Association Insurance Coverage
The information provided herein is intended to provide general information regarding condominium insurance policies to help members understand the different types of coverage that are generally available. These descriptions do not refer or pertain to any specific contract of insurance and they do not modify the definitions or terms that may be contained in any given policy of insurance. Members should familiarize themselves with the relevant insurance information that is provided, speak with knowledgeable insurance representatives and read all policy contracts and documents to fully understand the nature and scope of their insurance coverage.
Adequate insurance coverage for your condominium requires insurance that is purchased by the association and separate insurance that is purchased by the individual owners of separate interests or units. Condominium insurance typically covers the condominium buildings, commonly owned property, and liability insurance for the association. There are many instances in which an association's insurance policy will not provide coverage for an individual unit owner's losses such as: water damage to your ceilings, walls, and floors; injuries suffered by someone slipping on your wet floor; and damage to your personal property. Individual condominium policies will provide coverage for a homeowner's personal property, the interior of a unit, and liability protection for bodily injury or property damage to others.
The association's governing documents, state law, and the policy providing coverage dictate exactly what is covered under the association's master insurance policy. In most cases, the association's coverage extends to the exterior walls, roof, floors, elevators, and common area structures and the individual homeowners are responsible for the interior walls, appliances, possibly fixtures, carpeting, wall coverings, personal property, and individual liability. Condominium policies typically provide coverage for losses arising from:
A unit owner's personal insurance policy is generally written to cover the unit owner for items that are not covered by the association's master policy which are a homeowner's responsibility to insure, the value of upgrades, additions or alterations that have been made by the unit owner, and damage to the homeowner's unit that is not compensated because of the master policy deductible. Typical condominium owner's policies also include coverage for liability to third parties who are injured on the owner's property, medical expense coverage for persons injured on the property, and temporary living expenses if a covered loss makes the owner's unit uninhabitable. A unit owner may also purchase 'loss assessment coverage" which will provide compensation for the owner's share of any special assessments the association imposes, up to the limits specified in the policy and subject to adjustment for the amount of the insured's deductible. Normal loss assessment coverage will not pay for assessments that are related to earthquakes. To be covered for a special assessment levied by the association to repair damage caused by earthquake, the association member needs to purchase "earthquake loss assessment coverage." Such coverage is generally separate from the unit owner's general loss assessment coverage.
Insurance policies do not provide coverage for every loss imaginable. Those types of losses that are not covered under a policy are referred to as "exclusions" and it is extremely important for associations and unit owners to familiarize themselves with the content of policies that are being considered or purchased in order to fully understand what is and what is not a covered loss. Typical exclusions for property damage losses include: water damage caused by flood or underground water; earth movement including earthquake and mudslide; damage caused by settling, deterioration, contamination, or nuclear hazard, and damage caused by birds, rodents, insects, or domestic animals. Examples of exclusions frequently contained in liability loss claims are: bodily injury or property damage that is expected or intended by the insured; business activities; providing or not providing professional services; ownership, operation, use and maintenance of aircraft, motor vehicles and certain watercraft.
As fiduciaries who are responsible for overseeing the association's assets, the board of directors have a duty to look after the best interests of the association and its owners, to safeguard against future loss and liability and to provide sound advice to owners based on reasonable investigation and consultation with experts. The board of directors' responsibilities include making sure that the association is properly covered by insurance and that they thoroughly understand the nature and extent of the protection offered by their respective insurance policies. The types of insurance that a homeowners' association will typically need include:
Officers and directors errors and omissions coverage
Property insurance with coverage for all perils (i.e. fire, earthquake, flood)
Workers compensation insurance
Aside from maintaining adequate insurance coverage (appropriate coverage limits and deductibles), the directors should be aware of the specific terms of the insurance policies. Frequently, policy exclusions result in a lack of coverage for claims submitted by associations to their insurance carriers. As not all policies are the same, the directors should compare and contrast the coverage offered by different carriers to make sure they will be properly covered for the types of claims they are concerned about covering by insurance.
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