Trustees of condominium associations have a daunting task in securing insurance coverage for the association’s property and liability. While a primary concern is providing coverage at a price that is affordable to the unit owners, it is imperative to gain a basic understanding of the policy types and endorsements available for associations.

What types of Condo Master Insurance coverage are available?

A condo association has the option to obtain coverage on an “all in” or “studs out” basis. All in coverage is more comprehensive and studs out is more limiting in its scope of coverage. When deciding which type of policy is best for your association, it may be helpful to review the condo bylaws to determine the exact requirements of the association.

• Studs Out Policy
A studs out policy is designed to provide coverage solely for the common areas of a condo building. The interior common areas and exterior of the building are covered and the interior of each unit is excluded. Unit owners must obtain their own coverage for the interior structure of their unit.

• All In Policy
An all in policy provides coverage for the common areas of a condo building such as the interior common areas and exterior of the building. It also provides coverage to the structural interior components of each unit at the time of purchase and their improvements.

How are claims paid when a loss occurs?

Most policies are written on a “replacement cost” basis. This requires the insurance company to pay to rebuild the damaged or destroyed property at the current replacement value. Another way to insure a building is on an “actual cash value” basis, or ACV. This coverage pays for the value of a building, less depreciation.

As a trustee of an association, it is imperative that you seek out an insurance policy that pays claims on a replacement cost basis.

Make Information Available to All

Now that you have selected the appropriate policy to serve the best interest of the unit owners, the final step is to inform everyone the scope of coverage available to them. Make it clear as to the owners what level of coverage exists for their unit and on what basis a claim will be paid. With that information, unit owners can determine what level of coverage, if any, they need to purchase individually.

Owners of condominium units receive building or structural insurance coverage from the association’s master insurance policy, but there may be many gaps of coverage. The insurance industry has responded to these gaps with the Condo Unit Owner’s Policy, or HO6. If you own a condo unit, you need an HO6 Policy.

Master Policies cover the building; condo units are covered by HO6

Historically, owners of single family homes have purchased “homeowner’s insurance” that is designed to protect against damage to the home, the personal property (contents), and the personal liability of the policyholder. In a condominium association, a “master policy” is purchased by the association that can protect unit owners and mortgagees against damage to the building and the units. Unfortunately, personal property and personal liability coverage are not included for the unit owners.

Personal Liability & Personal Property Covered in HO6

Due to this gap in coverage, insurance companies have created the condo unit owner’s policy. This policy provides a standard level of personal liability protection ($300,000 or $500,000 per occurrence) as well as a limit of personal property protection for the unit owner. Personal property is subjective to every case and limits can be as low as $15,000 and can go as high as need be for the individual owner.

Additional Coverage for Unit Structure Available

Also included in the condo unit owner’s policy is a section of coverage called “Dwelling.” This is the area of the policy that can provide the unit owner with additional coverage for the structure of the unit. While the association’s master policy may provide protection to the individual unit, an owner may want to supplement this level of coverage with additional protection on their own policy. This coverage can also be used to absorb the typically larger deductible on the association’s master policy per claim.

Inexpensive & Efficient Way to Cover Yourself

While the primary concern of any owner of real estate is the protection of the structure they own, it is important to understand the other areas of protection that are needed. Condo unit owner policies are a very effective and inexpensive way to fill the gaps of coverage a condo owner will encounter. Often, policies at the minimum level of coverage can be purchased for less than $200 per year.

Replacement Cost, Market Value, Purchase Price, what does it all mean?

When you are trying to determine the appropriate replacement cost for your condominium building, are you often confused about what number to pick? Well, if you are, you’re not alone. When buying a condominium unit, especially for the first time, you’re bombarded with a bevy of numbers representing different aspects of the sale. But from an insurance standpoint, the only number or value to be concerned with is the replacement cost of the property.

So, how do you determine replacement cost?

Let’s start off with what not to do. The insurance value of a condominium building should not be determined by the combined real estate value of the units, or the cumulative purchase price of the units. This is a common mistake that, in most markets, will artificially inflate the insurance value.

For example; suppose you have a 4 unit condo on Beacon Street, and each unit has a real estate value of $1,000,000. This does not translate to an insurance value, or replacement cost, of $4,000,000. It should not be the number you choose when determining a limit for your master insurance policy. The only thing that you, as an association, should be concerned about from a replacement cost standpoint is will you have enough money available to rebuild the property if there was a major loss.

