By David C. Swedelson, Partner, SwedelsonGottlieb
With record rainfalls in December 2010, and a rainy season that stretched into March 2011, California community associations and their management have been kept busy responding to reports of leaks and “water intrusion” (when the water from any source intrudes into a unit or home). And as expected, we have received many phone calls and emails asking who is responsible to pay for the cost of repair, who makes what repairs, and is there any insurance to cover the cost of all or any part of the repair work?
Is there any insurance coverage?
This question most often arises with condominium associations, which are generally obligated to provide insurance coverage for the common area. For the uninitiated, most (maybe all, but I have not reviewed all available policies) insurance polices for condominium associations do not provide coverage for most types of water leaks. Look at it this way; if the community association insurance polices did provide this coverage, it may likely lead many associations to defer maintenance and rely on insurance to pay the cost of repairing damage (as least this is the way many insurance carriers look at this issue). And the cost of insurance coverage for all of those claims would likely be exorbitant.
Except for wind-driven rain, sudden pipe bursts and perhaps a few other claims that may be covered, there is not likely any insurance coverage for water damage claims. And it is also important to note that unless an association is able to obtain a special rider for mold, mold claims are not covered. These restrictions make it all the more important for a condominium association, when faced with a leak issue, to first dry out the wet common area and not debate responsibility, as the longer the wet building materials are left to develop mold, the more chance there is that an uninsured mold claim will develop.
Who pays the deductible?
Depending on the circumstances (like who caused the leak or the leak source being a component that the association or the owner is obligated to maintain), associations can allocate insurance deductibles to owners. It is usually a good idea for associations to adopt a deductible policy before a loss occurs to assist owners in understanding their obligations and to minimize disputes over the deductible. Better yet, consider amending the association’s CC&Rs to add a provision detailing who pays the deductible based on fault and other criteria.
Can an owner file a claim on the association’s insurance policy?
California law is silent on this issue. Typically, however, a potential claim must fall within the association’s insurance responsibilities before an owner may make a claim on the association’s policy. Some boards are at times reluctant to allow owners to make claims, especially when the claim is as a result of the owner’s negligence or the damage is solely within the owner’s unit. However, owners do have certain coverage under a typical policy covering a community association and they also pay a portion of the premium through assessments. Owners can and should be allowed to submit claims to an association’s carrier if the claim is covered by the association’s policy. The failure of a board to allow an owner to make a claim for a covered loss could result in a lawsuit against the association for the owner’s damages. The potential for owners to make claims on the association’s insurance policies demonstrates the importance of associations adopting insurance guidelines that set out the association’s procedures for adjusting claims.
SwedelsonGottlieb offers assistance to community association boards to deal with insurance claim disputes and we can prepare maintenance and repair responsibility matrixes defining who is responsible for water damage claims. We can also assist in developing insurance guidelines that will deal with the submittal of insurance claims and for responsibility for deductibles and can assist your association(s) in addressing insurance questions. Please contact our office with any questions. You may contact David Swedelson or Sandra Gottlieb at (800) 372-2207 ext 201 or firstname.lastname@example.org.