What Insurance Needs You Should Know As A Condominium Owner

Trend for increased condo ownership

According to Newsletters | HUD USER approximately 2 out of every 10 or 5 million Americans live in a condominium setting.  This style of home ownership has been on the rise for the last few years due to the high cost of purchasing a single dwelling house, the scarcity of such units, and the expenses associated with single dwelling ownership.There has also been a paradigm shift due to individuals remaining single for a longer period of time, baby boomers wanting to downsize, a desire to have more leisure time, and concern for maintenance and upkeep required due to single dwelling ownership. Another factor involved revolves around “best use” philosophy. Many more dwelling units can be constructed on a plot of land where less property is required for lawns or other ground features.

Condo vs. single dwelling ownership

In owning a condo, the owner has a different title of ownership from a single dwelling or a townhouse owner. The single dwelling and township owners have legal title to structures and land beneath and associated with land, whereas the condo owner has ownership only to the airspace between the walls of the building and interior of the condo while holding ownership of common land with the other condo owners. There is no legal title to any of the land upon which the condominium is built. They do share, however, in upkeep of the buildings, pools, streets, lawn, trees, and shrubbery through a homeowner association (HOA) funded by a monthly fee and governed by the bylaws of the homeowner association.

Condo Home Ownership Bylaws and Insurance Requirements

Each of the condo owners pledges to abide by the bylaws of the homeowner association and has a voting right in choosing who will be on the homeowners board of directors. This board of directors is elected to make all the decisions regarding the activities of the HOA and they are bound by the language of the contract. They must make decisions with at least a majority vote to make decisions binding upon the HOA so no one director can make a binding contract by himself/herself.

The HOA carries a casualty insurance policy which covers the physical structures against physical damage from insurable perils, i.e. fire, windstorm, vandalism, weight of ice and snow, collapse of building, etc. This policy provides coverage from halfway inside the structure’s walls to the exterior walls, roof, sidewalks, pools, other common structures, i.e. gates, statuary, benches, shrubbery, etc.

It also carries a liability policy protecting the association against any legal action being taken against the association. In conjunction with those two policies, it’s wise to have the association pay for a liability policy protecting the board of directors against suit being brought against them even though each individual director may have some coverage coming through his/her personal homeowner policy which covers for volunteer work so long as they are not receiving remuneration for such service i.e. judge of a beauty pageant, 4-H volunteer leader, Boy Scout/ Girl Scout volunteer, etc.

Individual Condo Ownership Insurance Requirements

Just like a single dwelling owner, the condo owner still has insurance requirements for individual exposures. They still need to carry a homeowner casualty policy which gives them protection for physical loss to interior walls and betterment (bookshelves, built-in cabinetry, appliances, etc.), personal belongings, and additional living expenses. This policy should also include personal liability coverages because they still have exposures not covered by the HOA insurance policy. One would do well to be very familiar with coverages associated with the HOA policy.

Case Study

A condo owner living on the third floor of a condo unit had left his home to go to Arizona to escape the frigid cold of North Idaho. He thought he had left the baseboard heaters on to protect his pipes against freezing. Unfortunately, the wind came up, dramatically dropping the temperature to an unseasonably low degree. The pipes under his sink burst causing extensive water damage to his unit and to the two unoccupied units below him.

The damage wasn’t discovered until several weeks later when the owners of the bottom unit came home. When they walked in, water came flooding out their door. Much to their chagrin, extensive damage had been caused to their home. The carpet was completely saturated with water and covered with drywall which had fallen from the ceiling due to the weight of the water, causing the ceiling to collapse. A terrible stench was in the air emanating from furniture which was also soaked beyond repair, and mold had already started to grow.

The owner called his insurance agent who immediately contacted the claims adjuster who upon reading the claim report determined this would have been a covered claim under the owner’s own personal casualty policy, so he began to process the claim.

Under normal claim procedures the party causing the damage would have their own insurance company take the lead in investigating and handling the claim; but because the cause of the damage could not immediately be determined, and the owner of the condo where the damage originated was unavailable, it was reasonable for the injured party to have their insurance company initiate the claim.

Since the owners could not stay in the unit, arrangements were made under the additional living expenses provision of the insurance policy for cost of hotel accomodations and eating expenses to be picked up by the insurance company. Providing receipts was the only requirement of the claimant.

While this claimant was having claim handled, the claimant in the middle unit also had his losses handled by his insurance company.

Once fault was determined, all the discovery costs and incurred expenses were paid back to the insurance companies who had initiated claim procedures. In this case, over $300,000 was reimbursed to the insurance companies involved.

The party who was found to be legally obligated to pay for damages was able to cover the expenses from the liability policy in force. The funds came from the property damage section of the liability policy which fortunately had a large enough payout benefit to cover all the expenses. If it hadn’t, he would have been liable for an amount not paid for by the insurance company.

His own damages were covered from the insurance peril of damage caused by breaking or bursting of water pipes. The only expense incurred was the deductible and the cost of a new water pipe since the policy only covered damage caused by the pipe bursting and not the pipe itself.

Homeowner Association Liability Exposure

Even though the two damaged unit owners were completely reimbursed for their losses, they proceeded to sue the homeowner association and the board of directors under the guise that they had been negligent in not having kept the damage from occurring.

The judge ruled this to be a frivolous lawsuit and dismissed the case. Unfortunately, the homeowner association and board of directors still had the legal fees to absorb.

Summing It Up

It is apparent the insurance needs of a condominium owner and a single dwelling owner are the same. The policies are identical except for the provision covering a building which is replaced with a provision to pay for the interior structure improvements for the condominium owner.

It is a good thing to visit with your insurance agent to make sure sufficient coverage is provided for those interior improvements and sufficient coverage is provided under the property damage coverage coming from the liability section of the insurance policy!


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