Understanding shareholder liability and deductible responsibility in LW

INSURANCE

by Michael J. Perry

DLD Insurance Brokers Vice President CPCU, ARM

As insurance deductibles rise across communities statewide, shareholders within the Mutuals and the Golden Rain Foundation (GRF) have raised new questions about how the increased $100,000 property and liability deductible may impact them. GRF and Mutual representatives have provided clarification on the circumstances under which individual shareholders may be held responsible for this significant amount. When a Single Shareholder May Owe the Full $100,000 Deductible A shareholder may be required to pay the entire deductible only under specific conditions.

If a shareholder is found responsible or negligent for causing bodily injury or property damage, the Mutual or GRF may assess the full $100,000 deductible to that individual. This can occur in cases such as negligence-related fires, plumbing leaks, or incidents causing injury to others.

Damage Originating Inside a Unit: Who Pays?

When damage begins in one unit and spreads to others or common areas, the financial responsibility depends on whether the originating shareholder was negligent.

If negligence is determined, the entire deductible may be charged to that shareholder—even if multiple units were affected.

This is one of the main reasons why HO 6 policies require personal liability coverage, which is designed to help protect the shareholder from these substantial out of pocket costs.

Major Building Losses: Deductible Allocation Varies by Mutual In situations involving major building losses, such as fires or storm related structural damage, allocation of the

INSURANCE, page 3 $100,000 deductible depends entirely on the specific Mutual’s governing documents.

Some Mutuals may distribute the deductible among shareholders, while others may apply alternate methods. Shareholders are encouraged to review their Mutual’s policies to understand how these situations are handled.

Historical Practice: When Individuals Have Paid the Full Deductible GRF has historically assessed the full deductible to an individual shareholder only when that person was solely negligent in causing the loss.

While situations vary, the guiding principle is clear: deductible responsibility follows negligence.

Understanding Loss Assessment Coverage With the rising deductible, many shareholders have asked about loss assessment coverage, a component commonly found in HO 6 condominium insurance policies.

Loss assessment coverage helps protect individual unit owners from unexpected financial obligations when their association (or Mutual) issues a special assessment for a covered loss.

This type of coverage can apply when:

• A major property loss leaves the Mutual responsible for a large deductible

• Damage affects shared structures or common areas

• A Mutual’s insurance is insufficient to cover a claim

• A shareholder is assessed a portion—or all—of an insurance deductible Loss assessment coverage is designed to help pay the amount the Mutual charges the shareholder, depending on the situation and policy terms. This is separate from Personal Liability coverage which is designed to respond when the shareholder is negligent in causing a loss.

Does GRF Recommend a Minimum Coverage Amount?

GRF does not recommend specific limits or types of coverage.

Instead, shareholders are advised to: review their occupancy agreement; examine their Mutual’s governing documents; and consult a licensed homeowners insurance agent.

These steps help determine the appropriate amount of loss assessment, liability, and property coverage based on individual risk tolerance and the Mutual’s requirements.

Please note that the information provided herein is for discussion purposes only and is provided by way of general information. Coverage for any particular matter will depend upon the specifics of the policy, the details of the claim, and the application of insurance law, which may be less than certain. DLD does not undertake to provide any opinion as to how an insurance company, court or arbitrator may respond to a particular claim.