The insurance industry in our region is experiencing increased losses due to water damage. It could be an icemaker leak, washing machine overflow, or a frozen sprinkler line – causing water to run through condominium buildings from unit to unit causing extensive damage and repairs.
Often insurance carriers will review losses, and if there are excessive numbers or even just one really large loss due to water damage, create a separate deductible for water damage. Insurance deductibles are handled differently from association to association and with an increasing number of policies having different deductibles depending on the peril, it is important to establish a policy for handling the deductible prior to a claim occurring.
Communities along the coast are accustomed to seeing more than one deductible on the policy.
- All Perils Deductible
- Wind Deductible
- Named Storm Deductible
- Water Damage Deductible
Condominiums in Maryland and Delaware have the ability to charge deductibles back to the unit owner of origin – or where the damage started. Maryland caps this amount at $5,000 and Delaware is currently unlimited.
So what happens if the association deductible is higher than $5,000? Who pays the remainder of the deductible? In Maryland, the association is charged with deductibles over the $5,000 limit. The association in Maryland and Delaware would also be responsible for the entire wind deductible because the wind did not occur inside a particular unit – by definition the point of origin was outside the building.
Three methods of paying these larger deductibles:
- Reserve for the deductibles in advance. Keep a savings account just to cover insurance deductibles.
- Purchase deductible ‘buy backs’ – insurance policies that buy the deductible down to an amount the condominium can pay from the operating budget.
- Wait for the loss to happen, then assess the homeowners collectively for the deductible.
Condominium Unit Owner coverage can help alleviate the deductible burden on the individual homeowner by paying for:
- A loss assessment from the master policy deductible that is assessed to all unit owners.
- A master policy deductible that is the responsibility of the unit owner where the damage originated.
Not all condominium unit owner policies provide these coverages automatically, so it is vital for all homeowners to talk to their insurance agent to make sure they are covered properly.
Separate, additional deductibles can be confusing. Do you have a different way to handle a deductible? Give us a call.
