I think we can all agree that 2020 is a year we’ll look back on as, well… awful. And since insurance is all about the avoidance of, or recovery from, awful, we interviewed condo association insurance coverage expert Michael DeGeorge of Rosenthal Brothers to give us the latest on HOA and COA insurance pitfalls…
What insurance coverage might condo associations be missing and why do they need it?
Typically associations overlook requirements specified in the Illinois Condominium Property Act. Associations need proper coverages for directors & officers, crime, and ordinance & laws B & C. Without these coverages in place, the association may face major fees. Associations are legally mandated to have these coverages. I also advise having enough sewer and water backup coverage. This is one of the most common claims condo associations make, and having a sufficient limit is crucial for an association of any size.
Are there any common pitfalls where associations aren’t properly covered, and then the need for a restoration project arises and they aren’t prepared?
No one can predict every possible claim, but stay on top of the major coverages and make sure your limits are high enough. One major pitfall is having coverage with too low of limits. Always have sufficient coverage for property, general liability, directors and officers coverage, and crime. Cast a wide net so no matter the loss, you are covered. I advise adding an umbrella policy to increase your general liability limits. Even a small liability claim can grow and lead to major costs.
What should condo associations consider when choosing a deductible?
Take into consideration everything about the association. A few examples are the size of the association, the risk exposures, what limits you need for coverage, and how much you are willing to pay out of pocket per claim. Often a higher deductible leads to lower premium rates. Consult your advisor and weigh the costs and benefits with your specific situation. They will guide you through the process.
If an event occurs that costs a little less or a little more than their deductible amount, do you recommend the association pay out of pocket so their premium doesn’t increase?
When the loss is less than the deductible, the association will have the pay the cost anyway. If it is greater than the deductible, the claim needs to be evaluated on a case by case basis. Sometimes it is more advantageous to pay out of pocket and avoid a claim. Reoccurring petty claims are a factor that increase premiums. It’s important to consider the markets and what premiums will look like for renewals. Your advisor can help with this.
If a disaster restoration or COVID-19 case arises, what does an association need to know in order to ensure the claim process goes smoothly?
Your advisor will ensure the process runs smoothly. Like the rest of the world, the insurance industry is trying to deal with COVID-19 and come up with solutions to an unprecedented situation. COVID-19 doesn’t apply to business interruption/loss of income coverages because it does not qualify as a covered cause of loss. Specifically, business interruption is related to the property insured. COVID-19 doesn’t affect the property. That’s not to say the industry won’t change and adapt in the future, but what associations can do right now is follow all CDC guidelines to protect themselves and their tenants from possible loss.