COLORADO: Insurance Claim & Deductible Assessment Policies for CCIOA Communities

One of the biggest challenges facing homeowners’ associations today is the affordability of property insurance. There are three main problems:

1. The price of insurance (the insurance premium) has increased dramatically over the last several years, with the average annual premium increase often far outpacing inflation.
2. The deductibles applicable to wind and hail claims – one of the most common types of property insurance claims for associations – have also significantly increased. Deductibles for wind and hail claims in the amount of 5% of the total insured value of the property are now commonplace. Some insurance companies’ deductibles are even higher.
3. Many insurance companies have left the Colorado market. As a result, there are fewer insurance companies in the marketplace, and less competition among them.

These developments have put a real financial hardship on our association clients. Quite simply, they are paying more money for less coverage.

The cost of insurance is a difficult matter to address. Other than working with a qualified insurance broker to get “competitive” quotes from multiple insurance companies before every renewal period, there is little associations can do to combat it.

Associations can insulate themselves from significant financial liability by assessing deductibles for property insurance claims back to their members. This allows the associations’ members to submit claims for “loss assessment” coverage to their individual insurance policies (HO-3 or HO-6 policies). Loss assessment coverage reimburses members for their shares of associations’ property insurance deductibles when they are assessed to them. In short, the HO-3 or HO-6 policies end up paying the lion’s share of the deductible assessment.

Associations that are not governed by CCIOA cannot assess property insurance deductibles back to their members unless their governing documents explicitly allow them to do so. Pre-CCIOA governing documents are a mixed bag. Some give the association the right to assess the deductible back, and some do not. Associations should have legal counsel review their governing documents to determine whether they have the right to assess deductibles back to the owners. If they do not, then they should strongly consider amending their governing documents to allow them to.

For associations that are governed by CCIOA, they have some deductible assessment rights. In this regard, CCIOA states:

In the event that more than one unit is damaged by a loss, the association in its reasonable discretion may assess each unit owner a pro rata share of any deductible paid by the association.

C.R.S. § 38-33.3-313(6).

Unfortunately, this right only applies to damage to units. It does not apply to damage to common elements or limited common elements. This leaves some associations – particularly condominium associations – out in the cold.

But there is good news. CCIOA also authorizes associations to adopt written policies regarding responsibility for deductibles. Specifically, CCIOA states:

The association may adopt and establish written nondiscriminatory policies and procedures relating to the submittal of claims, responsibility for deductibles, and any other matters of claims adjustment.

Id.

SJJ Law recommends that all associations governed by CCIOA adopt written policies regarding insurance claim submission and deductible payment. This will help ensure that they can assess property insurance claim deductibles to their members, which in turn will help them control their operating and maintenance costs.

If your CCIOA community has questions regarding its insurance claim and deductible policies, please contact us today.