Loss Assessment Coverage
Essential Insurance Coverage for Condominium Owners
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 $100,000.
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.