Condo Media - February 2021 - 20

A

The Right Coverage
As Benjamin Franklin once aptly
said, " an ounce of prevention is worth
a pound of cure. " Nowhere is this
statement more accurate than in the
insurance industry, where proper upfront planning can most often be the
difference between a smooth or horrific
claim experience. The below list is a
non-exhaustive overview of key considerations when approaching the process
of structuring and buying insurance for
any community association.
INATTENTION
TO CONDO
DOCUMENTS
What do condo documents have to do with your insurance
program? In just two words, " a lot! "
The " insurance " section of any
community association's governing
documents often serves as a roadmap
to understanding what coverage
needs to be addressed by the association's master insurance program versus that which individual unit owners
must bring to the table themselves.
For example, who is responsible for
covering real property located within
the interior of each unit is something
that is typically addressed within this
documentation, and it's very important to refer to this language in order
to ensure the most seamless possible
interaction between the association's
master policy and an affected unit
owner's homeowners policy. Where
the common property ends and personal property begins may seem like a
very straight-forward question, but in
the event of a claim, having the wrong
insurance in place can make it much
more complicated than necessary.

1

pitfall

IMPROPER OR
INSUFFICIENT
COMMUNICATION
" If a tree falls in a forest and no one is around to hear it,
does it make a sound? " The author is
reminded of this old adage when considering the topic of communication
when it comes to community association insurance coverage.

2

pitfall

20

CONDOMEDIA February 2021

If a board of trustees and/or its
trusted property manager dutifully
review the insurance section of their
condo documents to ensure that the
master insurance program is structured
properly, that's only half the battle -
information about the insurance program then needs to be communicated
to unit owners, as does clarification
surrounding their responsibilities. Once
a proper master insurance program is
placed on behalf of the condo association to address its responsibilities, it's
very important to then make sure that
key insurance-related details are communicated to unit owners, along with a
friendly reminder that they should be
addressing their responsibilities.
For example, most associations either
require or strongly encourage their unit
owners to purchase an HO-6 (condo
unit owners') policy; without knowledge of what's covered by the master
insurance program as required in the
condo documents, it is very difficult for
unit owners (or their personal insurance agents) to confidently structure
proper coverage to protect their personal interests. A disconnect on this topic
can lead to painful uncovered claims
for in-unit property, often as a result of
a unit owner's misunderstanding about
their responsibilities when it comes
to insuring property that's fixed to the
condo building's structure (this is just
one example).
PAYING INSUFFICIENT
ATTENTION TO
THE DETAILS OF
PROPERTY INSURANCE
All too often, those responsible for
procuring property insurance on behalf
of a community association ask too few
questions about their insurance coverage, specifically the property section
of the master policy. If the only two
questions that are addressed when procuring property insurance are " What's
the limit? " and " What's the price? " , the
process is being handled incorrectly.
When it comes to property insurance (and most areas of insurance in
general), " the devil is in the details. "

3

pitfall

Below is a non-exhaustive list of items
that should be specifically addressed
when placing insurance coverage for
any association:
● What are the building limits,
and are they adequate in the
event of a total loss?
The most common (and appropriate) valuation that should be
considered when placing building
and property limits is " replacement
cost, " which should represent the
cost to repair or rebuild (replace)
your property in the event of a covered loss. Association board members and managers should work with
a qualified insurance professional
to ensure they are setting limits
that are adequate to cover the association's interests in the event of a
total loss situation. While insurance
carriers often charge based on the
property limits used, associations
must resist the temptation to underinsure to save money; in the event of
a covered claim, being underinsured
may result in very avoidable out-ofpocket costs and/or assessments.
● What about sublimits or
optional coverage areas?
Some of the most important coverage that a community association
can purchase for its property are
optional, and it's extremely important to consider what types and
amounts of these optional coverage
areas are necessary in each specific
situation. Coverage for damage
caused by earthquake, flood, water
or sewer backup, and/or equipment
breakdown often must be purchased
by specific request/addition. Additionally, " ordinance or law " coverage, which is critically important
to many associations throughout
New England, is often an optional
coverage area; ordinance or law
limits address the cost to comply
with updates to building code (i.e.
improvements resulting from code
requirements) in the event of a
covered claim.
Condo Media - February 2021

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