Available by endorsement to the businessowners policy, the optional endorsement BP 17 03 07 13 Condominium Commercial Unit-Owners Optional Coverage (except in D.C. and Utah) provides loss assessment coverage. This endorsement is similar to a personal unit owners policy. Loss assessment on a commercial policy covers a unit-owner's share of the assessment, but only if the assessment is made as a result of direct physical loss of or damage to property the unit-owner has an undivided interest in. Also, the loss or damage must be caused by a covered cause of loss.

Under BP 17 03, the Loss Assessment Limit is a scheduled limit and coverage is subject to a specific loss assessment deductible. As with the HO 00 06, the association deductible amount of $1,000 is included within the Loss Assessment Limit, unless a higher deductible amount is purchased, and the deductible applies per scheduled unit as a sub-limit of the loss assessment limit.

Three Elements of Loss Assessment Coverage

Regardless of which policy is providing the coverage, there are three important elements of loss assessment coverage: the policy period, the date of loss, and the date of assessment.

Coverage applies to a loss when the date of loss occurs during the policy period. That's straightforward enough. Where it gets confusing is when the date of loss and the date of the assessment span 2 policy periods or worse yet 2 different policies. To aid in the understanding of this coverage, we will examine a few scenarios that address each of these elements of loss, the majority of which came from real life questions received from our subscribers.

Scenario 1:  The date of the loss and the date of the assessment are both within the same policy period.

Facts:

1. Our insured is covered under HO 00 06 for the period 1/1/20-1/1/21.
2. A fire occured on 6/1/20.
3. The insured purchased an increased loss assessment amount on 8/1/20.
4. The association levied an assessment on 9/1/20.

Is there coverage for the loss assessment?

The answer is "yes". This scenario is easy; the loss and assessment occur during the same policy period, so there are no issues here. Coverage applies in the coverage period in which the loss occurred and the assessment was made.

Because the insured purchased an increased amount after the loss occurred does not preclude coverage at the higher amount, as it meets all three elements of coverage. It is up to the insurer's underwriting process to determine whether or not to increase the amount of the loss assessment coverage after the date of loss.

Scenario 2: The loss assessment is not tied to a Coverage A peril.

Facts:

1. Our HO 00 06 10 00 insured lives in a large condo complex that suffered almost total devastation from a hurricane.
2. The windstorm deductible on the condo association's master policy is 2 percent, equating to an association deductible in the amount of $200,000.
3. The way the condo bylaws and declaration are written, our insured needs no coverage for real property; thus, we sold him only Coverage C.
4. As expected, the association made an assessment to all unit-owners to cover the amount of the master policy deductible of $200,000. We told our client that he had $1,000 for loss assessment as an additional coverage under the HO-6.
5. However, the insurer is denying coverage because he did not purchase any Coverage A. We think they're wrong. What's your opinion?

In this scenario, is the carrier denial valid? 

The answer is "no".  The policy states that coverage applies if loss is caused by either a Coverage A or a Coverage C peril, as follows: We insure for direct physical loss to the property described in Coverages A and C caused by any of the following perils unless the loss is excluded in Section I − Exclusions. It then goes on to list the standard Coverage C named perils, which includes Wind as a covered peril. Therefore, the loss assessment is available up to $1,000 to cover the unit owner's share of the windstorm deductible. Remember, a higher limit may be purchased via form HO 04 35. Had the loss not been from a covered peril under Coverage C however, there would have been no coverage for the loss assessment. The loss assessment is directly tied to a covered peril.

Note however, that this question was based on the 10/2000 form, where even with the endorsement the most that would be paid out is $1,000. With the 2011 update, that is no longer the case, and coverage would be for the scheduled amount.

Scenario 3: An assessment is levied during the policy period because of a roof replacement or other required maintenance.

What if the assessment is levied because of the condo association deductible; does the loss assessment coverage apply then?

The answer is "no".   The policy language states that the assessment must be made as a result of direct loss to property, caused by a peril insured against for Coverage A and Coverage C.

In this situation there is no loss, just maintenance that the complex needs to perform. The policy requires a direct loss to property owned by the association members of the type that would be covered by the unit owners policy under Coverage A perils insured against. Without damage from such a peril, there would be no coverage.

Scenario 4:  A covered loss occurred during the policy period; however the assessment was not made until after the policy renewed with a different carrier.

A homeowner received a loss assessment charge from the condo association regarding damages caused by Hurricane Maria.

