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

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: 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.

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