Loss Assessment Coverage
Essential Insurance Coverage
Written by Attorney Michael T. Chulak
Loss Assessment Coverage is designed to protect the owners of
condominiums against special assessments resulting from
liability claims or covered losses when the claim or loss is
specifically insured against in the policy. Not all Loss
Assessment Coverage is the same so it is important to understand
precisely what you are buying when you obtain such coverage.
Assume someone's 15 year old daughter is raped and murdered in
her condominium. The parents sue the 30 unit condominium
association for negligence, inadequate security, and negligent
security. They obtain a judgment for $6,000,000 and there is
only $3,000,000 of liability insurance. The association will be
forced to specially assess the 30 unit owners $3,000,000 or
$100,000 each. You now receive a special assessment for
Your condominium has little equity so you decide to walk away
from it. Are you safe? No. The assessment is not only secured by
your condominium - it is a personal debt or liability. Unless
you qualify for bankruptcy, and actually file for bankruptcy,
you must pay your share of the total assessment based on the
number of units you own compared to the total. Unless you
receive a bankruptcy discharge, until the judgment is paid,
interest accrues at the rate of 10% per year or $833 per month.
Your wages can be garnished up to 25% of your gross pay and your
savings can be seized. Do not think this cannot happen because
it can happen if you don't have Loss Assessment Coverage.
Loss Assessment Coverage can protect a condominium owner against
special assessments caused by earthquakes, fires, natural gas
explosions, personal injuries and other named perils for a very
modest premium. Loss Assessment Coverage will not cover special
assessments caused by the association's failure to maintain the
common areas or construction defects. Special assessments are
not covered by an individual condominium insurance policy unless
that policy specifically includes loss assessment coverage.
Permission to reprint our HOA Questions and Answers is granted provided Michael T. Chulak & Associates (MTCLaw.com) is credited as the source.