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Does Condo Association Insurance Also Cover The Condo Unit?

"Given the great interdependence of the condo unit owners in the stacked condo unit situation, mandating condo association insurance or HOA insurance for the entire building is the preferable approach." This one explanatory sentence from the Uniform Condominium Act of 1980 forever transformed condominium association insurance programs.

Prior to the National Conference of Commissioners on Uniform State Laws' ("National Conference") adoption of this act, condominium associations and HOAs customarily insured only a condo building's common elements and limited common elements; condo unit owners were charged with insuring real property unique to and within the individual condo unit, home or townhouse. Beginning with the Uniform Condominium Act and continuing today in the Uniform Common Interest Act, condominium associations and HOAs are advised by the National Conference to insure all real property regardless of location or classification, whether considered a common element, limited common element or part of the defined "condo unit."

Improved loss adjustment is a motivating force behind the National Conference's mandate. Simplified insurance claim management is realized since one carrier adjusts and settles a real property loss rather than several (each with competing interests). Secondary rationale relates to property values. Given that each condo unit owner depends on all other condo unit owners to maintain property values, leaving to chance the rebuilding of a damaged condo unit is unreasonable.

Unit owner-installed improvements excepted from the National Conference's mandate. Condo Associations and HOAs subscribing to this code are not responsible to replace any upgrades made by unit owners. If, for example, the condo unit owner replaces the originally installed laminate countertops with granite, the condo association or HOA is only responsible for the cost to replace the laminate. Updating to granite originally and following a loss is considered an option and the financial responsibility of the condo unit owner. Condo Associations are not necessarily expected to know about such improvements, thus they are not expected to insure them.

States and condo associations that apply the Uniform Common Interest Act (or similarly worded code) as the default insurance requirement are designated as covering property per "original specifications." Original specification requirements dictate that the condo association is responsible for all real property, regardless of location or classification, but only the kind and quality originally installed by the association developer and/or required in the condo association bylaws.

"Original specifications" is but one of three condominium association insurance coverage or HOA insurance coverage mandates commonly found in statute and condo association bylaws. "All in" and "bare walls" are the two other condo insurance settlement provisions. Each will be explored in the following paragraphs.

Original Specifications

Original specification protection, also known as "single entity insurance coverage," was described above. Restated, the condo association is responsible for all real property; but only the cost necessary to return the condo building and condo units to their original condition using materials of like kind and quality. Condo unit owner upgrades are not included in original specification loss settlements.

Developing replacement cost values may be easiest when single entity condo insurance requirements are applied as valuation programs and original specification requirements overlap in their result and mandate. Property valuation programs calculate the cost of rebuilding the structure utilizing modern materials of like kind and quality; and original specification insurance requirements limit associational responsibility to the cost of replacing original construction materials with modern materials of like kind and quality.

A majority of states has adopted the mandates of the Uniform Common Interest Act, as written or with jurisdictional modifications, to statutorily govern the insurance requirements of condominium associations. However, this wording has been challenged in a recent Maryland court case.

Maryland statute read as though it was cut-and-pasted directly from the Act, yet the Maryland Court of Appeals recently ruled in direct contradiction to its own statute. The ruling will have unknown and maybe adverse affects in all states employing original specifications statutes.

All In

"All in" (a.k.a. "all inclusive") statutes and condo bylaws are similar to single entity requirements. Condo Associations are responsible for insuring common elements, limited common elements and all real property that makes up a "unit."

All inclusive statutes differ from original specifications in one major respect: the condo association or homeowners association is not only responsible for all real property, but it is also charged with insuring condo unit owner-installed upgrades. Statutes and condo association bylaws mandating coverage on an all inclusive basis increase a condo association's standard of care. Condo Associations subject to this HOA insurance settlement mandate are forced to closely monitor building and unit values (including value increases created solely by a unit owner) to avoid inadequate condo insurance and a possible coinsurance penalty.

Few states apply Condominium Act terminology that could be exclusively interpreted as "all in."

Bare Walls

"Bare walls" is the last of the three commonly encountered condo association insurance requirements and HOA insurance requirements. Bare wall settlement provisions were the standard before the Uniform Condominium Act of 1980.

States applying this code limit the condo association's insurance responsibility to the building's common elements and limited common elements. Unit owners are responsible for insuring all real property defined to be a part of the "unit."

