability coverage and umbrella combined limit of $6,000,000, creating a major financial burden for condominium’s residents ($250,000).
A fire destroys a building within a multi-building association. The association’s property coverage doesn’t fully cover all the damages, and owners are forced to pay a portion of the repairs.
What Loss Assessment Coverage Is Not
Loss assessment coverage is not a policy that you purchase to cover a Special Assessment.
Imagine that an association faced an exceptionally bad winter and finds it has overspent on snow removal. The association is $50,000 over budget for the year. The Board of Directors decides to special assess the homeowners for the deficit. This is not a covered loss under a loss assessment endorsement.
Cover Your Asset
Simply put, loss assessment coverage provides a safety net for condominium owners, ensuring they do not have to pay for incidents that exceed an association’s policy limit(s). Loss assessment coverage can be applied to property damage, liability, injuries that occur on condo property, or deductible responsibility. Each situation is different, so residents should discuss the specifics of their situation with their personal line insurance agent.
