Though not legally required, most condominium instruments provide that the association must carry hazard and liability insurance in order to protect the membership from disaster and the financial strain of litigation. The instruments may also specify the amount of the deductibles that the association’s various types of coverage will have; if not, the deductibles may be set by the board of directors.

The most common condominium insurance question I hear is what, exactly, should the association’s master casualty policy cover? There are three approaches to master casualty coverage.  The most comprehensive type covers all condominium improvements – common elements, units, and all fixtures and finishes within the units, even if upgraded by the owners.  The second type of coverage insures all condominium improvements – both common elements and the units, but the units are insured only to a certain level and will not cover upgrades made by the owner.  The third approach to master hazard coverage is to insure only the common elements. 

It’s very important to read your condominium instruments to understand not only what insurance is required but to read the definition of “unit” in the declaration to understand what portions of the building are covered if the insurance covers only common elements and does not cover units. For example, in some condominiums, a unit’s boundaries are the undecorated inner surfaces of the wallboard, ceiling, and floor. That means that even if the master insurance policy insures only common elements, it would cover rebuilding the entire structure since a unit is only the spaces within the box.  In other condominiums, however, the unit includes the wallboard, ceiling, and flooring (“studs in”).  If the unit is this inner shell or “white box” and the association’s master policy only insures the common elements, then it is critical for all unit owners to insure their units so that the building can be rebuilt fully in the event of a fire or other catastrophe.

If the association’s master policy insures the entire condominium structure, it’s important to understand whether each unit will be insured to the level of the standard unit in the condominium exclusive of purchasers’ special orders and upfits; exactly as conveyed to the owner, inclusive of unique flooring and other finishes and appliances; or fully, inclusive of any changes the owner may have installed.  Coverage for anything more than a standard unit requires careful record-keeping, particularly in a luxury building where every unit could be quite different.  The advantage to the unit owners of an association’s more comprehensive coverage is that, if disaster strikes such that more than one unit is affected – the building burns down, for example – then the association can get right to work rebuilding the entire building without concern for the insurance each unit owner may or may not have in place.  The disadvantage of this coverage is that it is more expensive and will increase assessments, which could be a disadvantage for unit sales.

The standard condominium insurance policy covering individual units is the HO-6, which will cover the condominium unit, the personal property of the owner, personal liability and medical payments, and loss of use. When obtaining this insurance, the unit owner should have his agent review the condominium’s master policy to be sure his individual coverage covers what the master policy does not cover without unnecessary overlapping.  The HO-6 can also cover the unit owner’s liability for the deductible under the master policy.  For example, if an owner is responsible for a guest’s trip and fall in the common elements, the owner’s HO-6 policy can cover his liability.

An insurance agent can help an association determine what coverages are needed to comply with any applicable provisions of the condominium instruments and state law, to satisfy any lender requirements, and to provide the level of coverage and deductibles appropriate for its budget. A careful reading and periodic review will ensure that your association is prepared when accidents occur.