At issue is the definition of "condo unit or HOA unit." "Condo Unit" does not have a universal definition among states, nor is the term uniformly established in association bylaws. Condo unit boundaries, the beginning of the area the condo association is NOT responsible for insuring, can be everything from the studs; or the unfinished walls (meaning the paint is insured by the unit owner); or the sub-floor and underside of the ceiling; or any other variation. Problems with such diverse boundary definitions are compounded by the potential confusion surrounding interior partition walls that may contain limited common elements.

Claims management in a bare walls situation can be a long and possibly litigious process. First, valuing a bare walls property can be difficult for both the condo association's insurance carrier and the unit owner's condo insurance carrier or HOA insurance carrier. Second, deciding who is responsible to rebuild or replace which real property must be debated. Then all involved condo association insurance and HOA insurance carriers must agree to a builder and coordination of payments (involving multiple deductibles).

Conflict continues if the condo unit owner does not have condo insurance coverage, or enough condo insurance coverage, to rebuild what is defined as the "condo unit." Contractors will not just leave the condo unit unfinished. Interior walls often contain limited common elements (such as electrical, HVAC, possibly fire protection, water lines and other such equipment) that cannot be left exposed. Condo Assessments, liens, foreclosures and/or court action may follow.

Condo associations generally try to avoid condo insurance coverage conflicts by requiring the condo unit owner to purchase and maintain condo insurance coverage on the defined "condo unit." Some condo association bylaws go so far as to require the condo unit owner to place condo insurance coverage with the same condo association insurance carrier providing the condo association's coverage

While such required condo insurance coverage is a good solution to potential problems created by bare walls condo insurance provisions, two questions arise:
1. Who deciphers the definition of a "condo unit" allowing the condo unit owner, the condo association and the respective condo insurance and condo association insurance carriers to know who is responsible to insure what? and
2. Who calculates the amount of insurance coverage needed?
Attorneys, appraisers, agents and other professionals may be required to answer these questions and design the correct programs (one for the condo association and a separated one for each condo unit owner). A lot of professional expertise is required to avoid condo insurance disputes.

Dividing responsibility for insuring real property may not be the most advantageous for the condo association or the condo unit owner; however, there are several states that still apply some form of bare walls wording in their statute.


As previously stated, statutes are condo association insurance default settings. Condo Association bylaws and condo declarations are the governing condo documents of all condo associations. These condo documents supersede statute as per the statute itself. Division of condo association ownership and condo insurance interests is dictated by these condo documents allowing condo associations to adopt their own condo rules regarding condo insurance coverage and condo insurance requirements. Condo Associations can chose among original specifications, all in or bare walls as they desire.

Insuring condo associations and individual condo unit owners within a condo association is not "cookie-cutter" insurance. Statutory, bylaw and valuation requirements must be factored into any condo association insurance program involving common ownership of real property.


Condo Association Insurance - What is Adequate Coverage?

The Florida condominium law simply provides that a condo association must maintain "adequate" condo association insurance. The condo law does not define what "adequate" means, nor generally the required types of condo association insurance which a condo association may carry.

In my opinion, it is important for the declaration of condominium association to specifically guide the condo board on what type of condo associaiton insurance requirements apply to the condo association. The following is a list of the different types of condo association insurance coverage generally applicable to condominium associations and Homeowner Asssociations.


Condo Association Insurance - Casualty Insurance


Casualty insurance: This is the condo assocation insurance policy that pays to reconstruct the condo associations property after a calamity such as a fire, tornado or hurricane. State law mandates there is condominium association insurance of the structures. The statute should be carefully consulted for an understanding of exactly how the line is divided between the condo association insurance obligations and the obligations of the individual condo unit owner. Contrary to popular belief, condo association insurance and maintenance obligations may be entirely different for the same item. For example, most condo documents require the condo unit owner to maintain interior doors, while state law requires that they are to be insured by the condoassociation. Often, older condominium documents will impose stricter condo insurance requirements than what is generally available in the condo insurance market. For example, while many condo documents require full replacement cost insurance, most condo associations now place condo association insurance which contains a deductible. A well-written set of condodocuments also will discuss how deductible expenses are allocated in the event of an uninsured or under-insured loss.


