ICE DAMS, INSURANCE DEDUCTIBLES, AND THE ALLOCATION OF REPAIR COSTS

By Scott J. Sandler, Esq.

On September 15, 2015, the Connecticut Condominium Owners Coalition (“CCOC”) posted an article by Patricia Ayars, Esq. titled Ask Attorney Pat: How to Get the Association to Pay and Repair Ice Damming.  This article depicts board members as stubborn jackasses in need of a good clubbing with a two-by-four, who are wrongly refusing to pay to repair units damaged by ice dams.  A more appropriate title for the article would have been How to Get Your Neighbors to Pay to Repair Damage to Your Unit that Should Be Covered by Your Insurance Policy.

Per-Unit Deductibles

The insurance industry is employing more and more creative methods to avoid having to pay claims.  The imposition of per-unit deductibles is one of these methods.

Insurance companies that sell master insurance policies to associations are now more commonly requiring that the policy contain a per-unit deductible for damage caused by ice dams.  The policy then treats each damaged unit as a separate occurrence. 

On a per-unit scale, damage from ice dams often costs less than the amount of the deductible.  However, because a large number of units may be damaged, the total repair cost that is not covered by the master policy can be substantial. 

Master Policies and Homeowner Policies: Primary and Secondary Coverage

Section 47-255 of the Common Interest Ownership Act (“CIOA”) requires the association of most communities to purchase a master insurance policy that covers both the units and the common elements against claims for property damage.  CIOA does not require the association to insure the units in communities where the units are completely detached, or where the units are constructed as duplexes.

Section 47-255 also requires that, in the event of a loss, the master policy provide “primary” coverage.  CIOA does not state that the master policy will provide “exclusive” coverage.  The distinction between primary and exclusive is one of major significance, and it is one that is often overlooked.

Most individual unit owners have purchased their own insurance policies.  These policies provide for coverage for damage to the unit, as well as coverage for the owner’s personal property.

When there is damage to the property, the master policy provides primary coverage.  This means that the association must first look to the master policy for coverage. 

However, nothing in CIOA prohibits the association and the owners from seeking secondary coverage from another source of insurance, such as the insurance purchased by the unit owner.  And doing so makes perfect sense, since the coverage is already in place and is designed to protect the owners from bearing the cost of repair.  The very reason unit owners pay insurance premiums is to protect them from this cost.

Repair Costs as Common Expenses

Section 47-255 of CIOA states that the cost of repair that exceeds available insurance proceeds is a common expense.

First, CIOA refers to “available” insurance proceeds.  The provision is not limited to just the proceeds available under the master insurance policy.  Proceeds may also be available under the owner’s policy.

Second, while common expenses are generally shared by all owners, there are a number of situations  where CIOA permits the association to assess an expense against just a few or even only one owner.  Subsection 47-257(c) states that the declaration of the community may require the following:

1. That the association assess the cost of maintaining, repairing, or replacing a limited common element solely against the unit that it serves;

2. That the association assess the cost of insurance against units in proportion to risk;

 3. That the association assess the cost of utilities in proportion to usage; and

4. That the association assess a common expense, or any potion thereof, that benefits less than all units, solely against the units that receive the benefit.

The cost of repairing a unit damaged by an ice dam is an expense that benefits that unit.  While that cost is a common expense, the declaration may require the association to assess that expense solely against the damaged unit pursuant to Subsection 47-257(c) of CIOA.

We Have Met the Enemy and They Are Us

Unit owners, including board members, are all too often subject to the “We vs. Them” mentality.  They forget the most important part of living in a common interest community, the part about it being a “community.” 

To save money, board members will identify expenses to push back onto individual owners.  Likewise, the individual owners will expect the association pay for anything and everything that is related to the good and welfare of the community.

The fact that gets lost in these competing views is that, in the end, there is only one source of income for the community: the individual owners.  Either the owners pay for expenses directly, or they pay common charges which the association uses to pay the expenses.  But no matter what, the owners pay.

Protecting the Community

If the association really wants to save the community money, and to insulate owners from the burden of uncovered repair costs, it must look for resources outside of the community.  That is why it is so important to tap into the insurance purchased by individual owners as secondary coverage.

Attorney Ayars focuses her article on forcing the association to pay for the cost of repairing damaged units.  That only results in costing all owners more money. 

The real focus should be on how to tap into sources of insurance other than just the master policy, so that more of the expenses are paid from sources outside of the community.

Many insurance companies that sell policies to individual owners will cover these costs without question. 

However, some companies have engaged in the same flawed interpretation of CIOA as Attorney Ayars has.  They see “primary” and think “exclusive.”  They see “common expense” and think of the general rule of assessing all owners, not just those that benefit from the expense.  However, if the declaration specifically requires the association to assess these repair costs solely against the damaged units, then even these companies will cover these costs.

It is for this reason that the second edition of the Common Interest Ownership Manual, published by the Connecticut Bar Association, includes a model declaration that provides for assessing these costs against the damaged units.  The authors of the manual, having consulted with other attorneys, insurance professionals, and the Connecticut Insurance Department, concluded that the best way of protecting the community from the burden of these costs was to require the association to assess these costs against the damaged units, thus triggering coverage under the polices purchased by individual owners.

Responsibility to Repair

Attorney Ayars is correct when she states that the association cannot refuse to make repairs when units are damaged by events covered by property insurance.  Section 47-255 of CIOA requires the association to make these repairs.  Once the adjusters hired by the association and homeowner’s insurance companies have fully inspected and documented the damage, the association must proceed with the repairs as promptly as possible.

It is understandable that angry and frustrated owners and board members will point fingers and attempt to avoid incurring additional expenses.  However, suggesting that the board members should be clubbed with a piece of lumber is not the answer.  The real answer is to structure the responsibility for the loss in a way that protects the entire community against the expense.

Attorney Sandler is a partner in the law firm of Perlstein, Sandler & McCracken, LLC, located in Farmington, Connecticut.  His firm represents over 400 condominium and homeowner associations throughout the state.  Mr. Sandler is a fellow of the Community Associations Institute’s College of Community Association Lawyers.  Since 2010, he has served as the chairman of the Legislative Action Committee of the Connecticut Chapter of the Community Associations Institute.  He is also a member of the Institute’s Government & Public Affairs Committee.  Mr. Sandler served the Institute as president of its Connecticut Chapter from 2008 through 2009.