Property losses that occur to condominium properties and individual units within are among the most difficult insurance losses for insureds to manage correctly and appropriately.
- The relationship between an individual condominium unit owner and the defined larger condominium property is controlled by the condominium by-laws which can vary and quite often are open to significantly differing interpretations;
- There is no standardized policy language in either of the two different types of master insurance policies (and variations within them) insuring condominium properties;
- Insurance policies covering condominium properties generally are intentionally vaguely written and, in many instances, defer back to the condo by-laws to determine coverage responsibility, thus adding another level of uncertainty between the association and unit owners; and finally
- Members of the condo association board of trustees – typically condo unit owners themselves — often are conflicted when attempting to fulfill their fiduciary duty to both the financial health of the overall property as well as to the individual condo owners.
Multiply one condominium property and the number of units therein by the more than 150,000 condo communities in the U.S. with upwards of 30 million residents (according to the Community Association Institute**) and there are a whole lot of minefields to wade through in trying to adjust either or both an individual unit’s insurance claim or a condo association’s complex claim.
Then, toss on top of these issues the facts that:
- Certain states have enacted legislation specifically setting forth which party has the responsibility for insuring different parts of the property, and
- Those state statutes are constantly undergoing changes.
It is no wonder when contending with condo property claims that neither the condo boards nor the individual unit owners can possibly have enough understanding of the interplay between the condo master policy and the unit owner’s individual policy to determine which entity should be insuring what property. And, when a loss occurs, it is too late to cover the under-insurance or gaps that may exist between the two coverages.
But, let’s get back to the informational aspect of this article . . .
Unit Owners Insurance Responsibilities
To state the most obvious, owners of condominium units do not own the entire condo complex. Typically, they own their own units outright and share in the ownership of the rest of the complex — the common areas — with all of the other owners.
From an insurance point of view, that means an individual unit owner must individually insure their own “unit” and personal property and collectively insure, along with all of the other owners of units – defined as the association — the complex owned in common. The latter includes building exteriors and hallways, pool areas, etc. (Condo associations routinely collect dues from each unit owner and use a portion of the payments to maintain and insure these common areas.)
The individual unit owner generally is responsible for separately insuring everything “within the four walls” of their own unit.
That, however, can take on many different meanings:
Does that mean that the individual unit owner needs to insure for the original paint on the walls? What if walls are repainted? What if wallpaper is hung?
Now, what about the flooring? Does the individual unit owner insure the flooring? What if there are upgrades from carpet or linoleum to marble? (Who is responsible for the support structure for the floor below if it also supports the ceiling above the unit underneath?)
The same questions largely apply to upgrades of counter tops and cabinets.
What about interior non weight-bearing walls which are moved to change the constitution of the space?
Condominium Association Insurance Responsibilities
The condo association’s master policy works in conjunction with the association by-laws, rules and regulations and are intended to clearly articulate which parts of the complex are insured through the association’s master policy (and thus, by exclusion, which define portions the individual unit owner is responsible for insuring).
However, as stated earlier, there is no standardization of master policy language. So, it is vital that both individual unit owners and the condo board understand, in advance of a loss, at the time of setting in place the respective insuring agreements, their respective insuring responsibilities, which result from a mix of state laws, the condo association documents and the insurance policies.
All-in and Bare Walls-in Policies
As mentioned earlier in this piece, there generally are two types of associational policies: 1) All-in, and 2) Bare Walls-in. (There is arguably a third — Original Specifications — that is similar to the All-in policy, only differing in respect to improvements and betterments.)
So, what is the difference between All-in and Bare Walls-in?
An All-in condo complex policy provides that it is the association’s responsibility to insure the:
- A) Common elements of the complex, such as landscaping and the building’s structural foundations;
- B) The limited common elements, meaning elements that are beneficial to more than one, but less than all unit owners, such as common hallways, walls and columns containing electrical wiring or sprinkler piping. Things like doorsteps, stops, decks, porches, balconies, patios, exterior doors and windows or other fixtures designed to serve a single unit, but located outside, are often considered limited common elements;
- C) Unit property, typically defined by the association’s rules or state statute, is limited to and benefits only the individual unit owner, such as the inside of the exterior walls, interior partition walls, countertops, cabinetry, plumbing fixtures, appliance and any other real property confined to the unit; and
- D) Individual unit improvements and betterments.
With such a complex policy, an individual unit owner only need insure his personal property within his unit.
A Bare Walls-in condo complex policy limits the association’s responsibility to insure only the common elements and the limited common elements. It is the individual unit owner’s responsibility to insure any unit property and any unit improvements and betterments in addition to the owner’s own personal property.
Still what remains at issue in Bare Wall situations is the definition of a “unit.” Unit does not have a universal or even a uniform definition. Unit boundaries can be everything from the studs-in or the unfinished wall-in (meaning paint or wallpaper need to be insured by the individual unit owner), or the sub-floor in and underside of the ceiling in—or any variation thereof.
Insurance Claim Adjustment Actions
The bottom line is that property losses to condominiums have numerous moving parts which must be taken into consideration and coordinated between the association board and the individual unit owners, both of whom may have suffered losses and whose collective insurance coverage must be coordinated.
The first step for the collective insureds is to attempt to understand whether the condo by-laws and rules are consistent with the jurisdiction’s regulations. Assuming they are, next, the association’s insurance policy must be read in conjunction with the association by-laws and regulations to attempt to determine where the condo complex property’s insuring responsibility ends and where a given individual unit owners begins. Next, policy definitions in both policies must be understood and coordinated within the context of the policies and the association’s regulations. And, only then, can the association and the individual go about attempting to adjust their respective property losses.
Streamline and Simplify the Claim Process
Practically speaking, it is nearly impossible for a condo board and an individual condo unit owner to successfully and fairly adjust a loss that occurs to a condominium. More likely than not, as so often times occurs in condo losses, the insurer for the condo complex will take the position they are not responsible or liable for certain damages and direct coverage to the unit owner’s carrier. At the same time, the unit owner’s carrier will likely deny coverage for those same damages and direct the insureds back to the condo board’s carrier. Hence the insurance coverage gap that is created.
Happily, for the insureds (plural), there is a solution to avoiding this coverage minefield. A public adjuster that has significant experience understanding all of the complexities of dealing with condominium property and unit owner claims is vital to the successful and fair resolution of these types of matters. The experienced public adjuster can determine the jurisdictional requirements, differentiate the coverages between policies, appropriately value the damages incurred and covered by each policy and advocate for both the condo board and the unit owners to attain the maximum benefit from all of the insurers.
Alex N. Sill has had considerable experience in managing both ends of such losses, successfully representing condo boards and unit owners in insurance claims. Sill knows where the mines are placed and help you, whether condo board member, unit owner, or both, avoid being tripped (and blown up) by these complex claims.
Sill is increasingly being retained to serve as an objective, independent resource with the expertise to act as referee — working with all parties to get to a common understanding and then serving as an advocate before the insurers to assure all receive the optimum benefits to which they are entitled under the terms of the policies.
We understand it is no easy task for the condo boards or the unit owners to represent themselves. Managing claims and adjustments in the aforementioned situations are not for the unprofessional claims adjuster, who is inexperienced in such losses. Let Sill’s army of accomplished former insurance company adjusters, expert building estimators, contents estimators and forensic accountants help you and your condominium board navigate through the minefield of insurance loss claims.
** According to the Community Association Institute, it is estimated that 66.7 million people lived in 333,600 common-interest communities in the U.S. in 2014. Condo properties represented up to 45% of the communities with homeowners’ associations and cooperative ownership properties combined to account for the balance.