Is it $4,000,000…$2,000,000…$1,000,000? Well, that’s the big question.

Replacement cost determination doesn’t have to be complicated.

The simplest way to determine replacement cost is to use the square footage method. It involves simply taking the square footage of the building and multiplying it by a factor of anywhere from $200 to $300 per square feet depending on the type, age & condition of the building.

In the case of our 4 unit condo building on Beacon Street, if this property was 4500 square feet, you would simply multiply 4500 by $300 per square foot to come up with a replacement cost of $1,350,000. It gives you a starting point.

A typical introductory conversation between an insurance agent and customer that revolves around how much coverage is needed on building policy will usually neglect one of its most crucial parts – Demolition & Increased Cost of Construction.  Policyholders are well versed in how much their building is worth in the real estate market, but are they aware of its replacement cost?  The answer is usually no.

Owners of older buildings will be well served by a conversation about demolition & increased cost of construction coverage, since the purpose of this coverage is to protect the policyholder from current requirements of building standards by ordinance or law.  A policy that is properly endorsed with replacement cost coverage is responsible for restoring the structure to its current condition regardless of depreciation.  If an older structure is damaged, is it possible to “replace” it to its current condition?  The answer is more than likely no.

Ordinances and laws are in a constant state of flux, and are frequently amended to improve the building standards of structures in a community.  Without the demolition & increased cost of construction endorsement on a building policy, the owner would be responsible for any needed compliance to current standards.

For instance: a building could be partially damaged by fire, and costs to repair this damage would be covered by a typical building policy.  What happens if the local authority where the building is located mandates that, due to the building’s age, a partial repair cannot occur to the structure?  It must be demolished and rebuilt in its entirety to comply with current standards.  A policy that is endorsed with demolition & increased cost of construction would provide coverage for this situation up to its limit of liability.

While this coverage part may seem to apply in rare situations, claim statistics show that this is not the case.  It is not possible for any one insurance carrier to provide coverage suited to every city or town’s requirements.  This endorsement is a necessary complement to “replacement cost” coverage and assures the policyholder that even the unknown cost of construction is covered.

Whether you just purchased your first condominium or have lived in one for some time, a personal condominium unit owner’s policy is a must.

Dollar for dollar, it may be one the best insurance products available. In addition to providing personal property protection it can be designed to include some very critical protection.

One area of concern is the addition of “Additions and Alterations” or Building coverage. Most policies include a minimum of $1,000- $5,000 coverage. Some areas of concern arise when we are setting up a new claim for an Association.  Your adjuster will ask for copies of any unit owner’s policy that are affected by the loss.

It seems that typically a unit owner will carry $5,000 to $10,000 coverage for the Additions or Alterations (Building) coverage, but in some cases we see astronomical amounts, some exceeding $100,000. It seems that there may be a disconnect with the unit owner and their insurer (or agent). It may be driven by the fact that they just spent an enormous amount of money for the unit (market value) and someone suggested that they purchase additional property coverage under their personal policy.

Here’s the problem. It is extremely expensive to add this coverage and it will only act as supplemental coverage in the event that the building Master policy property limit is inadequate.

A word to the wise. Check with the agent or company who provides the Master policy to determine as best you can that the Master policy’s coverage is representative of the cost to rebuild and  look into the deductible as many Associations have opted to increase the deductible to $5,000, $10,000 or even $25,000. A large deductible is an example where the unit owner will add this additional coverage to their policy in the event a loss is confined to their unit (water or small kitchen fire for example).

This is only one section of a policy that provides essential coverage, but it’s an area that can be confused and ultimately be very costly.

Water is a peril that is often misunderstood by policy owners.  Water backup damage can be very costly, and condo association members are often not sure who covers it.

While it is commonly accepted that flood is not a covered peril of a typical homeowner’s insurance policy, there are other types of water damage that can occur that may be excluded from coverage.  One of the most notable exclusions of insurance policies, unless properly endorsed for coverage, is the backup of sewer and drains.

Spring is typically considered the wettest season of the year and heavy rains can overflow sewer systems to the point that they can back up into your home.  Basements are the most susceptible area of the home for sewer back up.  A basement sink, toilet, or sump pump can back up with sewage and brackish water that will damage any item it comes in contact with.  The cleanup cost for this type of event can easily run into the thousands, and if it is not part of your insurance policy, you will be responsible for all expenses out of pocket.

