Condo Homeowners – What Makes These a Tough Exposure to Insure Properly

There are many types of attached homes: row houses, condos, townhomes, row houses, row homes, and row houses. Although they may be called the same thing, there are many different types of exposures. They can also have very different insurance requirements. These risks can be difficult to insure correctly for six reasons:

Insuring space or owning land? Insuring living space is a risk that the insured must take out an HO-6 form. If the insured also owns the land and there is a firewall between their property and that of the neighbor(s), this should be written on an HO-3 form. In either case, it is important to insure them with adequate dwelling coverage (CovA).

– Does the Homeowners Association exist? It is important that an agent review the Covenants, Conditions & Restrictions of the association as well as the master association policy if there is a HO Association. These documents will show you the responsibilities of the insured to insure. This is particularly important for clients who have lived in the condo for a while. Over the years, the master policies that insure buildings and common areas have evolved significantly. To make insurance more affordable, associations have moved to higher deductibles and reduced coverage. Each unit owner should ensure that they have adequate coverage and fill in any gaps with their policy. If you are able to talk with your client before purchasing, the other concern is the solvency and financial health of the association. Insolvency has increased in association due to the economic downturn. The problem has been caused by owners not paying their dues, mismanaged associations, and buildings that need maintenance. To see how much the deal is, your client should see audited financial statements before signing on the dotted.

What amount of dwelling coverage do you need? I have seen confusion about how much coverage is necessary. Clients are often required to insure the “studs”. Remember the CC&R discussion? All drywall, wall coverings, including the $200 per roll grasscloth wallpaper, cabinets, plumbing fixtures and floor covering, must be covered by dwelling coverage. The quality of the surfaces used will determine the amount per square foot. This coverage does not fit all.

Two Loss Assessments: A Tale of Two. This homeowner could face two types of loss assessment. The first is usually insurable. The insured may be responsible for paying his portion of the master policy deductible of the association if there is a covered loss (e.g. fire damage to buildings). This information should be included in the CC&R. A “maintenance type loss assessment” is another type of assessment that can be more difficult to obtain insurance. Let’s suppose that it is time to replace all buildings in the association’s roofs. The HO association may not have enough money to cover this expense so the unit owners can be assessed for the difference. This type of loss assessment is not available to all carriers so make sure you inform your client.

There are some exposures that are difficult to insure. These include Earthquake Loss Assessment (EQSL) and Earthquake Sprinkler Leakage. These coverages can be hard to get for individual owners. Are you offering them if they are available?

More Liability. It happens. Your client may leave the water running in the tub for too long, causing water to overflow and seep through the walls and into the units below. This can increase your liability exposure. This is a risk you won’t have if your home is a separate dwelling. Make sure you give your client sufficient liability limits.

Because of so many variables, I believe the Condo owner is one the most difficult personal exposures to insure. Due to the low premium, these policies are not often given the proper care. I hope you will think about how you can offer the best coverage to your clients.