Insurance Coverage
Q. Considering the recent Hurricane Katrina, I am very concerned with what insurance coverages we have and what happens with our association property, versus our own property, after the storm if we have damage. Can you give us some guidance as to what to expect?
A. The first thing we need to do is clarify what Master Insurance coverages the association has and what is and is not insured under the Master Policy.
Most homeowner's associations have property coverages that include all of the buildings and structures owned by the association. This generally means the clubhouses, signs, fences and the like. Homeowner's associations generally do not provide any insurance for the individual dwellings or the homeowner's personal property. If you live in this type of association you definitely need to talk with your insurance agent to decide what coverages and amounts are appropriate to your situation. If damages occur to the common areas, then the association will handle both the insurance claim and the rebuilding as needed. If the damage is to your home, then it would be your responsibility to handle the insurance claim and the necessary repairs.
If you live in a condominium, then the situation changes significantly. Insurance for condominiums is divided into two areas of coverage:
• Common elements are the parts of a property owned in common by all owners. In most cases (but not in all cases), this includes the roof, parking lot, pool, clubhouse, exterior siding and exterior walls of your unit.
• Unit owner improvements, betterments and personal property are the part of a property owned exclusively by the individual owner. Examples include the carpet, cabinets and appliances.
As a rule, condominium association declarations or bylaws specifically require adequate insurance coverage on the common elements. These provisions usually require the purchase of a "master policy" that will insure common elements against fire, windstorm, water intrusion, employee theft, public liability, and directors and officers liability.
Normally, the buildings must be insured at their replacement cost and liability insurance limits of $1,000,000.00 are required. Also, if the complex is in an area designated as a flood zone, flood insurance should be obtained.
Most condominium documents specifically state that unit owners are responsible for personal property belonging to them, as well as any special additions and alterations made to a unit. The insurance industry provides coverage under the HO-6 policy form (the condominium unit owners insurance policy). Fire, windstorm, theft, public liability and other exposures are insured under an HO-6 policy. An HO 6 policy can also include replacement costs for contents, additions and alterations, loss assessment and other floater policies. Flood insurance for personal property must be obtained through the National Flood Insurance Program and its affiliated insurance companies.
Insurance for some condominium associations includes all parts of the property in the original contract of sale. If a builder installed it, the master policy probably covers it. If your association has such coverage, your building, carpets, fixtures and appliances but not personal belongings will be covered and replaced by the Master Condominium Policy. This means that if there is a loss due to a storm or fire, then the association will be responsible for filing the claim and any repairs that need to be made to the buildings. It will be the responsibility of the owners to handle any insurance claims for their personal property. This type of coverage is changing in newer documents at the urging of insurance advisors, due to the affect on Master Policy premiums of this broad coverage. They advise eliminating from Master Policy coverage everything inside the unfinished walls of the units, such as carpet, cabinets and wall coverings. This has come about primarily from hurricane experiences, and in our area, wind driven rain damages on coastal properties. Also, the Master Policy deductibles have gone way up and newer documents are placing some of the responsibility for payment of deductibles on the unit owners.
If the losses are due to rising water and not wind damage then, unless the association and/or the owner has a flood policy, there is probably no insurance coverage and, therefore, no payment for the loss. Many associations, depending on location, are not required to have flood insurance. It is best to check with your association to determine if flood insurance is in place. Flood insurance is available even for properties that are not required to have it in force and boards should obtain it if there is potential for flooding of the property
If there is a loss due to a storm, the best procedure would be to notify your association in writing of the damage as soon as possible. The association, through the Board of Directors and manager, will do an inspection to determine the extent of the damage as soon after the storm as access is possible. They will then forward the claim to the insurance company and work with both the company and any needed contractors to restore the property to its original condition.
It is important that every owner review the insurance provisions of the documents that created your association to be clear on what is covered and what is not covered. If you have questions on a specific issue, we suggest talking with either the manager or the insurance agent for clarification.
For insurance purposes, every association is different for a number of reasons: location, type of construction, document requirements, insurance policy terms, etc., so it is impossible for us to give detailed and absolute answers. One of the best ways to get a complete picture for your association is for the Association to hold a community meeting on insurance. We suggest that not only should the Board be present, but also the panel should include the manager, the insurance agent and the attorney. You may want to also include someone from your local Emergency Management Agency who can answer questions regarding evacuation requirements and access requirements after a storm. This is one of those times when the old Boy Scout motto of "Be prepared" really helps.