Condominium Coverage Concerns
Presented by:
Judy Durst, Director of Education, NHAIA
Condominium Coverage Concerns
Introduction
Condominiums have unique exposures that
you won’t find in your standard
homeowners or commercial property risks.
This course will review condominiums in
depth from a personal lines as well as
commercial lines standpoint.
Condominium Coverage Concerns
Definitions
Condominium Coverage Concerns
What is a condominium or “condo”?
It is a collection of individual home units or
non-residential (like an office) units with
common area available for the unit owners
to use.
Condominium Coverage Concerns
What are the advantages to owning a
condo?
•Affordability – normally lower price than
traditional home; can build equity versus
renting; limited outside maintenance
•Stability – stronger sense of community;
not as transient as an apartment; others
are owners too & may take more
responsibility
Condominium Coverage Concerns
Disadvantages of condos
•Ongoing costs – maintenance fees; repair
costs
•Restrictions – may not be able to do the
things they want to do in or around their
unit; renting their unit may be a problem;
•Valuation – condos don’t rise in value at
the same rate as a traditional home
usually does.
Condominium Coverage Concerns
How is a unit defined? You would look in
the condo documents (by-laws and/or
agreements) to find the definition. The
definition will usually be one of three
different types. What are the different
types?
Condominium Coverage Concerns
All inclusive or “all in” condos
The condo association’s master policy
covers all real property in a residential
condo structure, including fixtures in
individual units and any structural
improvements, betterments, or
additions that the individual unit owner
made.
Condominium Coverage Concerns
“All in” condos provides coverage to
replace a unit to the condition it was in at
the time of the loss. The unit owner is
only responsible for covering his/her
personal property.
Condominium Coverage Concerns
Single entity condos
Very similar to the “all in” EXCEPT it does
not include any structural improvements,
betterments, or additions that the
individual unit owner has made.
Condominium Coverage Concerns
In the single entity condo, the unit
owner not only has to cover their
personal property but also any
improvements and betterments that
they have made to the condo. The
association will not include those items
at the time of a loss.
Condominium Coverage Concerns
Bare walls condos
With “bare walls”, the condo association
insures only the bare structure of the
individual condo building; the structure,
fixtures, & furnishings of collectively owned
areas; and collectively owned personal
property of the association.
Condominium Coverage Concerns
Under the “bare walls” concept,
individual unit owners are responsible for
insuring building property they own and
use exclusively, such as sinks, cabinets,
appliances, flooring along with any
improvements or betterments they have
made. They would include the value
under their HO-6 building coverage.
Condominium Coverage Concerns
So the first thing you need to do is
determine the type of condominium you
are working with. This is important
whether you are in personal lines or
commercial lines.
Condominium Coverage Concerns
Check those state laws!
Depending on the state that the condo is
located in there may be state laws that
supersede the by-laws and agreement.
This could have a big effect on the
determination of values for each – condo
assoc and unit owner.
Condominium Coverage Concerns
Let’s begin first by concentrating on
Personal Lines.
Condominium Coverage Concerns
Personal Lines Exposures
•Type of condo – Is insured responsible
for building items? Value?
•Unit owner’s personal property.
Value? Is the unit rented out?
•Loss Assessment possibility?
•Responsibility for Master policy
deductible?
Condominium Coverage Concerns
Personal lines exposures continued…
•Do they have a mortgage? What are the
requirements for closing?
•Perils – named versus open
•What about sewer back up, earthquake,
flood exposures?
•Liability exposures
•Limitations on the HO-6 – jewelry etc.
Condominium Coverage Concerns
Coverages to consider with your client
•HO 6 with Coverage A & C
•Endorsements – sewer back up,
earthquake, additional loss assessment,
floater, rented to others,
•Flood
•Floater (if not added by endorsement to
HO-6
Condominium Coverage Concerns
Common problems with insuring personal
lines condos
The mortgagee wants to be added to the
master policy of the condo association.
