After a hailstorm the roof has been replaced, after water came in the stairwell has been retiled, the invoice runs to hundreds of thousands or millions of forints – and the insurer transfers less. At that point the phone rings for the condominium manager (közös képviselő) and the residents at the same time: “how much did they deduct, and why?” As a broker, what I see is that most of the frustration comes not from the deduction itself but from not understanding it: the items in the claims settlement letter – depreciation, deductible, limit, possibly underinsurance – go back to different causes, and each can be dealt with in a different way. This article explains the two most common deductions, depreciation and the deductible, and then when the part not paid can be reclaimed from whoever caused the damage. Choosing the level of the deductible – how much the building should bear itself – is covered in the article on deductible logic; here the same question is examined from the claims settlement side.
- The payout can be lower than the invoice for two reasons: the policy conditions pay at depreciated (technical) value, or the deductible is taken off – the two follow different logic, and the claims settlement letter has to make clear which one happened, and for what amount.
- Hungarian policy conditions typically pay at new value as long as the depreciation of the damaged building part does not exceed a level set in the conditions, and at depreciated value above it – this, the form of the deductible and the limits are set out in the building's policy and vary from insurer to insurer.
- If someone else caused the damage, then on the principle of full compensation under Section 6:522 of the Hungarian Civil Code (Ptk.), the deductible and the amount deducted for depreciation can be claimed from the person who caused it; the insurer takes the injured party's place up to the amount it has paid, and the insured person's own claim takes priority (Section 6:468).
Two deductions, two reasons
The deductible is the share of the loss the building agreed in advance in the contract to bear itself: the insurer deducts this amount or percentage from the assessed loss in every case, regardless of whether the roof was new or old. Depreciation, by contrast, is the reduction in the value of the damaged item due to age and wear: if the policy conditions pay for the damaged building part not at new but at depreciated (technical) value, the deduction follows from the age and condition of the damaged element, and it differs from claim to claim. The third item often confused with these two is the limit – an upper limit set in the policy conditions for a given type of loss (glass, vandalism, additional cover) – and the fourth is proportional payment because of underinsurance, which is detailed in the article on proportional payment. The claims settlement letter has to show, item by item, which reason accounts for which amount; if you see only a total, ask for the breakdown in writing – you can ask the insurer to explain how the loss was calculated, and every further step is based on this.
New value or depreciated value? What the policy conditions set out
Condominium (homeowners' association) insurance typically covers the building at reinstatement (new) value: the sum insured is meant to allow the damaged part to be rebuilt to the same quality. Accordingly, most Hungarian policy conditions pay for a damaged building part at new value – the cost of repair or replacement – as long as the depreciation of that building part does not exceed a level set as a percentage in the conditions; for heavily worn elements above the threshold, they pay at depreciated value, in other words they deduct depreciation. The depreciation threshold, the method of calculation (age, technical condition, state of maintenance) and whether depreciation is assessed for the whole building or only for the damaged element vary by insurer and by product – which is why the same hail damage may be settled at new value under one policy and with a considerable deduction under another. An old roof covering, ageing metal flashing, a riser pipe that has been repaired many times: with these, you have to expect the insurer to raise depreciation, and documenting the condition at the loss inspection – photos, maintenance logs, invoices for earlier renovations – directly affects the amount paid. Two practical notes: the insurer pays only for restoring the damaged part, not for the extra cost of an “if we're opening it up anyway, let's replace the whole thing” renovation; and since a condominium typically cannot reclaim VAT, the payment under the policy conditions is gross, but this requires an invoice for the repair – without an invoice, most conditions pay a net or calculated amount.
Forms of deductible – and who bears it within the building
In Hungarian condominium policy conditions the deductible is typically applied as a deduction: a fixed amount in forints, a percentage of the loss, or a combination of the two (“a specified percentage of the loss, but at least a fixed amount”). Less common is the so-called franchise (integral) deductible, where the insurer pays nothing at all for a loss below the threshold, but pays a loss above it without any deduction. The deductible may also differ by type of loss: many policies apply a separate, higher deductible to escape of water from pipes or to glass breakage, because these are the frequent losses – it is worth knowing this table in the building's policy before residents measure the payment against the invoice. Who bears the deductible is no longer an insurance question but a condominium question: for damage to a commonly owned part of the building, the building bears it, from the common charges or the reserve fund; for damage settled under the building's policy but affecting a separately owned unit, the organisational and operating rules (SZMSZ) or a resolution of the general meeting of owners can determine whether the building or the owner concerned bears it. Without such a rule, a dispute is almost certain – the route the money takes is described in the article on who receives the claim payment.
