1. Insuring Condos

2. What We’ll Cover How condos are different from other property
Condo declarations
Obligations to replace and/or insure
Complications and valuation
Homeowners for Condos
Other Considerations

3. What Makes Insuring Condos Different?
Condominiums are a different kind of real property ownership
The ownership differences create coverage problems with traditional forms
Coverage under condominium forms looks to legal documents to determine obligations to pay
Establishing adequate limits can be difficult
Liability is shared with other condo owners

4. + Condos & Ownership Condo Title Fee Simple Title
Pro-rata share of common property

5. What You Will Want to Consider
State Uniform Condominium Act
Condominium Declaration
Condominium Master Insurance Policy

6. Uniform Condominium Act History
Model Law developed by the National Association of Commissioners on Uniform State Laws in the 1970’s
Introduced in the Texas Legislature in 1981
Passed in 1993
Became Law January 1, 1994

7. Uniform Condominium Act Key Definitions
Limited Common Elements – Used by one or more, but not all of the units
General Common Elements – Common Elements that are not Limited Common Elements
Condominium – Requires one or more of the common elements be owned by all unit owners

8. Uniform Condominium Act Unit-Owners Responsibility
Maintenance and repair of any equipment servicing the unit regardless of where located
Maintenance and repair of Windows & Doors that only service the unit
Damage or willful misconduct
Unless the Declarations state Otherwise

9. Uniform Condominium Act Insurance Requirements
“Property insurance on the insurable common elements insuring against all risks of direct physical loss, including fire and extended coverage, in the total amount of 80% of the replacement cost or actual cash value…”
“Commercial General Liability insurance in an amount specified by the board…”

10. Uniform Condominium Act Insurance Requirements
Each unit owner is an insured
No subrogation against unit owner
“No act or omission of a unit owner…will void the policy or be a condition to recovery under the policy…”

11. Uniform Condominium Act Summary
Defines what can be considered a condominium and common elements
Establishes insurance requirements elements for the Condominium Association
Imposes obligations of the Association and unit-owner for maintenance, repair or replacement of units – unless the declaration changes those obligations

12. Condo Declaration
Legally establishes the condo association as part of the title to the property filed with the county

13. Condo Declaration
Describes the extent of unit ownership and responsibility

14. Condo Declaration
Establishes the obligations of the Association and the unit owner (beyond statute) for: - maintenance - repair - replacement
Establishes the obligations of both parties to purchase insurance

15. Bare Walls Sample
“Each owner shall be responsible for and will obtain insurance on such Owner’s unit including all wall and floor coverings, appliances and all parts of the unit that are not common elements. Each unit owner will also be required to insure the limited common elements assigned to that unit.”

16. Original Specifications Sample
“An owner shall be responsible for insurance… covering all alterations, additions, betterments and improvements made by an Owner to his unit…”

17. All-Inclusive Sample
“ The Association shall maintain insurance…on the Project including all Common Elements and Limited Common Elements”
“The Unit Owner shall notify the Board of all improvements made to the Unit that exceed $1,000.”

18. Obligation to Insure Bare Walls Difficult to establish values
May leave coverage gaps or shortfalls
Makes claims adjustment contentious
Original Specs
Owners may not be aware of past improvements
Easier to establish values than bare walls method
Lower premiums
All –Inclusive
One policy covers all common elements
Easier to establish accurate values
Association may not be aware of all improvements

19. Best Practices Recommendation The All-Inclusive Method
All real property – no matter who owns it – should be insured on the Association master policy for the benefits of all unit-owners.
Despite the options, this complies with the original intent of the Uniform Condominium Act

20. Association Master Policy
Building(s)
Fixtures outside of units
Machinery & equipment
Personal property used to maintain or service the building
Additions or alterations under construction

21. Association Master Policy
And… “Any of the following types of property contained within a unit, regardless of ownership, if your Condominium Association Agreement requires you to insure it.” …fixtures, appliances, etc.

22. Best Practices Recommendation The Association Master Policy
Amend the Condominium Declaration or bylaws if necessary to authorize the association to purchase insurance coverage on the units to comply with “if your Condominium Association Agreement requires you to insure it” language in the policy.