Condominium Coverage Concerns
This is a common problem. First of all,
the condo unit owner is borrowing money
to buy a box of air! Unless the unit
owner is responsible for some of the
building items, the mortgagee has no
rights to the unit owners contents or to
the master policy. The association didn’t
borrow the money.
Condominium Coverage Concerns
The only way to fix this is to issue an
evidence of property and don’t indicate
that they are a mortgagee. The evidence
would come from the Master policy not
the HO-6. Mortgagee wants to be added
as an additional insured to the Master
policy? They can’t because they don’t
have an insurable interest!
Condominium Coverage Concerns
Let’s give you a scenario – What if the
condo Master policy included 250 units
and every one of the mortgagees is listed
on the Master and a loss happens. The
carrier would need to issue a draft with
the condo association and all 250
mortgagees. YIKES!
Condominium Coverage Concerns
Another problem… The mortgagee wants
the binder (issue a certificate of property
insurance instead) to show “walls in”
coverage.
Condominium Coverage Concerns
Problem is that the policy doesn’t use that
language. The master policy will respond to
pay losses per the by-laws. Although Fannie
Mae uses that language, it would be putting
the agent in an E & O situation to include it
on the certificate of property insurance
since the policy does not respond to that
language.
Condominium Coverage Concerns
If the unit owner is responsible for interior
walls and such and there is Coverage A on
the HO-6, you can show that on a separate
certificate of insurance that you would
issue as the unit owners insurance agent.
Condominium Coverage Concerns
Another problem… determining limits for
Coverage A and for Loss Assessment.
With the Coverage A limit, you need the
unit owner to determine how much it
would cost to replace the unit items they
are responsible for. Remember that the
HO-6 only gives $1000 Coverage A without
you indicating more.
Condominium Coverage Concerns
Here are some of the typical items they
might be responsible for:
•Flooring (carpeting, hardwood floors)
•Wall coverings
•Lighting fixtures
•Plumbing fixtures
•Kitchen cabinets & built in appliances
•Unit owner installed improvements
Condominium Coverage Concerns
Limit for Loss Assessment is different. What
if the Master policy doesn’t have an
adequate amount of coverage? Would your
insured even know that? What if a loss
isn’t covered by the Master policy? Is
$1000 enough? I would have to say NO!
Think about selling at least $50,000 in loss
assessment or more if you can get it.
Condominium Coverage Concerns
What about the age-old problem with the
Master policy deductible and the
limitations under the HO-6?
The new 2011 HO form allows for more
than just the $1,000 of loss assessment
coverage for the association deductible.
Condominium Coverage Concerns
What if your carrier isn’t using the 2011
HO forms? Check with the carrier to see if
they have their own endorsement to fix
this. Some carriers like Cincinnati, Chubb,
Harleysville and Safeco do. Check it out!
Condominium Coverage Concerns
Don’t forget to change the perils to open
versus named perils.
Don’t forget to increase the liability limit
as high as you can on the HO-6.
Don’t forget that very important
umbrella!
Condominium Coverage Concerns
Personal Lines questions?
Condominium Coverage Concerns
Now let’s take a look at the
condominium association and what you
need to think about with regards to
exposure identification and coverages.
Condominium Coverage Concerns
I hate to sound like a broken record but
you really need to see those by-laws.
How are you going to be able to help the
insured determine the value of the
buildings if you don’t know what is a
building by their definition!
Condominium Coverage Concerns
Setting the value of the building is only
part of it. What about the following
other exposures for the association?
•Perils? Building ordinances? Unit owner
improvements?
•Crime exposures – employee dishonesty!
•Inland Marine – accounts receivable,
computers, valuable papers?
Condominium Coverage Concerns
•Premises liability – responsible for
streets? Snow & ice removal? Parking
lots? Slip & fall exposures? Swimming
pools? Exercise facilities? Playgrounds?
•Directors & Officers liability exposure –
volunteer board may be sued because of
actions they take in assessments &
enforcing the by-laws.
Condominium Coverage Concerns
•Any auto exposures? Non-owned? Hired?
