Too often associations have claims denied because the coverage they once had was dropped due to budget concerns. Also, many association boards failed to understand critical elements of their policies, leaving them with unnecessary or unknown gaps in coverage. The most common areas that cause trouble for associations include:

• Misrepresentation of facts on insurance applications: if you’re unsure, don’t fill out the application until you are sure. Many a policy claim has been denied and coverage cancelled due to inadvertent or intentional misrepresentation on applications.

• Policy exclusions: Don’t assume that all claims filed will be covered. If you’re unsure, read the exclusions section of your current policy. If you’re still unsure, talk to an insurance specialist. Don’t leave to chance any gap in coverage.

• Co-insurance penalties: When determining the value of your covered property, make sure it’s the most accurate representation of the entire value of the property. If not, you could see claims paid on just that portion of the value you have insured. For instance, if you insure your property for $500,000 and it’s worth $1,000,000, your insurer will pay your claims based on that $500,000 amount, leaving you to pick up a huge coverage gap.

• Deductibles: If your deductible has been increased within the last few years, now is the time to re-examine that decision based on your association’s current reserves and claims history. Often the cost savings you think you’re getting is negated by claims.

If it’s been a while since you last reviewed your insurance coverage, contact me for an evaluation of your policy and recommendations based on your current business structure. As businesses change, so should coverage. Keeping your policies current and in line with property values is an easy way to alleviate unexpected claims issues.

Flickr photo credit:  bulent_yusuf

 1) Bare Walls In – policies covering all real property from the exterior framing inward, excluding fixtures or other installations within the unit.

 2) All In – policies covering all fixtures, installations, or additions within the interior surfaces of the individual units.

 Obviously the best one for your unit owners would be the All In condo association insurance policy, which would limit the need for owners to purchase additional coverage. Condo associations buying Bare Walls In coverage leave a bit more loss exposure for their unit owners. Most condo associations will advise unit owners on which policy is covering the premises. But what about deductibles?

 Most condo association insurance policies have a deductible. As condo associations reassess their insurance limits and premiums and increase their deductible amounts, many unit owners are left exposed to large loss amounts. Why? Because condo associations can, and do, pass the deductible on to the unit owners.

 In the past, deductibles topped out at $5,000. With historic losses in the insurance industry, many policies became hard to obtain, had lower limits, had higher deductibles, or simply cost too much to continue at the current level of coverage. These days it’s not uncommon to see a condo association with a deductible of $25,000 or even $50,000. If the damage to the building is spread among 25 residents, the deductible is much easier to afford than if the damage is limited to one or two units.

 If your condo association has opted for higher deductibles, inform your unit owners in writing of their exposure. Unit owners can purchase their own property policies to cover any losses not handled by the condo association policy, thus reducing the amount they’re responsible for should disaster strike. Paying  $25,000 – $50,000 to cover the association’s deductible isn’t in everyone’s budget. Unit owners who currently have property policies should confirm with their personal agent that their policy would cover the deductible in the event of damage. 

Flickr photo credit: doyoubleedlikeme

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.

For a Master Policy item list that every HOA should review each year, click here

Reprinted with permission © Association Times