Condo Association Insurance - Flood Insurance

Flood insurance: Many condominium associations carry a master insurance policy of flood insurance. For communities, Homeowners Asssociations, and Condo Associations located in federally designated flood hazard areas, condo mortgages will not be written unless adequate flood insurance is in place. The condominium statute states that a condo association or HOA "may" carry flood insurance. I believe that flood insurance is legally required under the auspices of "adequate condo association insurance" in many situations, and is a good idea in every case. In any event, the declaration of condominium should contain clear guidance on this point.

Condo Association Insurance - Fidelity Bonding

Fidelity bonding: Sometimes called "crime coverage," "employee dishonesty coverage," or "fidelity bonding," this type of insurance is basically designed to protect against theft or embezzlement by employees, directors, management personnel, or others who might have access to association funds. It is important to understand that a property management company having its own fidelity bond may not be sufficient to protect an individual condo association. For condominium associations , there is a statutory requirement that the minimum amount of the fidelity bond be equal to the maximum amount of money that could be stolen (i.e., the maximum amount of money on deposit in all association accounts at any given time). Since this is a fluctuating number, the condo association should make certain that adequate coverage is in place, particularly in situations where large amounts of money may be at hand due to a special assessment. Although the law sets the minimum amount of coverage required, I think it is a good idea for the condo documents to contain a specific obligation for fidelity bonding, so that the layman board member who may not read the law will know from reading his or her condo documents that the bond is required.


Dubai Gets Homeowners Insurance

Dubai's buyers can finally decide to have a sigh of relief, since they can buy now properties insured against any structural damages. The buyers used to be left in lurch until today whenever any structural damage came to light after the properties were handover. They couldn't ask for any legal proceeding or compensation due to the lack of proper laws they had. But, the Real Estate Regulatory Authority (RERA) has finally decided to change this scenario, and introduced a new law which makes developers responsible for damages that might get noticed after the property had been handed over. The buyers will be free to approach the regulatory body whenever there seemed to be any breach of law taking place. Scores of Dubai apartments, furnished villas, hotels and Dubai hotel apartments will come under the purview of this new legislation.

Investors used to withdraw from projects earlier, citing the lack of insurance cover as a reason. Under the new law, however, the developer will be made answerable to courts for any sub-standard construction. For example, any serious wall cracks taking place within the first ten years of property handover, can amount to be a case for compensation. Additionally, any electrical, mechanical or plumbing related irregularities can also be challenged during the first year. Any irregularities in the construction of Dubai apartments, hotels, furnished villas or Dubai hotel apartments could not be challenged in the courts earlier, since there was no clear framework to do it.

In addition, this law adds more clarity about the issue of maintenance of buildings. Under the new directive, a Home Owner's Association (HOA) will be established for each jointly owned property and asked to look after the common areas, such as gyms, swimming pools, parking spaces, entrances etc. They will have to play the role of watch-dogs and see that the buyer's money was properly made use of. It is surprising that, only five percent of Dubai's households carry home insurance coverage, which is too few in numbers compared to what we may get to see from the countries like the USA, the UK, Australia or Japan.

The formation of HOA is key ingredient of this whole exercise. It will be required to maintain and be the beneficiary of the insurance cover in each case, while the constituent members, each having the ownership of one unit, will have to pay up the premium. Dubai may be a late entrant into this exercise, but it is expected to pursue it seriously now, and the buyers and promoters should be getting used to it now. The city needed to have it anyway, with so many high-end Dubai apartments, hotels, furnished villas and Dubai hotel apartments dotting its skyline.

Although, insurance cover is a basic necessity for any real estate buyer, people of Dubai did not shown any keenness about it in the past, may be, since most of them happened to be short term buyers. However, the introduction of the new law by RERA will change this scenario fundamentally, one hopes, and the awareness about property insurance will grow further. Dubai is as much known for its successful commerce, as for its shining real estate, which comprises of lavish hotels, shopping malls, Dubai apartments, villas and Dubai hotel apartments. The new property law by RERA will add more value to its real estate.


What's the difference between condo insurance and homeowner insurance?

Owning and maintaining a home can be expensive these days. Upkeep and maintenance often requires constant attention, and homeowners may find themselves repairing or replacing nearly everything in sight at one time or another-to say nothing of the grass that always needs mowing, the sidewalks that need sweeping or the pool that needs cleaning.