•Workers Compensation exposures? Any
volunteers who receive something for their
work? Reduction in fees or other?
•Other things like equipment breakdown,
forgery, computer fraud, cyber liability,
employment related practices….
Condominium Coverage Concerns
Let’s start with the commercial package…
Commercial Property – Always use the
Condo Association Coverage form not the
Building & Personal Property form. Why?
The definition of the building!
Condominium Coverage Concerns
The definition of a building in the BPP is
spelled out. Condos aren’t that simple.
The building definition is found in the bylaws.
Don’t forget the personal property owned
by the association like office and
recreational items!
Condominium Coverage Concerns
Don’t forget to review what property isn’t
covered like:
•Money – need crime coverage
•Bridges, roads, walks, patios
•Costs to excavate, grade, fill or backfill
•Foundations below basement
•Land, lawns
•Wharves, docks
And there are more… check the form
Condominium Coverage Concerns
Don’ forget to review that vacancy
condition and other conditions with the
insured.
Remember coinsurance (can you say
agreed value?) and that the valuation is
automatically ACV unless you indicate you
want RC on the dec.!
Condominium Coverage Concerns
Vacancy for the association applies to each
entire building. A building is vacant unless
at least 31% of the total square fee area
is:
•Rented to conduct customary operations
•Used by the building owner to conduct
customary operations
Condominium Coverage Concerns
Vacant is a definite YIKES! Here are the
penalties (these could apply to one
building and not another):
If building vacant for more than 60
consecutive days before the loss, there is
no coverage for vandalism, glass
breakage, water damage, theft or
attempted theft and sprinkler leakage (if
not protected from freezing)
Condominium Coverage Concerns
Vacancy penalties continued:
Any other loss will be reduced by 15% if
caused by any other covered cause of
loss.
Condominium Coverage Concerns
With any commercial risk, you should be
looking at the debris removal coverage.
Is it enough… usually $25,000 over limit of
liability…. Have you tried to get rid of
construction or loss debris lately? Very
expensive. Talk to the insured about
additional Debris removal coverage – can
be done by endorsement.
Condominium Coverage Concerns
Please don’t forget Earthquake (can be
added by endorsement to the Commercial
Property) and Flood!
Remember that if it is a residential condo
association you should use the RCBAP
product not the General Property form.
Condominium Coverage Concerns
RCBAP
Flood Form
General Property
Flood Form
Replacement cost
ACV
$250,000 per unit in a
building
$500,000 maximum per
building
80% coinsurance
No coinsurance
Condominium Coverage Concerns
Crime coverages you should recommend
(at a minimum):
•Employee theft
•Forgery and alteration
•Money & securities – inside & out
•Computer fraud
Condominium Coverage Concerns
Inland Marine coverages to recommend:
•Valuable papers
•Any contractors equipment
•Coverage for any bridges
•TV or cell towers
Remember that inland marine is used for
exposures that move or have something
to do with transportation or
communications
Condominium Coverage Concerns
General liability coverage should be at
least the ISO CGL or better and at the
maximum limit available under that
program. Once again, you need to
review the by-laws to see who will be
responsible for snow removal. This could
pose a very big exposure to your insured
if the unit owner is responsible and
doesn’t take care of it.
Condominium Coverage Concerns
Directors and Officers coverage is a very
misunderstood coverage because it really
doesn’t cover the association but the
directors or officers of the association. If
you are volunteering you’ll want to make
sure this is provided by the association to
protect yourself! Once again… buy and
offer the maximum that you can!
Condominium Coverage Concerns
Automobile coverage
If the condo associations owns a vehicle,
make sure you ask for Symbol 1 on the
auto liability and Symbol 2, 8 on the
physical damage.
If the association doesn’t own a vehicle
that doesn’t mean they have no auto
exposure. Does anyone ever use their
vehicle on association business?
Condominium Coverage Concerns
At a minimum, you should be including
hired & non-owned auto coverage or
Symbols 8, 9. Does the association ask
everyone who could be driving for them
to give them a certificate of insurance
proving they have auto insurance?
