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What We’ll CoverWhat We’ll Cover
1. How condos are different from other property
2. Condo declarations
3. Obligations to replace and/or insure
4. Complications and valuation
5. Homeowners for Condos
6. Other Considerations
What Makes InsuringCondos Different?
What Makes InsuringCondos 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
Condos & OwnershipCondos & Ownership
Condo Title
+
Pro-rata share of common property
Fee Simple Title
What You Will Want to Consider
What You Will Want to Consider
State Uniform Condominium Act
Condominium Declaration
Condominium Master Insurance Policy
Uniform Condominium ActHistory
Uniform Condominium ActHistory
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
Uniform Condominium ActKey Definitions
Uniform Condominium ActKey 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
Uniform Condominium ActUnit-Owners ResponsibilityUniform Condominium ActUnit-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
Uniform Condominium Act Insurance Requirements
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…”
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…”
Uniform Condominium Act Insurance Requirements
Uniform Condominium Act Insurance Requirements
Uniform Condominium ActSummary
Uniform Condominium ActSummary
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
Condo DeclarationCondo Declaration
Legally establishes the condo association as part of the title to the property filed with the county
Condo DeclarationCondo 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
Bare Walls Sample
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.”
Original Specifications Sample
Original Specifications Sample
“An owner shall be responsible for insurance… covering all alterations, additions, betterments and improvements made by an Owner to his unit…”
All-InclusiveSample
All-InclusiveSample
“ 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.”
Obligation to InsureObligation to Insure
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
Bare Walls
Difficult to establish values
May leave coverage gaps or shortfalls
Makes claims adjustment contentious
Best Practices Recommendation
The All-Inclusive Method
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
Association Master PolicyAssociation Master Policy
Building(s)
Fixtures outside of units
Machinery & equipment
Personal property used to maintain or service the building
Additions or alterations under construction
Association Master PolicyAssociation 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.
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.
Best Practices Recommendation
The Association Master Policy
Best Practices Recommendation
The Association Master Policy
Complications – Repair 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
Complications – RepairThe Anderson Case
(Maryland)
Complications – RepairThe 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
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
Complications – RepairThe Anderson Case
(Maryland)
Complications – RepairThe Anderson Case
(Maryland)
Complications RepairAnother Example
Complications RepairAnother 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
Complications - NegligenceComplications - 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
Best Practices Recommendation
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
Complications - ValuationComplications - 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
Discussions Regarding Values
Discussions Regarding Values
1. Market values are irrelevant
2. The decision is the customer’s, but remind them off the law
3. Use available resources- Professional appraisers- Local builders- Architects
Best Practices Recommendation
Amount of Insurance
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
Complications - Mortgagees
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
Complications - Mortgagees
Complications - Mortgagees
ISO’s Condominium Association Coverage Form CP 00 17 with Texas Changes CP 01 47 Mortgageholders Additional Condition
“If the condominium is terminated...In all other respects, we will pay for loss…to you or your insurance trustee…”
DeductiblesDeductibles
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
RecommendationRecommendation
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
Other Insurance to Consider
Other Insurance to Consider
For the Association: CGL coverage Auto liability Workers’ compensation Umbrella Employee dishonesty D&O liability Flood Insurance
ISO HO-6(05/11)
ISO HO-6(05/11)
Coverage A – Dwelling limit
Coverage C – Personal property limit
Causes of Loss – named peril
HO 17 90 – “All risk” for personal property
HO 17 91 – “All risk” for the unit
Insurance for Unit OwnersInsurance 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
ISO HO-6Insuring Agreement
ISO HO-6Insuring 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
Unit Owner – Loss Settlement
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
Best Practices Recommendation
Amount of Insurance
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
Insurance for Unit OwnersInsurance for Unit Owners
Limit of Insurance – Personal Property
Let the customer make the decision
Conduct an inventory (www.iii.org)
Use their previous personal property limit or a percentage of the condominium purchase price
ISO – HO-6(05/11)
ISO – HO-6(05/11)
Exclusions to note:
Ordinance or law
Water exclusions and limitations- Flood (NFIP)- Wind-driven rain (HO 17 90 & 91)- Repeated seepage (HO 04 83)- Sewer backup (HO 04 69)
Rental to others (HO 17 33)
ISO HO-6(05/11)
ISO HO-6(05/11)
Other Endorsements
Loss Assessment – HO 04 35
RC for personal property – HO 23 04
Other Insurance to Consider
Other Insurance to Consider
For the Unit Owner
Flood insurance
Umbrella Coverage
SummarySummary
Review the Uniform Condominium Act
Definitions
Association’s obligations
Unit-Owners obligations
Best Practices SummaryBest 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
SummarySummary
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
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