For those who choose condo living over the luxury of the single-family home, life affords a few less responsibilities. Though condo owners must sacrifice privacy and share space with other unit owners in their building, they can choose to watch the NFL game on Sunday, rather than mow the lawn-and stay inside when winter storms dump several feet of snow-while neighboring homeowners are shoveling out.

No matter which type of home you choose, home insurance is required protection before taking possession. That way, when you come home from work to find your door standing open and your electronics missing, you'll have the coverage you need to replace them without going broke. And when your friend comes to visit and ends up biting the dust on your kitchen floor, you'll have the resources you need to cover medical bills following the accident.

So what's the difference between condo insurance and single-family home insurance? When you live in a free-standing home, you insure the home's structure, other buildings and items on the property, and the possessions kept inside your home.

When you live in a condo, on the other hand, you don't need to insure shared spaces like pools or sidewalks, the building your condo is housed in, or any structures that don't belong expressly to you. Those items are usually covered by your condo association's insurance policy instead-leaving you responsible only for your own possessions, appliances, décor, interior-facing walls and other items not commonly shared with neighbors.

If you're looking for a way to build equity (yes, even in these hard times) with less responsibility and cheaper insurance coverage than traditional housing, consider buying a condo. You'll save money and protect your home, too-but your insurance bills should be cheaper!


Condo Association Insurance: Who Covers What?

One potentially confusing issue in condominium associations is who insures what.  In the past, most condominium association policies would cover whatever the association owned.  Other association policies extended coverage into the units - for example, the sheetrock walls and ceiling, the plumbing, and the electrical within each individual unit.  Association policies would often be written broad enough to cover the floor, kitchen cabinets, appliances, and carpeting.

In recent years, with the rising cost of insurance claims and the ambiguous language in some association CC&R's, insurance coverage has changed dramatically.  Many condominium documents specifically detail what is to be covered - - for example:  roof repair and replacement only.  In this instance, the documents are explicitly pointing out that all other structure is not covered.

A Master Package Policy will generally include property coverage that can be categorized by:

Bare walls - coverage for the common elements, usually excludes property within the unit such as interior walls, permanently installed appliances, fixtures, finishings, floors and ceilings

Single entity - coverage for the common elements, usually includes initially installed property in accordance with the association's original plans and specifications

All in - coverage for the common elements, plus initially installed property, plus improvements and betterments made at the expense of the unit owner  

An Association should survey and identify owned property which is to be covered by the association master insurance package:

Buildings - residences, clubhouses, garages, carports; Building definition could include foundations, pipes, wires, conduits, utilities, heating, cooling, security systems, machinery and equipment, balconies, porches, decks, and patios

Structures - arbors, awnings, cabanas, sport courts, fences, fountains, gatehouses, gazebos, recreation fixtures.

 Other property - could include antennas, indoor/outdoor furnishings, signs, landscaping, fine art.

Non-covered property - could include bridges, roadways, walks, underground infrastructure.

Common causes for the loss of covered property are categorized accordingly:

Special form - this is known as an "all risk" form and usually provides coverage for all perils, except those specifically excluded, such as flood, earthquake, war/military action, nuclear reaction

Broad form - this includes loss as a result of fire, lightning, wind, smoke, hail, vandalism, sprinkler leakage, accidental discharge of water, collapse of building

Basic form - most limited coverage of the three types of coverage  


In the event of a loss of covered property, the payment of the policyholder will be valued based on:

Guaranteed Replacement Cost - replacement cost with no limit and does not state a specific property limit

Replacement Cost - payment for the loss is based on the actual replacement and may be limited to stated value

Actual Cash Value - loss payments are based on the cost of new product, less depreciation and usage  

A deductible will apply to the property insured in the association's policy.  The deductible could be on an occurrence basis, or could apply separately to each building or unit.  There may be different deductibles for the different covered property.  One aspect of the deductible to consider is how the deductible will be handled with the unit owner.  Unless the association documents specify who is responsible, the association or the unit owner, then the association should adopt a policy which describes the circumstances under which a unit owner would be responsible for paying the deductible.

It is important that the association Board and its management company understand the scope of the association coverages.  Homeowners should be advised on what is covered.  Even where the association covers improvements, alterations, fixtures and appliances within units, it is advisable for the homeowner to continue to carry coverage on their own separate policy.

Source: Association Times


Condominium Insurance: Are You Insured Adequately?

