Residential Condominiums

Condominium living is vastly different than traditional home ownership. In many ways, condominium living offers advantages such as greater affordability, less maintenance, and access to additional amenities that traditional home ownership may not provide.

On the other hand, condominium ownership involves "dual" ownership, association rules & regulations, and responsibilities that need to be considered.

WHAT YOU SHOULD KNOW ABOUT CONDOMINIUM INSURANCE:

The purchase of a condominium presents the buyer with both traditional loss exposures as well as exposures unique to this type of property ownership. This applies to units purchased for occupancy and units purchased for investment and rental income. Many buyers falsely assume that the Condominium Association purchases all the insurance coverage necessary to protect the individual unit owners. We will briefly describe the coverage purchased by the association and what it does not cover. A condo unit owner’s policy (known in the insurance industry as a HO-6) purchased by you as a unit owner is designed to provide coverage for many of the exposures to loss not addressed by the association's coverage.

The Association oversees the purchase of insurance covering the physical damage to the buildings within the complex. Coverage under this policy extends to the common elements and individual units as originally built.

You are responsible for insuring any upgrades to your unit from the original construction (e.g. appliances cabinetry, carpeting, tiling, etc.) Your HO-6 policy should include a minimal amount of Coverage A (building) to cover any upgrades from the original construction, including but not limited to any additions or alterations made to you your unit. In addition, your HO-6 should include coverage for your personal property, furniture, clothing and other personal articles. The by-laws of your particular association identify your specific responsibility and should be reviewed.

The Association policy does not provide coverage for any necessary increase in living expense incurred by you, as a resident, if your unit becomes unfit for normal use due to a covered loss such as a fire. Likewise it does not pay for your loss of rental income if your tenant moves out due to a covered loss.

Personal Liability for suits alleging bodily injury or property damage is the largest exposure you face as a condo unit owner. The Association coverage protects the Association and its unit owners from suits arising from the common areas such as halls, grounds, parking lots etc. Your condo unit owner’s policy (HO-6) provides liability coverage for bodily injury and property damage claims arising out of the use and occupancy of your unit and your involvement away from your unit (e.g. hitting someone with a golf ball).

Finally, a unit owner can be assessed for a variety of reasons. One such reason is a direct physical loss to property owned by all unit owners or a liability suit resulting in a loss that is not covered by the Association insurance. Such an assessment should be covered under loss assessment provision of the condo unit owner’s (HO-6) policy.

RECOMMENDED MINIMUM COVERAGES FOR EACH UNIT OWNER:

• Coverage A – Building: Limit equal to the full replacement cost of any upgrades, additions, alterations, etc. Minimum limit of $25,000.
• Coverage B - Personal Property: Limit equal to the full replacement cost of your personal items.
• Coverage C - Personal Liability: Minimum limit of $100,000.
• Coverage D - Loss of Use: Minimum limit of $5,000.
• Loss Assessment: Minimum limit of $10,000, but $15,000 only costs ~$5/year in additional premium.

Higher limits of protection and additional coverages may be warranted, depending on your particular needs. Please consult with your personal insurance agent to ensure adequate protection.

If you are a condominium unit owner or are thinking about purchasing a unit, please take a few minutes to read "A Maryland Consumer Guide - Understanding Condominium Living" by Maryland Attorney General, Brian Frosh.

Condominium Associations have unique insurance needs due to the “dual” ownership inherent in condominium regimes. Unit owners owns a portion of the building in which they live, while “common areas” and certain portions of the building (also known as “limited common areas”) are shared.

Associations establish rules, or bylaws, that govern the complex. The bylaws outline the requirements for the Association, including specific requirements for coverage and deductibles.

The Association master policy typically provides coverage for walls, floors, hallways, roofs, doors, elevators, sidewalks, basements building equipment, such as boilers and machinery; as well as standard finishes inside each unit but 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. Additionally, unit owners are usually responsible for insuring all of 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.

Associations can be sued for a variety of claims alleging bodily injury or property damage in the common areas or limited common areas. For example, a delivery person trips on a crack in the sidewalk, a child is injured while swimming in the community pool, the Association fails to properly maintain fire suppression equipment resulting in property damage to unit owners, etc.

The directors & officers of Associations could be sued for making poor decisions in their capacity as directors and officers of the Association. Additionally, funds of the Association are exposed to theft and financial mismanagement.

If your Association has any paid employees, you must (according to State Law) purchase Workers’ Compensation insurance.

RECOMMENDED MINIMUM COVERAGES FOR ASSOCIATIONS:

• Property insurance: Enough coverage to replace all buildings and personal property owned by the Association.
• General Liability insurance: Minimum of $1,000,000 per occurrence to protect the Association from claims resulting in Bodily Injury or Property Damage. Excess liability policies can provide additional layers of protection.
• Non-Owned Automobile Liability insurance: Minimum of $1,000,000 to protect the Association should it be brought into suit from the use of a non-owned automobile conducting business on behalf of the Association.
• Directors’ & Officers’ Liability insurance: Minimum of $1,000,000 to protect the directors and officers of the 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 & Fidelity insurance: This provides coverage for the theft of Association funds or other financial misconduct by an Association board member.
• Equipment Breakdown insurance: Covers damage and loss of income caused by a breakdown of equipment, such as steam boilers or other mechanical systems.
• Sewer Backup insurance: 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 policy limit.
• Workers’ compensation insurance: Required by State law and protect employees who work on the premises from the costs of work-related illnesses or injuries.
• Flood insurance: Most policies specifically exclude coverage for flood. Even if your buildings are not located in a flood zone, you run the risk of potential flooding from excess amounts of rain or snow melt.