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April 11, 2022

According to the Insurance Information Institute, insurance claims were filed by 51% of the people with homeowners insurance in 2019. Of those, 97.2% were for property damage and theft. The remaining 2.8% of claims are for liability.

Combine those statistics with the fact that more than 5 million U.S. households are living in condominiums or cooperatives. That leaves a lot of potential claims against condo association insurance coverage policies…or does it?

Condo association insurance coverage is complete using two different plans. The initial coverage is a master policy the condo association management purchases. The second part is a homeowner's policy the resident purchases.

If you are managing a condominium complex, it is important to know what insurance you need. The goal is to protect against lawsuits and property loss within the complex.

Read our guide for answers on the liability requirements of the condominium complex, board members, and residents.

What Is Condominium Master Insurance?

As a condominium owner, you have dual ownership. You own a single-family unit that is your home, plus you are part-owner of “limited common elements.” These are areas of the condominium complex used by all members of the unit and/or the public.

This includes building exteriors, roads, lawns, elevators, and walkways. The complex may also have public recreational facilities you share. Areas like a pool, tennis courts, community room, and more are areas the master insurance policy covers.

There are portions of the property only in use by the individual unit occupants. Some of these need coverage under the "common elements" definition. This includes areas such as balconies, patios, parking lots, and garages.

The limited common elements of the complex must have a master insurance policy. The policy protects the complex against loss and liability and specifies areas of coverage for the structure and common areas.

Liability Coverage

The condo association’s liability insurance policy provides coverage for common areas of the complex. If anyone suffers an accident or injury, that falls under this insurance coverage.

The condo association may be liable if a person suffers injury using a common area. An example is a person using the walkway in a community building who experiences a slip and fall. The condo association may find itself the defendant in a personal injury negligence claim.

Property Coverage

A policy that specifies “bare walls coverage” includes protection for the building structure. This includes the roof, floors, walls, and elevators.

Single entity coverage protects individual units. This coverage applies to things such as bare walls, ceilings, and floors.

The unit owner handles insurance covering improvements to the unit. This includes upgrades or replacement of countertops, light fixtures, or floors. Verify what areas of units have coverage under the association policy by reading it carefully.  

General Liability

Liability is one of the most critical areas of a policy. It protects the complex in the event of a lawsuit due to personal injury

This includes resident injuries within the limited common elements areas. It also covers claims by contract workers doing repairs on the property.

Residents or visitors who suffer injuries because the area needs repairs may also file claims. This may be due to uneven walkways or a lack of railings near steps.

Officer’s and Director’s Liability

Members of a condominium board may be individually sued. The court may find them liable for decision-making errors resulting in injury.

For example, the board contracts for a new walkway ramp and fails to put in a compulsory hand railing. A person using the ramp suffers personal injury because of that omission. Each person on the decision-making committee may be the subject of a personal lawsuit.

Fidelity Liability

Fidelity liability protects in the event of theft, embezzlement, forgery, or fraud. This may be the action of a board member or employee. The insurance covers the loss the association suffers due to dishonesty.

Claims against fidelity liability coverage have specific requirements. The theft must be by an employee.

In the case of a condominium master policy, make sure the policy states that coverage includes association board members. Board members are volunteers are will not have coverage as an "employee.

The insurance company may deny the claim if they determine the board member or employee is high-risk. If you place a person with a history of theft in charge of financial transactions, you are not exercising proper discretion. The association is at fault for taking undue risk and the claim will not be paid.

The second requirement is that it must be an actual theft, not simply funds that are lost. The difference is an employee that commits an act with the intent of causing loss to the association. Funds that are lost due to negligent action, not intentional theft, are not covered.

Personal Property

This provides coverage for personal property belonging to the association. This may include furniture in common areas, recreational equipment, office equipment, and more.

Take a look around your complex and determine what items the association provides. Will replacing lost or damaged items place a financial burden on the association? Personal property insurance covers that loss.