Probably not!
Condominium Coverage Concerns
Workers’ Compensation
Even if the association doesn’t have any
employees, I would recommend an “if
any” policy in the event someone is
designated by the labor department as an
employee and the association is
responsible to pay for WC benefits.
Condominium Coverage Concerns
Okay, when can something like that
happen?
•Volunteer that is “paid” with something
of value beyond just gas money.
•When you use a contractor to do work
and they have employees and no WC
coverage on them.
•Association hires someone and doesn’t
tell you they now have this exposure.
Condominium Coverage Concerns
Umbrellas – Can’t stress that you need to
recommend an umbrella to the
association. At what limit? As much as
you can get from your markets. What is
their exposure? The sky is the limit!
Wow!
Condominium Coverage Concerns
What about Cyber Liability? Does the
association have personally identifiable
information in their computer about unit
owners? Probably. Could someone hack
into it and leave the association with the
responsibility to tell the affected
individuals and pay for credit monitoring?
Yes!
Condominium Coverage Concerns
Equipment breakdown – heating system,
electrical equipment? How do you value?
Value of the building and personal
property within.
Condominium Coverage Concerns
Unit owners will purchase HO-6 if it is
a residential condo or a BOP/CPP if a
commercial condo. Most office condos
will include coverage under a BOP. Just
don’t forget about building items the
insured unit owner may be responsible
for!
Condominium Coverage Concerns
Commercial Lines questions?
Condominium Coverage Concerns
E & O Exposures from Condos
There are several areas that could cause
an increased E&O exposure to your
agency. Let’s review a couple.
Condominium Coverage Concerns
Don’t act like your insured’s lawyer.
You are not reviewing the condo
documents as an attorney would. You
are looking at possible insurance
exposures to your insured. Remember
to tell your insured to have their
lawyer review anything that they plan
to sign before they sign it.
Condominium Coverage Concerns
Valuation problems can cause you
heartburn. Remember, it is up to the
insured to ultimately determine the
amount of coverage they need. They
need to contact a contractor to
determine what the replacement value is
for the building items they are
responsible for.
Condominium Coverage Concerns
Issuing binders with the mortgagee listed.
Just issue a certificate of property
insurance and list the mortgagee as the
certificate holder only. Remember, you
can’t add the mortgagee to the
association policy and don’t make it look
like you can!
Condominium Coverage Concerns
Not recommending flood can be a big
exposure to you. Will they buy it? You
don’t know until you offer it. Remember
that everyone has an exposure to flood.
The only question you need to ask to
determine that is “Does it rain where you
are located?”. Don’t forget the unit
owner too! Most flood losses involve
more personal property damages.
Condominium Coverage Concerns
Not using a checklist… Remember that
you can’t remember everything. Using a
good checklist when reviewing the needs
of every insured will be a terrific defense
in the event you are sued.
Documentation and invariable
procedures/practices is the best defense!
Condominium Coverage Concerns
Making coverage choices for your insured.
Just don’t do it! Recommend everything
that you can and let the insured decide
what they want to purchase. Then
document to them what they chose to buy
and what they declined… in writing!
Condominium Coverage Concerns
Forgetting about the limitations on the
policy for building code updates, debris
removal and others. Remember that most
condos were built a while ago (Condos
started in the 1980s) and even if they
weren’t, building codes change constantly!
Condominium Coverage Concerns
Not using disclaimers.
Make sure that your proposal includes
disclaimers so the prospective insured
doesn’t make assumptions about
coverage or if coverage is being
provided.
Condominium Coverage Concerns
The moral of the story…
•Use checklists
•Don’t make choices for the insured
•Recommend everything at the highest
limit you have available for them
•Use disclaimers
•Don’t practice law without a license!
Condominium Coverage Concerns
Any more questions?
Condominium Coverage Concerns
Thank you for using NHAIA for your
insurance education needs. This class
has been approved for three continuing
education credit hours. Please make
sure that you have signed the roster so I
can add those credits to your transcript.
Condominium Coverage Concerns