Facts:

1. The date of the actual physical loss to the condominium caused by Hurricane Maria was 9/20/2017.
2. The homeowner was insured under HO 00 06 05 11 with Oneness Insurance Company, with a policy period of 7/1/2017 to 7/1/2018. The additional coverage of loss assessment under the policy states that, "We will pay up to $1,000 for your share of loss assessment charged during the policy period against you…"
3. The homeowner did not renew the homeowner insurance policy with Oneness Insurance Company.
4. The date of the loss assessment was 8/15/2018.
5. The homeowner presented the loss assessment claim to Oneness Insurance Company. Oneness Insurance Company denied the claim based on the loss assessment policy language that the loss assessment had to be charged during the policy period.

Is this loss assessment claim covered under the homeowner policy? Or did Oneness Insurance Company correctly deny this claim? Since the date of the loss assessment was after the policy period had expired, was the carrier's denial accurate?

The answer here is "yes", the carrier's denial was accurate. For coverage to apply, the loss assessment must be charged during the policy period. The policy clearly states that up to $1,000 is paid for assessment charged during the policy period against you. Based on that wording, the carrier is correct that there is no coverage under that policy. Had the policy stated that coverage was for an assessment for a loss that occurred during the policy, then there would have been coverage. However, the policy language ties the coverage for loss assessment to the assessment itself, and the assessment did not occur until after the policy had expired. If the insured has loss assessment coverage under his new policy, he could have coverage there.

Scenario 5: The date of loss and the loss assessment span two policy periods with two different insurers.

This is the most confusing of all scenarios discussed thus far. We will show examples of the difference in coverage when an insured renews with the same carrier, versus insuring with a different carrier at renewal.

Facts:

1. Insured covered under HO 00 06 for policy period 1/1/18-1/1/19
2. Insured renewed with the same carrier for the policy period 1/1/19-1/1/20
3. Covered loss occurred on 5/16/18
4. Assessment was levied on 2/15/19

Will the loss assessment coverage apply?

The answer is "yes".  The same carrier issued both policies and paid the loss during the first policy period. When the assessment for that loss comes in during the second policy period, the assessment is paid.

Facts:

1. Our insured was covered under HO 00 06 for the policy period 1/1/18-1/1/19.
2. The insured purchased coverage with a new carrier for the policy period 1/1/19-1/1/20.
3. A covered loss occurred on 5/16/18.
4. An assessment was levied on 2/15/19.

Will the loss assessment coverage apply? 

The answer here is "maybe".  Loss assessments are covered in the policy period they are made in, but it doesn't say when the damage must have occurred, just that there is direct loss to property. However, if the insured is changing policies, there could be underwriting issues. For example, if an insured knew of a pending large assessment and didn't disclose this on the application at the time, and then the carrier discovers that the insured failed to disclose this before buying a policy with the HO 04 35 endorsement with the increased loss assessment limit; then that will be a problem. The insurer is not required to pay the larger assessment, and in fact may void the policy for misrepresentation. However if the insured was unaware of a pending assessment and simply changed carriers because he got a better deal, and an assessment was levied under the new policy, then that should be covered as long as the assessment was related to direct physical damage.

Would it matter if the insured and the new carrier knew an assessment would be pending before the policy was written?

While not specifically stated by policy language, the coverage intent is that the insurer should pay the loss assessment, if they are aware that the loss occurred in the prior policy term and it was from a covered peril.

What if the unit was a new purchase and the new owner was unaware there had been a prior loss?

This is not an issue of policy language, but an underwriting decision. An insured may not be aware of a pending assessment until it is actually made. Therefore, this should be paid as well.

Scenario 6: Multiple losses and assessments in the same policy period

An insured may be unfortunate enough to have two or more covered direct damage losses within the same policy period; thus requiring more than one assessment.

Would the loss assessment coverage be paid for the additional assessments?

The answer is "yes". There would be coverage for each assessment; assessments are covered if made during the policy period as a result of damage from a covered peril. The policy states the limit of $1,000 is the most we will pay with respect to any one loss, regardless of the number of assessments (unless an increased amount is purchased). If the assessments are for multiple losses, then $1,000 will be paid for each loss. If the assessments are for one loss, then only $1,000 will be paid.

Scenario 7: What about the liability coverage for loss assessments?

It works the same way under the liability portion of the policy as under the property portion; except that here the assessments are for bodily injury or physical damage covered under Section II for liability for acts of directors, officers, or trustees serving without pay. The supplemental endorsement applies to coverage under both Sections I and II.

Includes copyrighted material of Insurance Services Office, Inc., with its permission.

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Homeowners Loss Assessment – How Broad Is the Coverage?

Condo Association Gets 15 Percent of Inspection Estimate after Hurricane

Is Condo Association or Unit-Owners Policy Primary?