How Much HO Loss Assessment Coverage Is Enough?

This article originally published in Insurance Commentary and is republished here with the author’s permission.

Here is a liability judgment brought to my attention in the CIRMS Yahoo Group:

“A Nevada state court jury slapped a homeowner’s association with a $20 million verdict on February 15, including $10 million in punitive damages, in a lawsuit filed by a teenager who suffered a traumatic brain injury when a swing set’s metal bar broke and landed on his head.”

What are the odds that the HOA has $20M in liability limits? That means that the HOA will make very large loss assessments against its members if the judgment holds up when it is likely appealed.

Most homeowners policies include $1,000 for liability loss assessments, but that amount can be increased by endorsement. Some carriers will only go to $50,000, but others may go higher and/or offer higher limits on an umbrella policy. The premium cost to go from $1,000 to $50,000 is typically in the range of $15-$30. When my son bought a condo, the max. available was $100K and cost about $30…I made sure he bought it.

If I’m an agent quoting an HO policy, I would include the maximum assessment limit (both property and liability) in my proposal, breaking it out if necessary. Also, consider this… how many agencies carry E&O limits comparable to the liability limits (or exposures) of their customers? If you’re selling an HOA a $1M CGL and $5M umbrella, what kind of limits do you carry yourself?

If I’m a homeowner, I might consider alternative risk management techniques in lieu of or in addition to insurance. For example, avoidance if you’re a prospective home buyer… don’t buy a condo or home that is part of an HOA. Or have the HOA remove equipment of this type from the premises. Or apply loss prevention techniques such as using properly designed and maintained equipment, denying older residents access to such equipment, etc. Or consider contractual risk transfer mechanisms such as hold harmless agreements with residents, equipment sellers, etc.

This claim is a good example of how various risk management techniques, not just insurance, can converge to minimize risk. What kinds of loss assessments limits are available from your HO carriers and what are the premium costs?

Why is this important? I’ll quote from one of the last statements in my forthcoming book “When Words Collide: Resolving Insurance Coverage and Claims Disputes”:

Never, ever forget in everything that you do professionally that the purpose of insurance is to insure and that the mission of this industry and every professional in it is to assist individuals, families and organizations in minimizing their exposure to serious or catastrophic financial loss.”

 

Coming May 2018.

 

About Bill Wilson

William C. Wilson, Jr., CPCU, ARM, AIM, AAM is the founder of InsuranceCommentary.com. He retired from the Independent Insurance Agents & Brokers of America in December 2016 where he served as Assoc. VP of Education and Research and was the founder and director of the Big “I” Virtual University for over 17 years. He is the former Director of Education & Technical Affairs for the Insurors of Tennessee and, prior to that time, he was employed by Insurance Services Office, Inc. He is a graduate of the Illinois Institute of Technology with a B.S. degree in Fire Protection & Safety Engineering. Bill was a licensed insurance and surplus lines agent, and his professional affiliations have included past president of the Middle Tennessee Chapter of CPCU, member of the board of directors of the national CPCU society, PMLG of the Honorable Order of Blue Goose, International, member of the Independent Insurance Agents & Brokers of America (IIABA) National Education Committee, member of the Certified Insurance Service Representative (CISR) National Advisory Committee, member of the National Underwriter FC&S editorial board, member of the Society of Insurance Trainers and Educators (SITE) and its SITE Journal editorial committee, member of the National Writers Association, chairman of the Tennessee Insurance Commissioner’s Education Advisory Committee, member of the Middle Tennessee State University Insurance Liaison Committee, and member of the Nashville State Technical Institute’s Business Management Advisory Committee. He has served as a trainer and speaker for various organizations, including the Independent Insurance Agents & Brokers of America and 43 of its state affiliates, the CPCU Society national convention and chapter programs, the National Association of Insurance Women (NAIW), the Southern Agents Conference (SAC), the Risk & Insurance Managers Society (RIMS), the International Risk Management Institute (IRMI), and the Society of Risk Management Consultants (SRMC). Bill has conducted hundreds of technical seminars, workshops and convention presentations—from Hawaii to Maine and Alaska to Florida—as well as programs on time management, presentation and public speaking skills, seminar development, and many others. He has been the top-rated presenter at several CPCU National Conventions and his programs are always highly rated by attendees. He has presented seminars or webinars to as many as 5,000 attendees in a single session. He was the recipient of the IIABA L.P. McCord National Education Award for having the #1 ranked state insurance education program in America and has won six other national education awards, including the George M. Gottheimer Memorial Award which is presented periodically to a CPCU Society member who has made an outstanding contribution to the field of insurance education, risk management or insurance consulting and, most recently, the Jeff Yates Lifetime Achievement Award which is the IIABA’s highest honor for nonagents. Bill has researched, developed, written, and published dozens of technical articles, manuals and CDs/audio tapes, and has authored articles in business and industry trade periodicals such as Presentations magazine, American Agent & Broker magazine, Independent Agent magazine, Tennessee Insuror magazine, Tennessee Business magazine, the CPCU Journal, CPCU Interest Group newsletters, and the SITE Journal. He has been quoted as an expert in a number of mainstream publications, including Readers Digest, Kiplinger’s, and Money magazines and the Wall Street Journal, and he has been cited as an expert resource/interviewee for local television and radio media. He has also served as an expert witness in litigation. According to Nashville NBC television affiliate WSMV, “Bill Wilson is an expert when it comes to insurance.” Dr. William T. Hold, president of the Society of Certified Insurance Counselors in Austin, Texas has said that, “Bill Wilson is recognized by his peers as one of the premier insurance educators in America.” Bob Rusbuldt, CEO of the Independent Insurance Agents & Brokers of America says, “Bill Wilson is the nation’s foremost leading expert on form, coverage, and technical issues.” Bill now blogs on insurance industry issues at InsuranceCommentary.com and delivers keynote presentations in conjunction with his consulting practice. He is also working on several book projects in addition to playing lead guitar with the band The Old Dogs. His first insurance book, tentatively titled “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” is scheduled for publication in late spring or summer 2018.

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