Condo Media - February 2018 - 16

Homeowner's Corner

Are You Covered?

The Answer for Many Associations, and Too Many Condominium Owners, is: 'Maybe Not'
The most serious problems with an
insurance claim often begin long
before the disaster triggering it,
with the selection of the association's insurance coverage. To put it
bluntly: Many communities do not have
sufficient insurance to cover a massive
claim. This can occur because through
error, a misguided effort to reduce their
premium costs, or both, they underestimate the value of the association's
property, or they fail to update the value
estimates periodically to reflect increases
in construction costs that would boost
the cost of restoring damaged property to
its pre-disaster condition.
Ronda Ziner, CPM, regional property
manager at E.P. Management Corp.,
witnessed first-hand the problems underinsurance creates when a fire destroyed
a 42-unit building she managed. It took
a combination of bank loans and special
assessments on owners to fill the sizable
insurance gap that left the community
hundreds of thousands of dollars short of
the funds needed to rebuild. It wasn't just
the association that was under-insured,
Ziner notes; many owners had failed to
obtain HO-6 policies, providing coverage
for their belongings and for their share of
the master policy deductible. This made
an already difficult situation even more
difficult, Ziner says.
A BIG HIT
Many owners fail to recognize that they
must insure their personal belongings
(furniture, clothing, computers, and
the like) and that they are responsible,
individually or collectively, for paying
the deductible on a master policy claim.
With deductibles these days trending
upward to $25,000 or more, as associations attempt to control their premium
costs, that out-of-pocket deductible hit
could be painful for many owners and
unaffordable for some.
Industry experts estimate that only
half of all condominium owners have

CONDOMEDIA

unit owners' insurance, a long-standing
problem that has defied persistent efforts
to persuade owners that the coverage is
essential. Ziner thinks the mind-set of
condominium owners is partly responsible. "Many think the association should
be responsible for everything," she says.
A MORTGAGE LENDER PROBLEM
One reason owners don't buy individual
coverage is because no one tells them they
have to, Richard Brooks, Esq., senior partner in Marcus Errico, Emmer & Brooks,
suggests. "When you buy a single-family
home," he notes, "the mortgage lender
insists that you obtain insurance. When
you buy a condominium, the lender insists
on seeing the master policy but doesn't
require an HO-6."
Lenders understand that the master
policy protects their financial interest in
an owner's unit, Brooks says, but they fail
to recognize that the owner's HO-6 policy
protects the lender's interests as well. "An
owner who can't afford to pay a $10,000
deductible may just walk away. The lender
then would have to foreclose on a property
that, in a declining market, might be worth
less than the outstanding mortgage."
INSURANCE RESOLUTIONS
HO-6 policies don't just protect unit owners; they protect the association as well. If
some owners can't pay their share of the
deductible, other owners would have to
cover the difference. And if a unit suffers
damage that isn't covered by the master
policy and the owner can't afford necessary repairs, other units and/or common
areas might be affected.
To protect the association's interests,
Brooks (and many other attorneys) recommends that boards approve insurance
resolutions, clarifying the obligation of
owners to pay the master policy deductible. The language he suggests also specifies that owners are responsible for insuring their personal property, and notes that
the HO-6 policy providing that coverage

typically provides coverage for the master
policy deductible, as well.
Some industry executives suggest that
associations require owners to obtain
HO-6 coverage, but few have been willing to do that because, as Ziner notes,
monitoring compliance would be "an
administrative nightmare" for managers
and boards. Brooks thinks adopting an
insurance requirement might be useful
even if boards don't enforce it, because "it
would get the idea [of owners' insurance]
in front of owners."
Recognizing that standing in front of
a flooded condominium unit is not the
best time to explain the finer points of condominium insurance to owners, industry
professionals try hard to educate them
in advance. "Every time the association
renews the master policy is an opportunity
to explain to owners what the policy covers and what it doesn't," Jared McNabb,
CMCA, PCAM, general manager of the
Brook House Condominium Trust in
Brookline, Massachusetts, observes. He
organizes an annual meeting to discuss
insurance with owners, at which he urges
them to share a copy of the master policy
with their insurance agent, who should ensure that their HO-6 policy dovetails with
the master policy, avoiding any potential
insurance gaps.
Ziner, similarly, sends a letter to owners annually, explaining that the master
policy deductible is their responsibility
and emphasizing the importance of
having an HO-6 policy that will provide
coverage for it. She repeats that message
at annual meetings and in every association newsletter. "We go over and over it,
like a broken record," she says. And still
far too many owners remain uninsured.
"It is very frustrating," Ziner says. "But I
guess it's human nature. People assume
that [insurance losses] won't happen to
them." What does it take to change that
assumption? "I think they have to experience a claim," she says.
Ouch!

Condo Media - February 2018

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