A disaster such as water damage, fire, or sewage backup can strike unexpectedly in a co-ownership property, creating responsibilities for both the homeowner association and the co-owners. When these events occur, clear action must be taken to ensure repairs are carried out properly and that everyone’s obligations are met. Here’s a breakdown of the roles and responsibilities of both parties in the event of a disaster.
What Constitutes a Disaster in Co-ownership?
In a co-ownership, a disaster is typically any event that causes damage to the structure or shared spaces of the building. If the damage is limited to a private unit, the co-owner can generally file a claim directly with their insurance provider. However, if the damage impacts common areas or the building as a whole, the homeowner association is responsible for managing the repairs and coordinating insurance claims.
Common Scenarios After a Disaster in Co-ownership
Disasters in co-ownership properties can result in different situations depending on the insurance coverage and the extent of the damage. Here are the four main scenarios:
1. The Disaster Is Covered by the Co-ownership Insurance, and the Association Files a Claim
The Role of the Homeowner Association:
If the disaster is covered by the co-ownership’s insurance policy, the association will file a claim to compensate for the repairs, after paying the deductible. The deductible represents the amount the association must cover before the insurance begins to contribute.
To cover this deductible, the association has two options:
- Use the co-ownership’s self-insurance fund, if available.
- Distribute the deductible amount among all co-owners based on their share of ownership.
If a third party, such as a tenant or service provider, is deemed responsible for the damage, the association may seek to recover the deductible amount from them.
The Role of Co-owners:
If a co-owner’s improvements or personal property are damaged in the disaster, their personal insurance will typically cover the costs. However, even if their unit wasn’t directly impacted, co-owners may be required to contribute to the deductible amount based on their share of the property. This contribution is generally not reimbursed by personal insurance.
2. The Disaster Is Not Covered by Insurance or Is Only Partially Covered
The Role of the Homeowner Association:
If the disaster is not covered by insurance, or if the insurance only partially covers the damage, the association is still responsible for making repairs. To finance these repairs, the association can:
- Use the self-insurance fund (if sufficient).
- Distribute the costs among all co-owners if the fund is not enough.
The Role of Co-owners:
Co-owners may need to pay for their share of the repair costs. If a co-owner’s insurance covers some of the expenses, they can seek reimbursement from their own insurer, but they cannot claim back the deductible from the association.
3. The Damage Is Below the Deductible
The Role of the Homeowner Association:
If the damage is less than the deductible amount, the association typically won’t file a claim with the insurer. Instead, it will repair the damage using its own resources, either from the self-insurance fund or by distributing the repair costs among the co-owners.
The Role of Co-owners:
When the damage is under the deductible and no claim is made, co-owners must share the repair costs. The amount is generally divided according to their share in the property.
4. The Disaster Is Covered, but the Association Chooses Not to File a Claim
The Role of the Homeowner Association:
Even if the disaster is covered by insurance, the association may choose not to file a claim. Instead, it might decide to pay for repairs directly through the self-insurance fund or by distributing the costs among co-owners. If the responsible party is identified, the association may seek reimbursement from them.
Why the Association Might Not File a Claim:
The association might decide against filing a claim for minor damage if the costs are relatively low and the deductible isn’t worth the complexity of the claims process. Additionally, they may avoid the claim if they want to maintain good relationships with responsible parties, whether co-owners or third parties.
The Role of Co-owners:
Co-owners cannot force the association to file a claim, but they can raise the issue at a general meeting or, in extreme cases, pursue legal action if they believe the disaster is being handled improperly.
The Importance of the Self-Insurance Fund
The self-insurance fund is critical in managing disasters in a co-ownership. It is designed to cover repair costs or the deductible after an insured disaster. This fund helps ensure that co-owners are not burdened with unexpected costs after a disaster. It’s essential for potential co-owners to carefully review the fund amount and the contributions made to it, as this can indicate the financial health of the co-ownership.
Homeowner Insurance: A Must for Co-owners
While the homeowner association typically provides insurance for common areas, it is essential for each co-owner to maintain their own home insurance to cover their private property and personal belongings. Co-owners should review the association’s insurance policy to understand what is covered and identify any gaps in coverage. This ensures they have comprehensive protection in case of a disaster.
Good coordination between the association’s insurance and the individual co-owner’s policy can prevent overlapping coverage or gaps in protection. It is important for co-owners to ensure they are fully covered for all potential risks.
