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Who is responsible for the Master Policy Deductible?
In today’s insurance market, Board members are often finding themselves in a position of having to accept higher deductibles as a basis for renewing coverage at an affordable premium. Increasing deductibles may be appropriate in some instances, but it also raises the question as to who is responsible to pay for this higher deductible, the Association or the unit owner.Most Association documents spell out who is responsible for payment of any deductible under a master policy. This responsibility usually lies with the Association. This situation may cause an Association to see the amount being paid out for claim deductibles increase and cause a budget to begin to move into the red. In addition there is no way to budget for the number of claims an association may have in one year. Other documents are specific, requiring the unit owners to be responsible for the Association deductible for damage which occurs to the interior their unit.
Other Association documents are silent on the issue of who pays the deductible. Most documents require the unit owner to maintain their unit, so some boards hold the unit owners responsible for damage to the interior of their unit, following the maintenance model.
The first thing a board needs to do is review their documents as they relate to deductibles. Verify who is responsible based upon the verbiage. If the Board feels a change would be in the best interest of the entire community, then an amendment would need to be drafted and presented to the unit owners for review and a vote.
Having the unit owner pay the association deductible is not as bad as it sounds. Most Unit owners insurance companies will cover this expense under the HO-6 policy. Each owner should be encouraged to contact his/her insurance agent to determine if they have the right coverage to pay for this deductible.
In addition to this change, the Association should set up a procedure for small claims. Submitting claims that exceed the association deductible by less than $100 is not in the best interest of the Association. Insurance carriers typically pay at a minimum, $250 to adjust one loss. Even though the Association is receiving $100 for a claim, it is actually costing you insurance company $350.00 for the loss and the expense in adjusting the loss. Submitting these types of claim end up looking bad on the Association loss report when it comes to competitively pricing your insurance at renewal...
Establishing both a deductible and small claim procedure and communicating those procedures to all unit owners will help solidify the financial wherewithal of your Association. Once these procedures are communicated to the unit owners then it is up to them to take the steps necessary to protect themselves.
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