Condo Media - December 2017 - 46

Condo associations should look to
their association bylaws, which contain
specific language on how your insurance
program should be written. Your bylaws
detail what is covered by the association
policy and what is the responsibility of
the unit owner. The bylaws may spell
out specific policies and insurance limits
needed. For example, fidelity coverage
shall be no less than the full amount of
association reserves, plus three months
of condominium fees.
It makes sense to have your bylaws reviewed by a condominium attorney who
can help you understand the language
and coverage requirements. In some
cases, it may make sense to make amendments to your bylaws and your attorney
can help you with this, but make sure the
attorney you work with specializes in
condominium law.
PROPERTY INSURANCE COVERAGE
Who determines the amount of property
insurance carried by the association?
Some will say the insurance agent or
property manager, but ultimately this
is the responsibility of the board. Your
bylaws may call for a 100 percent replacement cost and it is up to the board to
determine that number-but what's the
best way to accomplish this?

The answer is insurance replacement
cost appraisal. This appraisal should
be done by a licensed professional who
is experienced in condominium appraisals for insurance purposes. Having
an appraisal done is the best way to
understand the complete cost needed to
rebuild your association as it is today.
Here are some issues, regarding the
limits of property insurance carried:
n Using the replacement cost carried by
the developer. The developer usually
insures the property for their cost,
which is lower than what you, as an association, can rebuild for many reasons,
such as labor costs and profit.
n Your condominium documents cover
improvements and betterments made
to the units. Your master policy was
written a few years ago to cover the cost
of replacing the association, as built.
You notice that over time, all the units
have finished basements, upgraded
floors, granite counter tops, and remodeled bathrooms and kitchens. Because
of these improvements, you are underinsured. A solution to this problem
would be to have unit owners report the
upgrades to the board at a certain limit
and endorse the property limits of the
master policy accordingly.
n A few months ago, our risk management group got an email from a unit
owner asking who was responsible for
determining the correct amount of
property insurance. He explained that
his association was destroyed by a wild
fire in Tennessee and they were underinsured by over $5 million. This was a
small association and the unit owners
did not have the money to cover the gap

CONDOMEDIA

in coverage. As it stands, the association is being dissolved and the board
is being personally sued for failure to
carry enough insurance. Please don't
make the mistake of saying, "we will
never have a total loss," because it does
happen.
DEDUCTIBLE OPTIONS
Reviewing your master policy deductibles can be a good risk management tool.
Here in New England, condo associations
often face several deductible options.
n Master Deductible
You have your all perils deductible
commonly referred to as the master
deductible which covers all losses
unless specifically excluded by policy
language. You see these deductibles
range from $2,500 to $50,000.
Some associations without a history
of loss will choose a lower deductible
and want the master policy to pick
up a loss. Recently associations have
favored moves to a higher deductible
to help insulate the master policy from
smaller, frequent losses. Higher deductibles are a tool that can help keep a
clean loss history, making the association more favorable when looking for
an insurance carrier. Unit owners can
find a remedy for losses that are less
than the master policy deductible by
carrying a well written HO6 policy to
protect their interest.
n Water Deductibles
Water losses present a major exposure
to associations here in New England
due to cold, icy weather and the
seasonal nature of condominiums. If
you are having repeat water losses, you
may see the insurance carrier require a
per-unit ice and water damage deductible. Depending on your claim history this may be the only way to

Condo Media - December 2017

Table of Contents for the Digital Edition of Condo Media - December 2017