Ready for a catastrophic event?

Insurance is increasingly more expensive and some of us are under-insured. Are you protected from a catastrophic event should one occur at the Lakes of Bent Tree?

In tandem. Each homeowner unit is protected by both the Association's insurance and their own personal homeowners insurance. For large claims involving the building, both policies are often used in tandem for different aspects of the claim.

In small claims involving the interior (under the HOA deductible), typically, only the personal homeowners insurance is involved. In a larger claim (above the HOA deductible), both insurers are likely to pay out.

Why does the Association insurance provide interior coverage? HOA insurance is in place to repair both the common property and to provide basic functional repair to the interior shells. Why the interior? This is to protect all owners from having one owner abandon a unit after a catastrophe. An abandoned, burned out unit, for example, would affect everyone's enjoyment of the property and the property values.

How do the two insurers compliment each other?  The HOA insurance might not be as comprehensive or provide the same standard of materials as personal homeowners insurance, and the HOA insurance deductible is high (currently $10,000.)
  • for claims under $10,000, your homeowners insurance will pay for all interior building repairs  and you, as the homeowner, only to pay your policy deductible (e.g., $500, $1000);
  • for claims above $10,000, your homeowners insurance will mitigate the reimbursement "gap" for repairs not fully covered by the Association policy such as upgrades (e.g., wood floors, quartz counter tops, etc.) as well as pay the HOA's deductible.
  • additionally, your homeowners insurance will pay for damages to personal belongings,and  temporary housing,etc.

The Association policy is summarized here.

Are you under-insured? Some of us are. Studies show that insurance companies consistently under-insure owner's assets. Why? Because insurance companies compete for your business and know four things: 1) most consumers want to pay as little as possible for insurance, and 2) a fast sale is the best sale,  3) most homeowners know only very basic info about their homes insurable value and HOA policy and 4) the law does not hold them accountable if they make a bad recommendations.

Are you confused about who covers what?  It is certainly confusing. As both homeowners and the Association are required to insure the same property, and it is inevitable that there will be debate with some insurers over what is covered and what is not, who is obligated to pay different parts of your loss claim, and/or who should adjust the claim first. There will also be cases where claims will be paid by one insurer who will then seek partial or full reimbursement from another insurer.

The largest home insurance companies in the industry are, in rank order, State Farm, Allstate, USAA, Liberty Mutual, Farmers, Travelers, American Family, Nationwide, Chubb, and Auto-Owners. Each will approach coverage in their own way and there will likely be different processes and different interpretations of the community documents, the policies in place, and what is covered and by whom. These interpretations are not always fair, expedient, or consistent and they may change in time.

To add to the confusion, the Association's governing docs have a conflict between the CC&R and the Bylaws with respect to insurance. The CC&R is the "superior" document. Also, many owners expect that the repair obligations and the insurance obligations should be the same. They are not in most condominiums.

Association Insurance Costs Double. The 2021 Association insurance cost will be $145,000 this year, up from $65,000 two years ago. This is for a policy with a $100,000 wind and hail deductible.  Why? The wind and hail claims in the metroplex in recent years have made Dallas a bad market for insurers and most Condo insurers have left the Dallas market. The Associations last two insurers are out of the market. Also contributing to the increase in costs are the recent LBT claims history.

Protection From Special Assessment.  The Association has created and funded a emergency reserve to cover this $100,000 deductible. This will help protect against the need to collect a special assessment from each homeowner during a catastrophic weather event.

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Comments

  1. This was good advice. We upgraded our dwelling coverage from $180,000 to $250,000 after getting rebuilding estimates from an adjuster and a builder.

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  2. We also added loss assessment insurance that would pay any special assessment related an loss that caused the Association to issue a special assessment. For example, if the community had major storm damage and couldn't pay it's $100,000 deductible, it would levy a special assessment to cover it. The loss assessment insurance would cover this. It was very inexpensive $6/year for $10,000 coverage. We are insured with Travelers.

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  3. Who is responsible for fixing the dry wall after a water leak?

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  4. Perhaps one of the more confusing concepts when it comes to HOAs is the difference between having an insurance obligation and having a maintenance obligation.

    A broken pipe is generally a maintenance item. The Bylaws (Article IX, Section 4 ) identify the owner as having the primary maintenance responsibility for water, electric, sewer, and gas lines from the meter (or street) to their home and inside. Damage associated with a repair to a pipe are part of that maintenance.

    "Maintenance responsibilities" listed in the Association's governing documents and "insured property" listed in the governing documents not the same. This is normal, but certainly not intuitive.

    If there is damage and it is one of the “specified losses” contained in the insurance policy, it is a claimable event.

    Ultimately each owner is responsible to hire their own contractors to repair their home, for maintenance and for many claimable events (like water damage)
    .
    Repairs are funded by the owner, in whole or part, with insurance proceeds.

    The amount of the insurance proceeds is dependent on the type of damages and on the coverage terms, limits, exclusions, and deductibles in the insurance policy(ies).

    Some insurers pay out based on your actual expenses/receipts/quotes. Some insurers pay based on what their consultants tell them is that rate you should have paid be for your repairs.

    Our understanding is that...

    The current Association policy (Princeton) would not be involved unless the damage is a "claimable event" and over the HOA's deductible.

    If these conditions are met, Princeton pays based on what their consultants tell them is the rate you should pay for your repairs.

    The Princeton policy has exclusions for improvements made since the original construction. For example, if they determine that a home was originally built with a 30 gallon hot water heater, they will pay for a new 30 gallon heater and not the 75 gallon hot water heater that was damaged. They would expect the homeowner or the homeowner's personal policy to pay for difference. They can apply this exclusion to floors, cabinetry, wall covering, fixtures, etc.

    The above statements are generalizations. When claims are made, the adjusters have a lot of claim specific issues to consider in their decision. Some adjusters or situations are more closely analyzed that others. It's often hard to anticipate how a specific claim will be covered.

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