If Your Marina del Rey Condo Building Has a Big Insurance Claim, What Could You Pay Out of Pocket?

If your Marina del Rey condo building has a big insurance claim, what you could pay out of pocket comes down to four things: the deductible on the building's master policy, any part of the loss the policy does not cover, how your HOA's governing documents split repair costs between the association and each owner, and what your own condo policy will pay toward an assessment. The building's insurance paying the claim does not mean owners pay nothing.

The good news is that most of this can be found in writing before anything happens. You do not have to wait for a pipe to burst or a fire in the unit next door to learn your exposure. You can read it in the HOA's yearly insurance summary, the CC&Rs and your own policy.

I walk owners and buyers through this at First Key Pacific, because the question usually comes up at the worst time: right after a loss, or right before a sale.

When a building suffers a covered loss, the master policy the HOA carries pays for covered repairs above the deductible. Everything below the deductible, and everything the policy does not cover, still has to be paid by someone. That someone is the association, which means the owners.

The master policy deductible

The deductible on a building policy is often far larger than the one on a personal policy. The association can pay it from its operating funds or reserves, or it can pass it to owners through an assessment. Some governing documents also say that when damage starts in one unit, that owner pays the deductible. Which path your HOA takes depends on its CC&Rs and the board's decisions, so read those documents rather than assuming.

Losses the policy does not cover

A master policy covers what it lists, up to its limits. If the damage is excluded, or the cost runs past the limit, the gap lands on the association. Earthquake and flood are often separate policies or not carried at all, so a loss from one of those can fall outside the main policy entirely.

What is yours to fix inside the unit

The CC&Rs decide where the association's responsibility ends and yours begins. In many buildings, the association covers the structure and common areas, while owners cover their own interior finishes, upgrades and belongings. If your kitchen, floors or built-ins were damaged, part of that repair may be yours even when the building's claim is approved.

When the association cannot pay a loss out of what it has, it can raise the money through a special assessment. California law limits how much a board can levy on its own. Without a vote of the members, a board can impose special assessments of up to 5 percent of the association's budgeted gross expenses for the fiscal year. Above that, the members generally have to approve it. The law also allows certain emergency assessments without that vote, so an urgent repair can move faster than owners expect.

An assessment is usually divided among owners according to the formula in the governing documents. That means two owners in the same building can owe different amounts. Your share is not a guess, it is written down, and it is worth finding before you need it.

Reserves matter here too. A building with healthy reserves has more room to absorb a deductible or an uninsured repair. A building with thin reserves is more likely to turn a loss into an assessment. If you want to see how to judge that, my guide to reading an HOA reserve study walks through it, and the same reading applies to a Marina del Rey building.

California requires every common interest development to send owners a summary of its insurance each year, as part of the annual budget report. It covers the association's property, general liability, earthquake, flood and fidelity insurance. For each policy, it lists the insurer, the type of coverage, the policy limit and the deductible, if there is one.

That summary also has to carry a notice in bold type. The notice says, among other things, that even when a loss is covered, members may still be responsible for all or part of any deductible. The law put that warning in writing for a reason.

Documents to pull together

• The insurance summary from the most recent annual budget report, or the declaration pages if the HOA attached them.
• The CC&Rs, especially the sections on insurance, maintenance and repair, and assessments.
• Board meeting minutes from the past year or two, which show any recent claims, repair projects or talk of an assessment.
• Your own condo policy declarations page.

If you are selling, the annual budget report is one of the documents California expects a seller to give a buyer, so you will be gathering it anyway. If you are buying, ask for it early, before your contingencies run out.

The piece most owners never look at is the loss assessment part of their own condo policy, often called an HO-6 policy. Loss assessment coverage can help pay your share of an assessment that follows a covered loss to the building. Some policies also offer coverage aimed specifically at your share of the master policy deductible.

The limit on this coverage is often small unless you have raised it. Read the wording, too. Some policies treat an assessment for a deductible differently from an assessment for an uninsured loss, and a higher limit on one does not always raise the other.

Questions to ask your insurance agent

1. Do I have loss assessment coverage, and what is the limit?
2. Does it apply when the assessment is for the building's deductible?
3. Does my policy cover my interior finishes and upgrades, at today's cost to replace them?
4. What would change if the loss came from an earthquake or flooding?

Bring a copy of the HOA insurance summary to that conversation. Your agent can match your coverage to the building's actual deductible instead of a default number.

Some Marina del Rey condos sit on land the County of Los Angeles leases out, so buyers there already read documents carefully. Insurance belongs on that same list. If you are curious about the lease side, I cover it in what a Marina del Rey ground lease means for buyers.

If you are selling

A recent claim, a pending repair or a discussed assessment is something buyers will see in the minutes, and it needs to be disclosed. Gather the facts first so you can explain them plainly. If the building had water damage, my article on selling a Marina del Rey condo after a leak covers what to disclose and gather.

If you are buying

Read the insurance summary next to the reserve study and the minutes. A high deductible, low reserves and an open claim together tell you more than any one of them alone. Then price your own condo policy with that deductible in mind before you remove your contingencies.

None of this has to be scary. It just has to be known. If you want help reading your building's documents, send me a note and we will go through them together. I'm here when you're ready.