The reserve fund is established for the purpose of replacing certain common elements, with a lifespan of 30 years or less (depending upon who you talk to). Most often reserve funds act as savings accounts for the eventual replacement of items such as roofs, gutters, siding, leaders, paving, sidewalks curbs and the like. The amount of money placed in the reserve account is calculated on the basis of the useful life of the objects to be replaced, and the cost of replacement.
So, for example, if a roof is intended to last 20 years, and costs $1,000,000 to replace, then 1/20th the value of the roof ($50,000) should be saved every year for 20 years. That way at the end of 20 years, when the life of the roof comes to an end, the Association should have enough money to replace the roof without needing to make a special assessment.
The Association should evaluate the roofs and other components about every three to five years to see if they will reach, fall short of, or exceed their useful lives. If, for example, the roofs won’t last as long as expected, then more money has to be put into the reserve fund (generally meaning that maintenance fees must be increased).
So, to answer your question, if a storm happens, for example, and wrecks a 10-year old roof, and insurance money is provided for a completely new roof (minus the deductible), then the amount in the reserve fund representing 10 years of money collected toward a new roof, can be removed from the reserve fund. The Association can simply start over with respect to the roof reserve, once the new roof is in place. The new roof gets a new 20-year useful life, and the Association can start collecting all over again toward the day, 20 years from the date of replacement, when the useful life of the roof will come to an end. In such a scenario, it is possible for the Association to remove the funds dedicated to the roof up to that time and place it in the operating account, then that money can be used for the deductible.
The key work is “possible”. An evaluation of the reserve fund is important before removing any money from the fund. If, for example, three other building components are never going to reach their proper useful life, then perhaps the money should stay in the reserve fund, and the deductible for the insurance policy would be better expended from the operating fund. These are judgment calls and require the use of the Board’s sound business judgment and discretion.