Workers’ Compensation

This is an area where many condo associations make an error. They assume that with no employees there is no need for workers’ compensation insurance.

The reality is a court of law may hold the association liable for lost wages, medical expenses, and more. This can happen if a contract worker suffers injuries while working on the condo property.

The condo association has a fiduciary responsibility to protect uninsured contactors. It is the association’s responsibility to make sure all contractors have the proper insurance. This includes liability and workers’ compensation coverage.

It is important to get written verification before allowing them to work on the property. That doesn't always guarantee they have coverage when working.

Once you have the proof you request, there is no guarantee against the contactor canceling or not renewing the insurance. It is also possible the coverage expires before the work is complete.

Other areas of liability occur when the complex hires a worker who is a friend or relative of a board member. Often obtaining the proper chain of proof is side-stepped. This can lead to problems later if an injury happens.

Workers’ compensation also provides coverage for any employees of the condominium complex in case of injury. It is important with a condominium master policy to read the declarations. Make sure they include coverage of specific volunteers, such as board members.

If any uninsured contractors or employees suffer injuries, the workers’ compensation policy provides protection. This can save the association thousands of dollars in an award of medical expenses and lost wages from the court.

The Condo Owner Must Insure

Depending on the level of structural coverage of the master policy, the condo owner may need to purchase homeowners insurance. They may need to insure the walls, floor, ceiling, fixtures, and electronics. They will also need coverage for furniture, appliances, and personal belongings inside the unit.

Each condo owner is responsible for insurance on their personal belongings.  A condo resident's homeowner's insurance needs to cover areas the master insurance policy does not protect.

This includes covering additional living spaces if they must temporarily move out for repairs. Each condo owner is responsible for insurance on their personal belongings.

The individual condo owner is responsible for personal liability insurance. This provides the resident with protection in the event legal claims are made by someone suffering bodily injury inside their unit.

Who Pays for Condo Association Insurance Coverage?

The residents of the condominium complex pay for the master insurance policy. Their portion of the premium is part of their monthly dues.

Residents have equal access to common areas. This makes them responsible for equally sharing the cost of insurance.

Master insurance policies have deductibles when filing a claim. The deductible amount is also spread among all condominium owners.

For example, a condo master policy has a $2,000 deductible. There are 20 condo owners, making each owner responsible for $100 of the deductible.

There are no exemptions for association board members because they volunteer. Board members are homeowners within the complex. As homeowners, they must pay their equal portion of insurance premiums.

At the closing of a condo sale, the resident receives a “certificate of insurance.”  This shows what the condo association policy covers.

The certificate gives them information about insurance responsibility. It helps them understand the difference between what the association covers and what they need to buy.

Insurance Purchasing Mistakes

Many condominium associations purchase insurance without understanding what their policy covers. They also flip insurance from one company to another due to lower pricing, failing to compare whether they are getting the same coverage.

Many insurance policies appear to be the same at first glance. It is important to read and understand what each policy covers under every heading. Definitions, exclusions, terms, and language do vary between policies and companies.

To make sure the condo association has sufficient coverage at the best price, the board should undergo an insurance review once a year. If your board has not had an insurance review recently, or you think your coverage may need improvement, call your insurance company and request a review.

The agent will go over your current policies. They will make recommendations if there are changes that will improve your association's coverage. You need to request a review anytime you upgrade or expand your condominium units, grounds, or common areas.

Are Master Insurance Policies Mandatory?

Whether or not condo insurance coverage is mandatory depends on your state requirements. Even if not mandatory, the protection having a policy provides makes it well worth the additional expense to each resident’s monthly dues.

Get a Condo Association Insurance Quote

Make sure your condominium association has all the protection it needs before the need for a claim happens. It's too late to purchase coverage when you discover your insurance is lacking after filing a claim.

If you are wondering about the price of your condo association insurance coverage, get a quote from Hummel Group today. If you have any questions contact us by phone at 800-860-1060.

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