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Condo Owner Falls Into Gap

Dec 30, 2020 06:00AM ● By Pamela Johnson
One of our long-time clients recently started an insurance policy for a condo she owns and rents to a tenant. When discussing what type of policy to use and what coverage to include, she knew it was critical to know the deductible on the “master policy” for the condo complex.
Every condominium complex purchases a master insurance policy with money collected from all unit owners. The master policy insures all common areas, such as recreation facilities, hallways, attics and basements. If the master policy includes “all-in coverage,” there will also be coverage through and through for every condo unit. Our client didn’t know if the master policy had all-in coverage, but she was quite certain it had a $2,500 deductible.
When we started the policy, I told our insured to insure her “dwelling” for no less than the master policy deductible since that’s the amount she would be out of pocket if a loss occurred at her unit. To be safe, I actually doubled her coverage to $5,000.
Just a short while after the policy began, our client reported a water claim. Apparently, water leaking from a jacuzzi on the third floor had cascaded to condos below it, including our client’s unit. We reported the claim to the carrier, and the appraiser estimated damages at $17,000. Worse yet, it was determined that the deductible on the master policy was $10,000, not $2,500.
The insurer actually cut a check for the full $5,000. They didn’t even deduct her deductible because they knew she was facing a gap in coverage of at least $5,000. They also encouraged us to raise her dwelling coverage to $10,000 to protect her going forward, which we did.

Our client is still negotiating with the property manager to get a claim filed, but they don’t want to file it for fear their rates will go up next year. The property manager keeps telling our client to make a claim against the jacuzzi owner’s insurance company. 

To make things even worse, our client’s tenant has moved to a hotel while repairs are being made. The tenants aren’t paying any rent to our insured because of the loss at the condo, and our insured is actually paying the tenant’s hotel bills!  When I informed the carrier of this fact, they were willing to reimburse our client one month’s (lost) rent.
The lesson to be learned here is that if you or someone you know owns a condo, be sure to know the amount of the deductible on the master insurance policy. You then need to purchase a policy of your own that includes at least that much dwelling coverage, or you might find yourself falling into the same gap that our client fell into the hard way. 
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