The Maryland Legislative Action Committee is pursuing legislation to increase an owner’s financial responsibility to $25,000 when a loss originates from a unit or from a component servicing only that unit. The current statutory cap is $10,000. In addition, MD LAC is amending current language to pass through the total amount of damage that originates in a unit, up to the association’s deductible (not to exceed $25,000), rather than the deductible itself.
By shifting financial responsibility for the total loss or damage capped at $25,000, we address the coverage issue some owners have faced when the Association elects to not file a claim (the HO-6 carrier may take the position that if there is no claim, there is not deductible). The law will not change in cases where a loss originates in a common area, from a common element, or from outside the building; in those situations, the deductible will continue to be a common expense, shared by all members.
The MD LAC and the condominium associations we serve recognize that current law, while still relatively new (deductible responsibility increased from $5,000 to $10,000 in 2020), is no longer adequate in an increasingly challenging insurance market where since 2020, condominium associations have seen their property damage deductibles increase to at least $25,000, if not higher in cases where there has been a history of claims frequency/severity or when building characteristics, including age, make higher deductibles a condition of renewal. Increasing unit owner responsibility will help to save premium and will also help to repair loss histories in a market where insurance carriers consider an insured’s loss ratios favorable only when kept to 35-40% of written premium. Higher premiums are not only an association problem, but also a unit owner problem – after all, the association is its members.
More importantly, the initial amount of damage (capped at $25,000) can be insured under an owner’s HO-6 (condominium unit owners’) policy, either through the HO-6 policy’s Dwelling or Loss Assessment coverage forms. Because of that, MD LAC will be incorporating into the bill a requirement for all owners to carry HO-6 coverage inclusive of $25,000 of Dwelling Coverage and $25,000 of Loss Assessment Coverage.
Covering the first $25,000 of damage (that originates in a unit) through the HO-6 policy, too, will help unit owners avoid unnecessary out-of-pocket expenses: When an association must fund higher deductibles through the budget, reserves, or special assessments, the increased costs become higher, monthly expenses to owners who are not insurable under the HO-6 policy, whereas increased responsibility to the owner in whose unit a loss originates can be covered under the HO-6 policy for very little additional premium (on average, $25-$30 in additional premium annually).
