What’s the Worst That Can Happen in a Water Leak Situation in Your HOA?
Sorry to upset your holiday cheer but I had another call today from someone who was outraged that they had to relocate while work was being done on their unit – and that they could not get reimbursement from their HOA for relocation costs.
I had a client who bought a condominium. When she bought her auto insurance she was offered an HO-6 policy for less than a couple hundred dollars. Why should I buy a policy, she thought, when the Association carries insurance? What’s the worst that can happen anyway?
She turned it down. She found out what the worst thing was that could happen. In her case, she accidentally knocked a sprinkler head off the sprinkler system. It was the middle of the night and she was trying to quiet her smoke detector from beeping. She was neither knowledgeable about smoke detectors nor sprinkler heads. And so the flood came. She had to leave home that night. She lives in an upper unit over two units below. Those units were flooded too. Those owners had to move out. Serious drying out and serious reconstruction was required and took place over a few months. She was displaced from her home. When she submitted her hotel bill for compensation to the HOA she was surprised that they said they don’t pay for relocation expenses for any owner under any circumstances.
I get calls like this about twice a week. Owners are outraged that the Association is not paying for the relocation costs. And they’re even more outraged when the Association tries to collect money from them for losses are not covered by the insurance policy. In a recent situation, a client came to me who was being pursued by a collection agency in Arizona, a law firm, for subrogation by the homeowner association insurance company (Farmers) for $75,000 plus. A shocker, right?At least that was resolved when I pointed out the association documents do not allow subrogation against owners for the insurance company’s responsibility. The purpose of course is to balance things out. HOAs need to carry insurance to protect the infrastructure. Owners need to carry insurance to protect themselves and their personal property and home improvements.
Homeowner associations don’t cover relocation costs. If the documents support it, the Association may come after an owner for the deductible, and because of water claims and issues in California, many associations have resorted to $10,000 deductible to avoid the small water leak damage claims.
So, when you ask “what’s the worst that can happen”, don’t answer yourself with, “probably nothing, I live a good clean quiet life.” Answer yourself with, “It’s better to protect myself because in a condominium or homeowners Association, the Association’s policies don’t pay for everything, and my neighbors could cause me to suffer losses. The few hundred dollars a year I have to pay to cover cost of relocation, possibly a deductible, and other possible costs for which some other party might want to hold me responsible, is worth it.”
And don’t assume someone has to be at fault to pay their own relocation costs (or those of their tenants). Associations are generally not responsible for relocation costs even if the leak is in the common area water pipes and the leak results in mold so you have to move out.
If you have to leave your unit, you’re likely going to have to pay your own relocation costs. If there is a claim on the Association’s insurance policy, there is going to be a deductible, and you might have to pay that too, or a part of it, if the documents say that.
You could be facing thousands of dollars in losses. Per the motto of the Girl Scouts of America (and probably the Boy Scouts as well, although I never was in a pack), says it best: “BE PREPARED.”
The purpose of individual insurance in an HO-6 is to provide coverage for owners is usually not provided by the Association such as for personal belongings, carpeting, wall coverings, flooring, deductibles, gaps in coverage, and relocation expenses in the event of a fire or water damage claim.
Take advantage of it (and by that I mean buy it!). You can be sure my client did, as soon as she found out the Association’s policy didn’t cover everything – which did not occur until she was faced with some pretty hefty expenses and no source of reimbursement.