What To Consider Before Filing An Insurance Claim
For common interest developments, state laws and associations' governing documents lay out requirements for what types of insurance an association must carry, and in some instances, how much of it they must carry. So you should be able to rely on it when there is an accident or an unforeseeable incident. Below are some reasons why a carrier might deny your claim:
Deferred maintenance - If the Association has a roof that is 10 years old, does not do regular preventative maintenance, and suffers a roof leak, the insurance carrier is likely to deny the claim because the loss was theoretically preventable. On the other hand, a wind storm that rips off some roof shingles and then creates a leak may be more likely to be covered by your insurance policy. Generally speaking, items that are general wear and tear are not covered by your insurance policy, but I encourage you to consult with your insurance agent.
Late Claim Filing - If the Association suffers a loss and it makes sense to open a claim, do not wait months or years to file it. Insurance carriers require timely notice. Put your carrier on notice as early as possible. It is also imperative that the Association do all that it can to mitigate the damage caused. If there is a leak, stop it -- if there was water damage, bring in a company to dry it out.
Losses from items not covered - There are certain things that the community's insurance policies will not cover. For instance, if a unit owner's negligence caused damage to that owner's unit, the HOA's insurance would not cover it. The general liability policy would likewise not cover damage sustained during an earthquake (a separate earthquake policy would).
If the Association believes it has a covered loss under the contract with the insurance carrier, there are a few more things to consider before pulling the trigger on filing a claim:
Loss History - If the Association filed 3 water loss claims last year for the same thing as the current claim, your insurer is likely to deem your community a high risk. They will either hike up rates, or cancel your policy altogether.
Deductible Amount - If you suffer damage that will cost $500 to fix, and your insurance deductible is $5,000, it does not make sense to file the claim. Considering your loss history, if you suffer damage that is $6,000, and your deductible is $6,000, it would be advisable to avoid filing a claim for such a small amount and impacting your loss history. It is important in the early stage of a loss to get estimates for repairs as soon as possible so this work can be priced out and the Board can do a cost-benefit analysis.
Responsible party - If the owner of a third floor unit left their faucet running and it caused some ceiling damage to the unit below, it may not be worth the Association putting a ding on its claim history to deal with a matter that was caused by a homeowner. Get a remediation company to dry out the area between the units, and issue a reimbursement assessment hearing notice to the responsible unit owner. That responsible unit owner can then either reimburse the association out-of-pocket or file a claim on their own personal policy.
While there is a lot more to cover when it comes to insurance, this will at least provide the Board with some things to consider when the question of whether or not to file the claim arises.