THE RELATIONSHIP BETWEEN CONDOMINIUM ASSOCIATION AND HOMEOWNER INSURANCE - WHO COVERS WHAT?

One of the more confusing issues confronting condominium associations is the issue of who insures what. It used to be easier. In earlier days, the condominium association's policy would cover whatever the association owned and was responsible for. Thus, one merely reviewed the association's Master Deed to determine, for example, who was responsible for the sheetrock walls and ceiling. If it was the association, then its property insurance policy would respond to the claim. Anything not covered by the association's policy would be addressed through the homeowner's policy, typically Form HO6.

Recent enhancements to condominium association coverages, as well as changes brought about by ice damming claims, however, have changed the insurance landscape to some extent. Many policies still adhere to the simple proposition that the association policy covers whatever the association owns. It should be noted however, that the association policy generally carries a deductible of at least $1,000 per occurrence, and thus smaller claims for interior unit damage, even if covered by the association policy (e.g. sheetrock damage), may not exceed the deductible, and therefore may not justify a claim.

Other association policies extend coverage within units, beyond the definition of association ownership. These extensions generally cover "fixtures, improvements, alteration and appliances" within units, regardless of ownership. This definition is broad enough to cover the floor and wall coverings, kitchen cabinets and appliances and bathroom vanity. Other policies offering these extended coverages only do so for these items as installed by the developer, or only to developer grade. In the first instance, once an owner replaces the developer-installed carpet, the extension would have no further effect. In the second case (developer grade), replacements of the original item would continue to have coverage, but only to the level installed originally by the developer, without upgrades. These nuances make claims adjustment a rather tricky process.

The ice damming claims of this past winter, and of 1994 have caused another change in the marketplace. Most condominium associations insurers have now amended their policies to make ice damming claims subject to a per unit deductible, rather than per occurrence. Take the case of a policy with a $1,000 deductible, where 10 units are damaged through ice damming, as a result of one snowstorm. In the past, the 10 units would collectively share the $1,000 deductible. Now, the deductible applies per unit.

There is no right or wrong way for the association to write its coverages. The extended coverages offer more to unit owners, but come with a cost. The extended coverages also involve the association in adjusting claims that it otherwise would be moved from. It is important, however, that the association Board, and its management company, understand the scope of the association coverages, so that they may properly advise the owners of what to cover under their HO6 policies. Even where the association covers improvements, alterations, fixtures and appliances within units, it is our advice that the homeowner continue to carry these coverages on their HO6 policy, although at a reduced limit. This is important to address the typical difference in deductible levels. As mentioned previously, the typical association policy has a deductible of $1,000, or more. The typical HO6 policy, on the other hand, has a $250 deductible. By continuing to carry their own coverage for these times, the homeowner can look to their carrier for the difference between the association deductible and their own.