Building policies that cover condo associations and rental properties are also subject to this exclusion.  Trustees and property owners that fail to obtain coverage for this peril run the risk of having to utilize association or personal funds to repair any damage that may occur due to the backup of sewer and drains.

Homeowner’s and building insurance policies can be endorsed for a small amount of additional premium to cover the risk of water backup.  Be sure to inquire with your insurance agent to determine if this coverage is currently provided by your existing policy and if not, what would be the cost to add it.  There will be an additional cost to provide this coverage, but the benefit may outweigh the potential loss.  As with all insurance questions, your agent is the best resource to assist you with this decision.

One year ago, my family got two new dogs and our life changed forever.

Zack and Zoe are our new Cairn Terriers. That is when I found out; there are two types of people. “Dog people”…and the others.

I am now a dog person. Most of my decisions begin and end with “what about the dogs”? Vacations are altered, dinners canceled, and where we can live is severely limited. If you have a dog or an exotic pet, you will discover quickly if your condo association will allow dogs and pets.

Check your by-laws, and then check with your insurer. You may be surprised what you find. Associations and their insurers can have restrictions on the size of the dog, and more importantly on the breed of the dog.

Many associations will cite insurance regulations, but truth be told most master policies do not have restrictions, but your unit owners insurance carrier probably does. Dog bites are covered under your liability section. This is where you will find most companies have their guidelines and a list of breeds that are not eligible.

Check with your insurer to see what breeds are on their list. If you are thinking of that cute little pit bull in the pet store window, check ahead with your insurer and your association.

According to the Insurance Information institute, in 2005 dog bites cost the industry $317.2 million. Dog bites accounted for about 15% of all liability claim dollars paid under the homeowners’ liability section.

Dogs bite more than 4.7 million people annually. Some states will make you strictly liable for your pet, and others will make you liable if you had prior knowledge that your dog might bite (known as “the one free bite principle”).

So, as much as little “Fluffy” is a big part of your world as a “ dog person”, be aware of the limitations you have with regard to your condominium insurance, and the availability of where you can live.

More… on snakes, alligators, iguanas and other exotic pets later!

Glenn Montgomery, Brownstone Insurance

Having work done in your home can be very stressful, which is why you should always make sure you are using a fully insured contractor.

1.    If an insured contractor does work and a loss occurs due to their negligence, their Liability Insurance will cover it.  If the contractor is uninsured, your insurance will respond.

2.    If an insured contractor is injured on your property his Workers’ Compensation. Insurance is responsible rather than your insurance.

3.    If the contractor damages your property while on the job, his insurance will cover it rather than having to put a claim in under your own insurance.

4.    Putting a claim in against your insurance policy can cause a penalty at renewal depending on the extent of the loss.  This will cost you more out of pocket. Using an insured contractor can easily reduce this risk.

In the world of home insurance, you might think co-op or condo owners get it easy. A condo owner usually owns the airspace in his or her home, not the actual structure of the home. A condo owner owns “shares” of the building, like a stockholder, not the individual unit in which she lives.

Do you need a condo home owners insurance policy?

So you might think they can leave worries about damage to the building association and their “master policy”, right? Not necessarily. Condo owners don’t have the same insurance needs as someone who owns four walls outright, and the building’s master policy should cover the external structure or “shell” of the home.

But unit owners also need to purchase a personal condo home owners insurance policy, which is called an HO6 policy. That’s because the building’s master policy does not protect their personal belongings. Furthermore, it may not offer liability coverage within their homes.

Make sure you’re personal property is covered

Unit owners should check what’s covered in their building’s master policy. You can do this by reading your association bylaws or property lease. The master insurance policy should cover the common areas in the building, like the roof, basement, elevator and walkways.

It is a good idea to take an inventory of everything you own. Make a list, or even better use a video camera to videotape the contents of your home. Short of this walk around with a digital camera and take pictures inside closets, cabinets, drawers, and in all rooms. Store the videotape, pictures, or inventory list “offsite”, so in the event of a total loss you won’t lose the record as well. The inventory will be necessary because your HO-6 policy must have enough coverage to replace your belongings if they are all lost.

Your condo home owners insurance will also provide liability coverage. That way, you will be covered for accidents in the spaces you own. If someone falls and injures himself in your home, for example, your policy would provide liability coverage, not the building policy.