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Wednesday, August 9, 2017

Condo & Townhome Owners Need to Consider Their Collective Liabilities

In a recent article about hail deductibles, I mentioned how the deductible for Belmar Commons in Lakewood was so high that each of the 45 owners in that townhome community received a $5,600 special “loss assessment” to cover the quarter-million-dollar deductible for roof replacement.

There are other perils besides a bad hail storm that could subject condo and townhome owners to a loss assessment. Considering the increase in real estate values, your HOA — like any  homeowner — needs to make sure their covered real estate is not underinsured. In addition to checking your HOA’s master policy for its coverage limitations, this would be a good time to discuss additional personal policy coverages with your insurance agent, not only to cover high-deductible assessments like the one discussed above, but for those imposed to cover losses exceeding the coverage limits of your HOA’s master insurance policy.

Here are a couple scenarios that could result in losses that exceed your master policy coverage limits:

Scenario One:
   A child riding a bicycle takes a shortcut through your community’s HOA-maintained street, hits a large pothole and crashes, sustaining injuries that are permanently disabling. The family sues the HOA, prevails and is awarded a settlement that far exceeds the liability limits maintained by the community. You are notified of a special assessment for your portion of the amount not covered. Divide just $1 million — and such awards can be much bigger — by the number of unit owners, and you’re talking about a huge special assessment.

Scenario Two:
   The owner of the unit just below your own causes a kitchen fire that destroys the entire condo building. Luckily, no one was injured. It never occurred to your HOA board that the surge in property values required a re-evaluation of your master policy’s coverages. Failure to update that coverage could potentially result in a huge assessment should the community experience a major loss event.

These are just a couple examples of occurrences that could affect your financial position as a condo or townhome owner and subject you (and your fellow owners) to a huge loss assessment.

For this article, my associate, Andrew Lesko, surveyed 85 individual condo and townhouse HOA declarations (covenants). Over 35% of these declarations made no mention of limiting the deductible in the community’s master insurance policy. As the owner of valuable (and appreciating) real estate assets, it would be unwise of you to assume that you are protected. It is best to know for sure, so ask your HOA board to check and confirm the community’s coverage limits and deductibles.

Board officers are responsible for addressing current valuations of the buildings, structures and amenities that make up the community. Of  course, reducing the deductible will raise the premium for the master policy, but consider the alternative. Your HOA board should make it their practice to regularly update your community’s insurance coverage.

Are you adequately covered personally? Here is a good place to start.

1)  Review your HOA Declaration documents. List any items not covered by the master policy.

2) Verify the current master policy deductible.

3) Estimate the replacement cost of the items that are your responsibility. Total the values, including labor.

4) Change your coverage from “Named Perils” to “All Risks, unless excluded.”

5) On your individual unit HO-6 policy, raise your loss assessment coverage limits as advised by your insurance agent based on increased asset valuations and current replacement cost estimates. (Most if not all of the Belmar Commons owners had this coverage.)

6) Buy adequate liability coverage. Discuss various possible claim scenarios with your insurance provider. Consider purchasing an “umbrella” policy.

Hopefully, the above scenarios have inspired you to evaluate your coverage position should there be an unfortunate occurrence within your condominium or townhome community.
   Andrew Lesko, a broker associate at Golden Real Estate, assisted me with this article. You can reach Andrew at or at 720-550-2064. He is our condo and townhome specialist. Check out his website detailing 30+ Golden ├írea communities at

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