Important Information for Condominium Associations
When discussing condominium insurance, there are two general categories. The first is for the individual owner’s unit insurance, either a residential unit or a commercial unit (such as, the restaurant in the building on the ground floor). An individual unit owner’s insurance will generally cover the contents and helps pay for repairs to the unit and replaces belongings if they are stolen or are damaged by specific perils, such as fire or vandalism.
As a condo association, HOA, or property management company, you can let your tenants and owners know about this kind of insurance to keep them safe, but you will be specifically interested in insuring the structure of your building and common areas. This second category of policies is generally known as a “master policy”.
These master policies can be confusing for property managers and condo/HOA boards. Between determining your building’s value and then confirming that you have the proper coverages for a specific property’s needs and each risk faced, there are many things to consider. We won’t go into building appraisal, but this should be done regularly by a professional to ensure it is within the value range stipulated by the policy’s coinsurance clause.
The master policy is usually created from a general policy type called a Commercial Package Policy (CPP), which for most condo associations is subdivided into two main categories: General Liability and Property.
The general liability portion protects the association from liability for accidents or injuries that may occur on the property and should list all unit owners as additional insureds. General liability claims could be as simple as a slip and fall on a wet floor to as serious as the loss of a life due to an accident in a swimming pool.
The property section provides coverage for common building property and other property that must be insured due to the requirements in the association’s agreement/bylaws. Specifically covered property defined under this section should include:
- business personal property (common area furniture, maintenance tools, etc.)
- property of others (in common areas)
There is always fine print on every policy, and some of these are important to understand. The term Business personal property includes property owned by the association or jointly by the unit owners; this includes leased business personal property that the association has a contractual agreement to insure. Business personal property is normally insured if inside or within 100 feet of the described premises (check if this includes your parking lot/walkways, too).
As an example, your association’s policy may help cover areas like the boiler room and the roof, as well as hallways or other shared spaces, including the common rooms and swimming pool. However, the master policy may not include the following:
- lighting fixtures
- improvements & alterations to the individual units (hardwood floors, granite countertops, etc.)
- refrigeration, ventilation, cooking, dishwashing, laundering, security, or housekeeping appliances contained in individual units
The way your property coverage is covered can vary based on it form and valuation.
Form (causes of loss covered)
- Basic Form – covers 11 perils: fire, lightning, explosion, smoke, windstorm and hail, riot and civil commotion, aircraft or vehicles, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action
- Broad Form– adds these perils to the basic coverage: falling objects, the weight of ice or snow, and water damage
- Special Form – perils other than those expressly excluded are covered
Flood and earthquake are generally excluded on all three forms and should have separate policies if coverage is desired.
Valuation (how value or payout of the loss is determined)
- 1. Agreed Value – specific amount covered
- 2. Actual Cash Value – depreciated value based on age or condition
- 3. Replacement Cost – covers the cost to replace without regard to age or condition
There are three general policy types in order of most comprehensive to least:
All Inclusive – returns the building to the state it was before the peril, including appliances that the owner may have installed as well as improvements.
Single Entity Coverage – covers the building to the extent it was originally built, but does not cover an owner’s improvements or renovations, such as the hardwood floors which replaced the linoleum that was originally installed. This most likely would not be covered.
Bare Walls In – covers only the bare walls, ceilings, and floors (this coverage only covers into the drywall. Interior plumbing fixtures, appliances, and appliances are not covered.
The terms of the master policy can affect a unit owner’s own insurance coverage. When owners correctly know the coverage of the master policy, they can best tailor their personal unit’s policy.
Directors & Officers Liability
As a director or board member, you should understand any coverage afforded to those serving on the board. Directors and Officers Liability is used to protect against lawsuits brought against the board members personally for their actions as a board member.
Errors & Omissions Coverage
For a property manager, covering against any errors and omissions is extremely important. This is meant to protect you from paying damages for items such as:
- failing to add a newly acquired building to the policy
- neglecting to add a coverage requested by the or board to the master policy
How We Can Help You
There is no one standard policy provided across the industry, and a condo association or management company should keep in mind this plethora of variations in insurance policies. We suggest a start by reading your association’s bylaws to learn what parts of the building must be covered by the master policy and then tailoring a policy that will fit your desires and budget. We can help you at every step to make the best decisions and create a policy that first builds from your needs, then expands to your desires, rather than just settling for what you have on your current policy. We will also make your job easier by fielding questions from unit owners and explaining to them where the master policy ends and where their unit policy begins.
We look forward to helping you.
Have questions about condominium insurance coverage? Contact Soren at SorenE@guideinsuranceservices.com