Understanding Master Insurance Policies: What Homeowners Need to Know
In the world of condominium associations and HOAs, insurance can be a complex topic. At Spark Management, we often consult with boards and homeowners to clarify the nuances of master insurance policies and their interplay with individual homeowner policies (HO-6). In this post, we’ll break down the essentials, provide guidance on managing rising insurance costs, and emphasize the importance of comprehensive coverage.
The Master Insurance Policy: Always Primary
The master insurance policy, maintained by the condominium association, provides primary coverage for the building and common areas. It generally covers:
The structure of the building, including shared walls, roofs, and foundations.
Common elements such as hallways, lobbies, and recreational facilities.
Liability coverage for accidents occurring in shared spaces.
The master policy includes coverage for damage within homeowners’ units! All finished surfaces the master policy will cover during a claim. Think of it like a snow globe. If you turn a snow globe upside down, anything that doesn’t move is covered by the master policy, anything that does move is covered by a homeowner’s individual policy (HO-6 policy).
For homeowners, understanding that the master policy is primary is critical. However, there are instances when costs, such as the master policy deductible, may be billed back to individual homeowners.
When Can Deductibles Be Billed Back to Homeowners?
The ability to bill back a master policy deductible to a homeowner depends on the association's governing documents and specific circumstances, including:
Damage Originating in a Unit: If damage starts in an individual unit (e.g., a burst pipe) and affects common areas, the deductible may be billed back to the homeowner, provided it is outlined as such in the governing documents.
Negligence or Misconduct: In cases where the homeowner’s actions or negligence lead to the damage, the association may pursue reimbursement. However, this should be carefully reviewed with the association’s attorney to ensure compliance with governing documents and local laws.
Assessment Through Bylaws: Some bylaws allow deductibles to be assessed across all owners in proportion to their ownership share.
Board members should consult legal counsel before billing back deductibles to avoid disputes and ensure fair application.
Filing a Claim: The Basics
When a loss occurs:
Notify the community manager or board immediately.
Document the damage thoroughly with photos and videos.
The board, with guidance from the community manager, will file a claim with the association’s insurance provider.
Work with the insurance adjuster to determine coverage under the master policy.
For homeowners, it’s important to notify your HO-6 insurer as well, as your policy may cover portions of the deductible or personal property losses not covered by the master policy.
The Current State of the Insurance Market for Condominiums
The Washington State insurance market for condominiums has been undergoing significant changes the last couple of years. Many insurers have exited the condo market altogether in WA, leading to:
Boards are increasingly faced with the challenge of balancing comprehensive coverage with affordability.
Reducing Insurance Premiums
To mitigate rising costs, associations may consider:
Increase Deductibles: A higher deductible lowers premiums but shifts more risk to the association. For example, water losses have been a common theme in Washington State in 2023 and 2024, we have seen water loss deductibles increase from $5,000 or $10,000 all the way up to $50,000 or even $100,000 per occurrence.
Improve Risk Management: Conduct regular maintenance to reduce claims, such as roof inspections and plumbing upgrades. Some communities are implementing heating sources to their suppression systems as a vulnerable source to leaks and frozen pipes.
Bundle Policies: Combine liability and property insurance with the same carrier to secure discounts.
Shop Around: Work with an insurance broker to compare policies and negotiate rates.
HO-6 Policies: A Must for Homeowners
While the master policy protects the building, it doesn’t extend to:
An HO-6 policy fills these gaps, providing coverage for personal property, loss of use, and liability. Additionally, many HO-6 policies offer loss assessment coverage, which helps pay for special assessments imposed by the association, such as for a deductible.
Conclusion
Master insurance policies are the cornerstone of condominium and HOA risk management, but they’re just one part of the puzzle. Homeowners should maintain robust HO-6 coverage to protect their personal interests and work collaboratively with their boards to navigate the challenges of rising premiums.
At Spark Management, we’re here to provide guidance and support to boards and homeowners alike. Whether it’s understanding your policy, reducing costs, or consulting on claims, we’re committed to ensuring your community is well-protected and well-informed.