When purchasing a home, the mortgage company often requires a certain amount of insurance to protect its investment, something a homeowner would want protected as well. For single family homes, it's pretty much cut and dry-insure the structure(s) and reduce potential liability on the property. Additional insurance provisions may also be outlined in the association's Covenants, Conditions, and Restrictions ("CC&Rs") as well as through the insurance agent you've selected.

Owners in single-family planned communities need only to insure their best interests, including but not limited to, dwelling, other structures, and personal property. The association is responsible for insuring the common areas and any amenities of the community. What that translates to is that should someone get hurt on community property (park, playground equipment, pool-whatever the association owns), a claim would be filed against the association's insurance policy and not against an individual homeowner's insurance policy. However, condominium and townhouse insurance (hereinafter referred to as "Condominium") is not so simple.

Why is that? Many condominium owners think they only need to insure their personal possessions and not the structure because they own the "air" within their units-similar to apartment rental insurance. That type of thinking can be costly. Condominium owners own much more than personal possessions and the air in which they live. Condominium owners literally own a piece of the pie.

In this type of community, it is often assumed that the association is responsible for covering the structure of the buildings and all that comprise their units. This too can be a costly assumption-one that an owner may not be prepared to pay should a catastrophe occur. As an example, an association's master insurance policy may cover:

  • Structural building elements, including wiring, piping, and HVAC systems;
  • Perimeter and partition walls, including windows;
  • Drywall, plaster, and primer; and
  • Flood and earthquake damage to property and deductible.

Based on the above example, the owner could then be responsible for:

  • Regular plumbing fixtures and cabinets for kitchen and bath;
  • Floor, wall, and ceiling coverings;
  • Additions and alterations made to the unit;
  • Decorating: paint, paneling, wallpaper, etc.
  • Personal property (furniture, clothing, etc.);
  • Personal property of special value (artwork, jewelry, cameras, etc.);
  • Flood and earthquake damage to property; and
  • Association and individual insurance deductibles.

This is just an example and please don't take it as gospel. It is extremely important that owners read their association's CC&Rs, obtain a copy of the association's insurance certificate, and seek clarification on what is covered/not covered from the insurance agent if at all possible. Common and limited common elements are unique to each association. Don't assume anything.

Insurance coverage for condominiums doesn't end here. Condominium owners share an interest in the common areas (referred to as tenant-in-common ownership), which is based on the total number of units within the community. For a community of 150 units, each owner would own a 1/150 th interest of the common elements. It might not appear to be a big deal-after all, what is a 1/150 th interest worth-but should a serious injury or death occur on common property, that 1/150 th interest could possibly cost you a million dollars or more, which would come out of your pocket if it wasn't covered in your policy. The cost of the extra insurance coverage is minimal and well worth it.

On the flip side of the coin, associations worry that owners may not be adequately insuring themselves. To protect the association's interest, attempts are made to gather insurance information from each owner on an annual basis. This request is not made to hassle owners but to protect their interests as well.

The bottom line? Review your current policy to make sure you have the appropriate insurance coverage on your unit, speak with your licensed insurance agent regarding your tenant-in-common ownership, and provide a copy of your insurance certificate to the association. As the old saying goes, "an ounce of prevention is worth a pound of cure."

Source: Association Times


Types of Homeowner Insurance Policies

Here are the more common Homeowner Insurance Policies.

HO-1: Limited coverage policy
This "bare bones" policy covers you against the first 10 disasters. It's no longer available in most states.

HO-2 Basic Homeowner Insurance Policy
A basic policy provides protection against all 16 disasters. There is a version of HO-2 designed for mobile homes.

HO-3: Most Popular Homeowner Insurance Policy
This "special" all inclusive policy protects your home from all perils except those specifically excluded.

HO-4 Renter Insurance Policy
Created specifically for those who rent the home they live in, this policy protects your possessions and any parts of the apartment that you own, such as new kitchen cabinets you install, against all 16 disasters  

H0-6 Condo/Co-Op Insurance Policy
A policy for those who own a condo or co-op, it provides coverage for your belongings and the structural parts of the building that you own. It protects you against all 16 disasters.

Master Property Insurance Policy

A policy for Community Associations, Condo Associations, Timeshare Properties and Homeowner Associations, where there are common areas to be protected.  Some areas include the property grounds, parking lots, roofdecks, buildings, hallways and lobbies.




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