Condominium Association Master Policies
Condominium owners’ associations have unique insurance needs. Each unit owner owns a portion of the building in which he or she lives, while common areas and certain portions of the building are shared.
Condominiums, like all other types of homes, face property perils like fire, wind, hail, theft and vandalism. Owners also face numerous liability risks that are associated with managing swimming pools, spas, saunas, playground equipment, parking lots and more.
The Role of the Condo Association
Because of the shared ownership arrangement, condo unit owners must form a condominium owners’ association, which oversees the management of the building. Whether your condo complex has five units or 500, the association is responsible for making decisions for the building(s), managing expenses, making repairs and making sure that buildings are properly insured in case of a loss.
All condominium owners’ associations establish rules, or bylaws, that govern the complex. The bylaws outline the requirements for condo association insurance, including specific requirements for the coverage (deductibles, coverage limits, types of coverage) that the association must purchase.
The condo association insurance covers the unit owners’ shared risks. The building(s) and common elements of a complex are covered with a single policy called an association master policy. The association bylaws and the association master policy specify which parts of the complex the association insures and which parts the individual unit owners must insure on their own.
Property Coverage for Condo Associations
The association master policy typically provides coverage for common areas of a condo complex, including hallways, elevators, sidewalks, roofs and basements and for building equipment, such as boilers and machinery. Unit owners are usually responsible for insuring everything within the four walls of their individual units.
Condo association insurance provides one of three types of building coverage in the association master policy:
Bare walls coverage: This insures basic building elements, such as the walls, roof, floors and elevators. Unit owners must obtain coverage for items such as countertops, bathroom and kitchen fixtures, flooring, appliances, carpeting, cabinets, wall coverings, and other items in the unit. Bare walls coverage also may require unit owners to insure the interior walls of their units.
Single entity coverage: This insures the basic elements of a building, as well as standard finishes inside each unit, except for the unit owner’s personal property. Single entity coverage does not cover improvements made at a unit owner’s expense. If, for example, a unit owner updates countertops or installs new carpet or lighting fixtures, the new and more expensive finishes are not covered by the association master policy.
Modified single entity/all-in coverage: This covers fixtures, installations or additions/improvements within the interior surfaces of the perimeter walls, floors and ceilings of individual units. The unit owner’s coverage needs are limited because the association master policy provides comprehensive coverage for standard or upgraded permanent fixtures and finishes and for additions and improvements. Unit owners must purchase coverage for their personal property.
The association bylaws may further specify what is and is not covered by the association master policy and what types of coverage unit owners must purchase.
Protection From Financially Devastating Lawsuits
Condo association insurance must also address the potential for lawsuits. The association can be sued after a simple slip or fall on the grounds. If the complex has a pool, hot tub, fitness center or other shared spaces, the possibility for bodily injury or property damage occurring on the premises is even greater.
General liability insurance provides broad coverage for the kinds of accidents that can occur at your complex. You need coverage for the delivery person who trips on a crack in the sidewalk and for the visiting grandchild who is injured in the pool. The association can be sued for damages if the complex fails to provide adequate security and a unit owner or guest is attacked or burglarized.
Most condo association insurance policies provide between $2 million and $5 million in general liability coverage to protect the association from lawsuits in these types of situations. In addition, individual unit owners typically purchase personal liability coverage in order to protect themselves from lawsuits related to incidents that happen inside their units.
Other Condo Association Insurance Options
A comprehensive condo owners’ association insurance package might include the following additional types of coverage:
Directors’ and officers’ liability insurance: This protects directors and officers of the condo association if they are sued as a result of their performance on the board. Board members volunteer their time to help make important decisions for the association. This coverage protects them from being held personally liable for decisions they make in that role.
Crime and fidelity coverage: This provides coverage for the theft of association funds or for other financial misconduct by an association board member.
Equipment breakdown/boiler and machinery coverage: This covers damage and loss of income caused by a breakdown of covered equipment, such as steam boilers or other mechanical systems.
Sewer backup coverage: Most association master policies exclude coverage for damage caused by a sewer backup. Sewer backup coverage provides reimbursement for damage related to a sewer or drain backup, up to a specified limit.
Workers’ compensation insurance: This protects employees who work on the premises from the costs of work-related illnesses or injuries.
Hurricane insurance or flood insurance: Damage caused by hurricanes or floods is typically excluded from the association master policy. If your condo complex is in an area that is susceptible to these events, you can purchase specified hurricane or flood insurance.
What Unit Owners Should Know About Insurance
Condominium unit owners face the same risks as all homeowners. They can lose belongings to fire or theft, and they can be sued for causing injury or property damage to others on their property.
On the other hand, condominium owners have different insurance needs from renters or typical homeowners. Condo owners need only to insure the portion of the building in which they live and their personal property. Their specific insurance requirements are outlined in the condo association’s bylaws and association master policy.
Condo unit owners should be aware of what they “own” when they buy their units. An independent insurance agent can help them determine what they need insurance for and how much to buy. They need coverage for their personal belongings as well as certain structural elements of the building as laid out in the condo bylaws. An experienced Trusted Choice® agent can help condo associations and unit owners make sure that there are no gaps in coverage between the association master policy and the condominium insurance purchased by the unit owners.
Condo unit owners should have their association bylaws in hand when meeting with their insurance agent to ensure that they purchase the coverage they need.