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As I sit here and stare out the window at the large droplets of rain pelting my office window, I am reminded of the critical role that insurance policies play in community association operations.

Of course, here in the Gulf Coast region of the United States weather is always a topic of discussion - regardless of the season - since we are never more than an hour or two away from a massive deluge from the skies above. Pity the weather forecasters.

Even though this year?s ?hurricane season? is all but over and, thankfully, our region avoided any major storms, it?s always a good time to review your Association?s insurance policies before the next major storm season to make sure that you (1) have enough coverage, and that (2) the deductibles are commensurate with the coverage. This two-part article will cover these important issues in the context of what I call ?weather-specific? deductibles.

Many associations? insurance policies may include ?weather-specific? deductibles, like for hurricanes, that trigger higher payments in order to claim damage suffered from a severe weather strike. There are currently over 17 states that allow for these specific deductibles to be applied in lieu of the standard deductible in case disaster strikes in the form of a hurricane, windstorm , hail storm, etc.

These weather-specific deductibles usually are calculated as a percentage of the total property value covered, and can range from two (2%) and five (5%) percent , but can go as high as ten (10%) percent in some cases based on state and jurisdiction. For example, a typical insurance policy with a ?hurricane? deductible that has a $10,000 deductible to cover most other types of damage won?t cover the damage covered if a hurricane hits, because the ?hurricane? deductible would apply instead. Let?s say the property value covered is a $10 million development, then the deductible to replace the hurricane damage could cost the association between $200,000 and $500,000! The objective here is to educate board members to review their association?s policy for these deductibles which could cost the association a multiple far greater than the original deductible contemplated when the policy was purchased.

Some types of weather-specific deductibles include:

1. Hurricane deductible.
2. Wind and Hail deductible.
3. Storm Surge, mud flow.
4. Mechanical breakdown, life cycle wear-and-tear replacement.
5. Plate Glass replacement.

Of course, you should always check with your Association?s insurance provider/carrier to determine if/when these coverages are applicable and/or available as the case may be.

Next week we will discuss how to manage your association?s insurance policy premiums in the wake of all this talk about bad weather and its effects on the association?s operations.

*Thanks to Community Association Management Insider from which excerpts of this article were provided, June 2005 edition.

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