Insurance Tips - Part II

“Everyone lives by selling something.”

- Robert Louis Stevenson

Following up on the last column, there is the matter of your condominium association's insurance deductible. To be clear, you will never get from your insurance company all of the money needed to make the repairs, for the simple reason that even if you get everything you wanted in your negotiations with the adjuster, the insurance company will still subtract the deductible of $5,00.00 or more. So, for example, on a $50,000.00 claim your association will get a check for $45,000.00.

In most cases this is just a loss for the association to be made up from your association's maintenance line item or from your reserves. But look carefully at your documents.

Usually there is language, likely in the bylaws, that says the deductible will be an association responsibility. And that's not always fair to all the owners. Let me explain.

All too frequently, the incident that caused the claim was caused by the act or neglect of an owner. It could have been that an owner left the bathtub water running and fell asleep, or left candles on and fell asleep resulting in a fire, or more commonly, the owner leaves for a warm winter vacation and instead of lowering the heat to 50 or 55 simply shuts the heat off; shuts the water off, but does not drain the pipes; and leaves a window open over the kitchen sink. So, the water in he pipe freezes, expands as ice does and cracks the pipe. When there is a winter thaw, the ice melts; the water escapes; gravity directs it to go down through the owner's unit and into the two units below and a large amount of damage results. (These aren't made up. I've had two of these three situations and have heard of the other.)

In any of these situations, if your bylaws contain the typical language, then the association has to pay the deductible even though the incident was caused by the bad decisions of the owner. What your bylaws should have is language that notes if the board of directors determines the incident that caused the master policy claim was caused by the act or neglect of the owner, the board may assess the deductible to the owner.

In turn, the owner contacts their insurance company; files a claim; pays their $500.00 deductible; assigns the payment to the association; and pays the Association the remaining $5000.00.

If such language that gives your board of directors the ability to assess the association's deductible to an owner who has caused the claim is missing from your bylaws, you really should amend your documents.

Finally, always remember that if there is an association claim, then it is the association's money. That may sound simple, but all too often an owner approaches the board and asks for the money to make the repairs to the Unit. Inexperienced boards then give the money to the owner, the thinking being that since it is the owner's unit that is damaged the owner is entitled to the money. That misunderstanding of whose money it is can lead to real problems.

In one case, for example, the board of directors gave approximately $35,000,00 to an owner whose water heater had ruptured, creating an insurance claim. The owner was a contractor, who asked for the money. The board willingly agreed. The owner did no work in the unit, and instead, took the money, went to Florida and used the money as a downpayment on a condominium there. The association, of course, was still responsible for making the repairs to the Unit.

Never, ever give association money to an owner in an insurance repair situation. Rather, if an owner has chosen contractors who the owner wishes to use, simply make sure your board of directors reviews and accepts the contracts; makes sure the contractor has insurance and names the Association as an additional insured on the policy; and then pays the contractor directly, after proof that the job has been started (one-third of the money), substantially completed (one-third of the money) and completed (the remainder of the money). In other words the board should treat it the same as it would non-insurance claims.

There now, you've made it through insurance 101 for condos without falling asleep. Well done.