Since the first modern condominium was built in the 1960s, over 70 million people across the United States have chosen a condo to call home. As such, many individuals are finding themselves in the roles of condo owner, board member or property manager. When taking part in the management of a condominium, it’s important to understand the complexities of the Master Insurance Policy for a Condo Association.
Before reviewing any condo insurance policy ensure that you have a current copy of the Association’s by-laws. Most by-laws include a section pertaining to insurance that outlines how the insurance coverage should be written for that specific Association. Not all by-laws contain the same language or insurance requirements and can affect the amount or type of insurance carried. An insurance adjuster will check this document first to review the policy language surrounding such claims.
It is a good idea to consult a condominium attorney regarding these by-laws and ensure that all unit owners are given a copy of the by-laws, a master deed, and the recommendation that they purchase a Unit Owner Insurance Policy called an HO6. Requiring each unit owner to sign off upon receipt of these items can prevent individuals from claiming ignorance later.
The purpose of a Master Property Insurance Policy is to ensure that the Association has insurance in place to protect buildings, loss of income, condo fees, and business personal property.
Many by-laws require that property insurance carry no less than 100% of replacement cost, which can be quite difficult for board members to determine. In these cases, having an insurance replacement cost survey done by a licensed appraiser can provide you with a report on the accurate value that you can then share with your insurance agent and carrier. Not having enough coverage in this area could expose the Association and Board to additional risk for a potential Directors & Officers claim.
TYPES OF COVERAGES & DEDUCTIBLES
All insurance policies have components that include both coverages and deductibles. Because New England has a lot of unique weather scenarios, there are several deductibles specific to this geography that are common.
ALL OTHER PERILS (AOP) is your master policy. It covers all forms of loss, except for specifically excluded perils as outlined. Deductibles tend to run from $1,000 to $50,000 depending on the Association ($10,000 and $25,000 average over the last few years.)
WINDSTORM DEDUCTIBLES are commonly separate deductibles that Associations apply to their policy as either a flat number ($10,000 / $25,000) or as a percentage of property values (1%, 2%, and 5% are common in NE). The closer you are to a coast or a wind exposed area, the higher the wind deductible.
WATER OR ICE DAM DEDUCTIBLES prevent exposure from ice damming and water claims. Insurance companies will often apply a per-unit water or ice dam deductible. For example, a four-unit building that has an ice dam that effects all four units will have a $100,000 deductible before the master policy is activated.
Working with an experienced insurance agent will help when selecting appropriate deductibles. By reviewing past claims, the Association can make better determinations on the type and structure of these deductibles. For instance, if an Association is seeing several small claims per year caused by burst pipes when unit owners go away in the winter, perhaps a per-unit deductible would make sense to prevent or discourage these types of claims. Always remember that selecting the appropriate deductibles for your Association is just as important as implementing adequate coverage.
OTHER COVERAGE OPTIONS
ORDINANCE & LAW COVERAGE replaces an undamaged portion of a building after a claim, pays for demolition and debris removal and helps pay for upgrades to the property due to ordinances. Don’t overlook this coverage, especially for older buildings. Review this coverage with your agent and seek out higher limits when possible.
BLANKET COVERAGE is beneficial if you have more than one building or location. It rolls the total amount of property insurance into one bucket available to all buildings on the policy.
Example Scenario: At the time of loss you have a building insured for $100,000 but it requires $150,000 to replace it. Your property policy provides $500,000 in property coverage on a blanket basis. The $50,000 you were short is now available to cover the loss to that building because of the blanket coverage.
DIRECTORS & OFFICERS POLICY is intended to protect those in Association management and/ or the Board of Directors from claims for any alleged wrongdoing on the part of the organization. Some liability policies will include basic D&O coverage. We recommend implementing a standalone policy as the language and coverage tend to be stronger. An important item to consider when reviewing your D&O coverage is the policy limits, and whether defense coverage is inside or outside of these limits.
UMBRELLA POLICIES are the catch all in a worstcase scenario. In today’s society, there is less tolerance for negligence. As a result, judgments in court cases are coming in higher than. When an umbrella covers one of your policies, it can bolster your coverage and protect you in the event a claim exceeds your policy limits.
Example Scenario: Someone happened to drown in your pool and a court deemed negligence on behalf of the Association, awarding a $5,000,000 judgment. Most liability policies have a $1,000,0000 limit, but the Association would still be expected to come up with the additional $4,000,000. This is where an umbrella policy can come in handy. Umbrella policies start at $1,000,000 and have limits up to $50,000,000 depending on the carrier, so a good rule of thumb is to purchase as much coverage as you can afford.
CRIME AND CYBER COVERAGE can play an important role in protecting Association funds. Since Associations have condo fees that are oftentimes carried in a reserve fund, these accounts are a natural target for cyber criminals. With cyber crime on the rise, Association members are all at risk for phishing scams, ransomware, wire transfer fraud, and more, so having this coverage in place can make all the difference if security is breached.
There are several different variances in Master Condo Policies, with this being a brief overview of some poignant areas rather than an exhaustive study. Having your master policy reviewed by a condominium expert and having unit owners review their own H06 policy with a personal lines agent should go a long way to providing proper coverage and making everyone whole after a loss.
STILL HAVE QUESTIONS?
Send them our way and we will do our best to help!
Vice President | Business Insurance
Jeff is a Vice President in Business Insurance at RogersGray. Specializing in condominium insurance, coastal property insurance, insurance for contractors and non-profit insurance, Jeff has over 14 years of consultative insurance experience.