23. Complications – Repair
The Condominium Act (and most declarations) makes unit owners responsible for maintenance, repair and replacement to individual units
Even if the Master Policy covers the loss, the unit owner could still be responsible

24. Complications – Repair The Anderson Case (Maryland)
Anderson’s unit had extensive damage to their unit when a water heater burst. No other unit was affected
The association refused to report the claim under their policy even though it was written on an “all-inclusive” basis

25. Complications – Repair The Anderson Case (Maryland)
Anderson’s HO carrier paid the claim and sued the Association
The declarations mirrored the law regarding maintenance and repair
Court ruled in favor of the Association

26. Complications Repair Another Example
Wind damages the condominium roof and breaks out a window in a Unit
The roof is covered on the Association policy, but the windows are covered on the Unit Owners’ policies
Multiple deductibles will apply to the same loss

27. Complications - Negligence
Negligence provisions in the declaration may hold the unit owner responsible for damage due to negligence.
This provision may tempt the Association to refuse to turn in claims covered by the Master policy when confined to a single unit

28. Best Practices Recommendation
Amend the “Repair & Replacement” section of the Declarations to provide an exception when the repair is needed due to a covered loss on the Association policy
Amend the “Negligence” section to provide the same exception

29. Complications - Valuation
Based upon the declaration’s statement of responsibility
100% of the cost to rebuild
Other issues: - Debris removal - Design expenses - Inflation (major catastrophes) - Building ordinances

30. Discussions Regarding Values
Market values are irrelevant
The decision is the customer’s, but remind them off the law
Use available resources - Professional appraisers - Local builders - Architects

31. Best Practices Recommendation Amount of Insurance
Obtain an appraisal at least every three years and include construction cost information
Insure the property on a replacement cost basis
Use the Agreed Value Option to suspend the coinsurance condition

32. Complications - Mortgagees
An on-going headache for agents
Uniform Condominium Act
A claim for any loss covered by the policy under Subsection (a)(1) must be submitted by and adjusted with the association… unit owners and lienholders are not entitled to receive payment of any portion of the proceeds unless there is a surplus

33. Complications - Mortgagees
ISO’s Condominium Association Coverage Form CP with Texas Changes CP Mortgageholders Additional Condition
“If the condominium is terminated... In all other respects, we will pay for loss…to you or your insurance trustee…”

34. Deductibles
Unit Owners ultimately pay the deductibles through assessments
Individual policies may limit the amount of loss assessment coverage or deductible payments ($1,000)
Pre funding the Association deductible is ideal

35. Recommendation
The Association declaration should clearly state that a deductible expense is a common expense for all unit owners, even if the loss only affects one or two units
The Uniform Condominium Act is silent on this issue

36. Other Insurance to Consider
For the Association:
CGL coverage
Auto liability
Workers’ compensation
Umbrella
Employee dishonesty
D&O liability
Flood Insurance

37. ISO HO-6 (05/11) Coverage A – Dwelling limit
Coverage C – Personal property limit
Causes of Loss – named peril
HO – “All risk” for personal property
HO – “All risk” for the unit

38. Insurance for Unit Owners
Limit of Insurance – the Dwelling
What does the declaration say regarding the obligations of the Association and the owner?
Safest course – protect the interest of the unit owner’s interest in the property
Options: replacement cost per square foot, or an appraised value of the real property inside of the unit and consistent with ownership

39. ISO HO-6 Insuring Agreement
Alterations, appliances fixtures & improvements
Real property that pertains exclusively to the unit
Property which is your responsibility to insure under the Association agreement
Structures used solely by insured at location of residence premises

40. Unit Owner – Loss Settlement
Excess over the amount due from the Association policy
Primary as respects amount covered by this policy and not due under the Association policy because of the application of a deductible

41. Best Practices Recommendation Amount of Insurance
Determined by Unit Owner
Default: The full replacement value of the real property in the unit
Alternative: 25% of the replacement value or the amount of the Association deductible, whichever is more

42. Insurance for Unit Owners
Limit of Insurance – Personal Property
Let the customer make the decision
Conduct an inventory (
Use their previous personal property limit or a percentage of the condominium purchase price

43. ISO – HO-6 (05/11) Exclusions to note: Ordinance or law
Water exclusions and limitations - Flood (NFIP) - Wind-driven rain (HO & 91) - Repeated seepage (HO 04 83) - Sewer backup (HO 04 69)
Rental to others (HO 17 33)

44. ISO HO-6 (05/11) Other Endorsements Loss Assessment – HO 04 35
RC for personal property – HO 23 04

45. Other Insurance to Consider
For the Unit Owner
Flood insurance
Umbrella Coverage

46. Summary Review the Uniform Condominium Act Definitions
Association’s obligations
Unit-Owners obligations

47. Best Practices Summary
Use the All-inclusive method for the Association and amend the declaration/by- laws if necessary
Amend the “repair and replacement” and “negligence” provisions in the declarations to avoid complications

48. Summary Recommend an appraisal every three years
Insure property on a replacement cost basis
Insure to 100% of value and use Agreed Value Option
Fight the good fight when it comes to values

49. Insuring Condos Thank you!