Even the most comprehensive apartment or condo association insurance package can become less so, as the association’s needs change. Today your association may have a set agreement in place, but amendments, additions, and changes to that agreement, as well as changes in the state of the property or to the grounds themselves could leave your apartment or condo association uncovered as a result of these changes.

 That’s why I recommend all apartment and condo associations have a broker conduct an insurance audit. Audits, which cost customers nothing more than time, allow brokers and customers to see a more complete picture of how the business and the association’s needs may have changed. By examining thoroughly the business operations, the board make-up, and the association’s practices and recent changes, brokers can compare current business with the apartment association insurance policy.

 Also, policy limits rarely change at the same rate as inflation or business changes. Often, apartment associations have purchased coverage limits that were adequate five years ago, but have not kept up pace with economic conditions. Is your current policy in line with any regulatory changes in the industry? An audit conducted by a broker can show you areas in which your coverage doesn’t match with current regulations.

 An added bonus of an apartment or condo association insurance audit – audits can determine if the customer has been overpaying on premiums. Often, newer policies cost less and offer better coverage terms. And sometimes the relevance of coverage no longer applies. A professional insurance audit will help you determine if what you have is really what you need.

Flickr photo credit: yui.kubo

Flickr photo credit: turbojoe_(away)

If you’re watching your condo association insurance costs these days, you’ve seen the trend. Insurers are passing on higher and higher deductibles to associations – sometimes to the tune of $10,000. And associations are having difficulty adjusting to the higher costs. In fact, associations facing mounting deductibles are often looking for places to transfer that cost. That means some unit owners are now coughing up extra for the additional deductible amounts in the form of higher association fees.

It stands to reason that associations would choose to pass the additional cost on to the owners. Most associations now include insurance costs in association fees. Because much of the liability stems from owner activity, associations feel justified in including the deductible charges in association fees. But some associations are considering passing that cost on only to those owners who receive the insurance benefits paid for by the premiums. While that’s a more just way of handling the situation, it’s unlikely that a smaller group of owners would be able to take on the deductible. Also, the association may have to go through the expensive legal process of assigning negligence to the owners, which may not be successful.

The best solution is to spread the cost among all unit owners. Also, it’s good practice to help your owners understand your basic insurance coverage, what actions or inactions on their part affect rates, and how that affects their costs through higher association fees.

However, not all policies allow condo associations to pass deductibles on to their resident owners. Some grandfathered policies stipulate that condo associations are responsible for both premiums and deductibles. Check the policy language, and also go over your association’s Declarations to determine if passing such costs onto owners is possible. If not, talk with your insurer and see if changes can be made to your Declarations section in order to reduce the condo association’s financial liability.

Flickr photo credit: Radio Rover

[technorati code wdzjeyt7n4]  Are your work-at-home unit owners creating an insurance gap for your association? What seems like an innocuous issue could be a major deal breaker for your insurer. That’s because most policies state that units are for residential purposes only. Some go so far as to prohibit business operations of any kind in the units. Tell that to the freelance writer or the Internet auctioneer living on association property.

As home-based businesses grow in number, there will be more people working from home. As a result, insurance policies will be challenged should any claims arise as a direct result of the home-based business. You as condo association members must determine the extent to which you will address a telecommuting unit owner. In most cases, insurers expect condo associations to exercise good business judgment.

For instance, not all home-based businesses pose a risk to the condo association insurance coverage. Condo associations should ask the following: How big is the risk based on the unit owner’s business? Are clients visiting the property? Is there a nuisance factor, such as excess noise, traffic, deliveries, or late-night phone calls/faxes that may be heard in other units? Is the unit owner manufacturing items in the unit?

