Written by Attorney Michael T. Chulak
Assessment Coverage is designed to protect the owners of condominiums against
special assessments resulting from liability claims or covered losses when the
claim or loss is specifically insured against in the policy. Not all Loss
Assessment Coverage is the same so it is important to understand precisely what
you are buying when you obtain such coverage.
Assume someone's 15 year
old daughter is raped and murdered in her condominium. The parents sue the 30
unit condominium association for negligence, inadequate security, and negligent
security. They obtain a judgment for $6,000,000 and there is only $3,000,000 of
liability insurance. The association will be forced to specially assess the 30
unit owners $3,000,000 or $100,000 each. You now receive a special assessment
Your condominium has little equity so you decide to walk
away from it. Are you safe? No. The assessment is not only secured by your
condominium - it is a personal debt or liability. Unless you qualify for
bankruptcy, and actually file for bankruptcy, you must pay your share of the
total assessment based on the number of units you own compared to the total.
Unless you receive a bankruptcy discharge, until the judgment is paid, interest
accrues at the rate of 10% per year or $833 per month. Your wages can be
garnished up to 25% of your gross pay and your savings can be seized. Do not
think this cannot happen because it can happen if you don't have Loss Assessment
Loss Assessment Coverage can protect a condominium owner
against special assessments caused by earthquakes, fires, natural gas
explosions, personal injuries and other named perils for a very modest premium.
Loss Assessment Coverage will not cover special assessments caused by the
association's failure to maintain the common areas or construction defects.
Special assessments are not covered by an individual condominium insurance
policy unless that policy specifically includes loss assessment coverage.