What can be reclaimed from the person who caused the damage?
If the damage was caused not by a natural event but by someone – the upstairs neighbour's badly connected washing machine, a pipe damaged by a contractor, a driver who crashed into the gate – the equation changes. Under Section 6:522 of the Hungarian Civil Code (Ptk.), the person who caused the damage must compensate the injured party for the full loss: the reduction in the value of their assets, the financial benefit lost and the costs needed to eliminate the detriment. The insurer's payment does not extinguish this obligation, it only rearranges it: under Section 6:468 of the Ptk., the insurer has a right of recourse against the person who caused the damage up to the amount of the loss it has paid – unless that person is a relative living in the same household as the insured person – while the part not paid remains with the injured party. In other words, the deductible, the amount deducted for depreciation and any loss above the limit are the injured party's own claim against the person who caused the damage; if the insurer sues that person, it must inform the insured person and, at the insured person's request – provided the costs are advanced – also enforce the insured person's claim, and where both claims are pursued at the same time, the insured person's claim takes priority. In practice this means that a claim for the amount deducted has to be notified to the person who caused the damage in writing, supported by the claims settlement letter and the invoices – and they typically pass it on to their own liability insurer; how cases between neighbouring flats work is shown in the article on water coming in from above. Two limits are worth knowing: the person who caused the damage or their insurer may argue that replacing an old element with a new one represents an increase in value (the prohibition on profiting from a loss), so part of the depreciation may become the subject of a legal dispute; and under the general rule, a damages claim becomes time-barred after five years, so time is not pressing, but it is not unlimited either. As a broker, I am not the one who acts on the building's behalf towards the person who caused the damage at this stage: the primary route for the insurance claim is the insurer's claims line, and if a case gets stuck or disputed, I help where I can – the details are in the article on stuck claims; on the legal questions of a claim against the person who caused the damage, a lawyer can help, and in a dispute with the insurer, after a complaint to the insurer, an owner who is a natural person can turn to the Financial Arbitration Board (PBT), and the building as a community to the courts – a condominium does not qualify as a consumer, and the MNB (Hungary's central bank and financial supervisor) does not decide individual claims disputes.
What to do if less was paid
- Ask in writing for an itemised breakdown of the claims settlement: assessed loss, rate and calculation of depreciation, deductible, limit, and any underinsurance ratio.
- Compare it with the policy conditions: what the depreciation threshold is and which deductible applies to that type of loss – if the deduction does not match these, ask the insurer for a written explanation or a review.
- Clarify within the building who bears the deductible: for damage to common property, the building; for damage to separately owned property, as set out in the SZMSZ or a resolution.
- If someone else caused the damage, notify that person in writing of your claim for the part deducted, with the claims settlement letter and the invoices; the insurer's right of recourse does not extend to a relative living in the same household.
- In the case of a disputed rejection or deduction, the first step is a complaint to the insurer; after that, an owner who is a natural person can turn to the Financial Arbitration Board (PBT), and the building as a community to the courts; if you let me know, I help where I can with interpreting the letters and the policy conditions.
The insurer pays only for what is an insured event under the building's contract, and only as much as its payment rules provide – so a deduction is not arbitrary but the application of the policy conditions. Knowing the conditions, documenting the condition of the building and knowing what can be claimed from the person who caused the damage: these three things decide how much the building or the resident ends up with.
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Sources
- Hungarian Civil Code (Ptk.) Section 6:522 (extent of the obligation to compensate), Section 6:468 (the insurer's right of recourse), Section 6:22 (limitation) – Act V of 2013
- MNB – Financial Arbitration Board (Pénzügyi Békéltető Testület): How to initiate the procedure (definition of a consumer; condominiums do not qualify)
Related articles
- Deductible logic: how much should the building carry itself?
- Underinsurance and proportional settlement: the rule every building must understand
- Who does the insurer pay compensation to: the building or the resident who suffered the loss?
- A leak from above: whose insurer pays – the building's or the neighbour's?