Many condo associations see restrictive covenants as hard-and-fast rules that must be applied in all cases. Not so. There are exceptions that any condo association would be hard pressed to argue against. Does this restriction include babysitting or pet-sitting? If so, this could negatively impact a number of unit owners and disrupt their residential experience. Condo association boards should stop to consider exactly what impact this telecommuting activity has on the community as a whole. Obviously you’re not going to want a manufacturing business grinding away at all hours from unit 4B. But a freelance writer to run a writing and editing business that doesn’t receive visitors is one activity that will not disturb the residential feel.

A sensible approach is needed when it comes to allowing or restricting telecommuting or home based business activities. Check with your condo association insurance carrier to get the policy wording on home-based businesses, and discuss with your broker the different situations in which home-based business could be conducted without voiding coverage.

Another thing to know is that personal homeowner or tenant policies may have restrictions related to home based business as well. Tenants who telecommute or have a home based business should talk with their insurance agent for any exclusions in their policy before there is a claim.  It’s better to be prepared than to be surprised by a lack of coverage.

Flickr photo credit: Robert S. Donovan

The question arises every summer – should you allow your residents to grill on the property premises? If you’re wondering how a contained grill can cause problems, consider this: Over 500 fires occur annually thanks to gas grill usage. Charcoal is no safer – over 20 deaths and 300 injuries occur each year thanks to charcoal and the related carbon monoxide poisoning threat it poses.

In condos and apartment complexes the risk increases. Your residents may not consider that dripping grease, nearby flags or plants, or even an open window into their own unit can create fire and carbon monoxide dangers. If you’ve banned them from use on balconies or attached patios/porches, you’ve gone a long way to preventing a devastating fire or accident.

But what about using grills on the property? Most loss control experts say that a minimum of ten feet away from any building is recommended. Should you allow your residents to use grills in common areas, such as on common patio areas or around pools?

Consider first the traffic in that area. Around pools, young children could come in contact with hot surfaces. Also, pool toys, balls or even water could land on the grill, damaging the grill or causing the propane tank to explode. On common patio areas, the traffic may be less of an issue, especially if you section off an area for grilling. Also, mounting your grill in an approved manner – with 15 feet of separation between grills, with the grills firmly secured to the ground, and following all state and local ordinances pertaining to grill use – will allow your residents the pleasure of the barbecue without the added liability to your association.

Have questions? Give me a call. I can help you determine if your grilling area meets all requirements, plus I can check your association insurance policy to make sure it includes coverage specific to association-supplied grills.

Flickr photo credit: beancounter

Ten Business Insurance Renewal Reminders – “Let Us Know”

To insure a Home Owner or Condo Association is to worry – if you’re worried about whether or not something may need to be covered, let us know.

1.  Read your policies, paying attention to the limits, conditions, and exclusions. If you have questions or concerns, let us know.

2.  Liability limits can be increased – if you’re concerned, let us know.

3.  Commercial General Liability (even with an Umbrella) doesn’t cover all types of claims. If you’d like to discuss Employment Practices Liability, Directors & Officers Liability, Fiduciary (ERISA) Liability, Professional Liability, International Liability, Cyber-Liability or other types of protection, let us know.

4.  Selecting adequate Property insurance limits is your responsibility – if you underinsure, there can be coinsurance penalties and/or you’ll come up short after a serious loss. Replacement Cost requirements have nothing to do with Market Value or Book Value – what would your building(s) and contents cost to replace, brand new, if destroyed?

5.  Studies show that even with adequate limits on buildings and contents, businesses that don’t have enough “Business Income Insurance” fail within three years almost 50% of the time. If you’re concerned, let us know.

6.  We need to be told when or before there are changes to your business operations, locations, products handled or services delivered.

7.  With few exceptions, Workers Compensation is required by law for all businesses. If you don’t have it insured somewhere, let us know.

8.  Property insurance policies don’t cover all perils. If you’re concerned (for example) about Flood, Earthquake, or Equipment Breakdown, let us know.

9.  Do you have any (or enough) Crime insurance? If you’re not sure, let us know.

10. Do any of your business contracts contain insurance requirements? If so, let us know.

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