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Condominiums occupy a unique space in the residential and insurance ecosystems. Like rental homes or apartment complexes, condominiums generally include shared spaces that are overseen by a homeowners’ association (HOA).
HOAs are responsible for insuring the communal areas of a complex and for some building infrastructure maintenance.
Like other homeowners, however, condominium unit owners have the right and option to modify and upgrade most aspects of their units. This includes surfaces, such as floors and countertops, and fixtures. Condominium unit owners are also responsible for some of the key maintenance and regular upkeep of their units.
This combination of freedoms and responsibilities leads to a complicated insurance situation. Different components or aspects of a condominium unit are ordinarily covered by different insurance policies. To piece together a full understanding of what is and is not covered and by whom, condominium unit owners need to look several places. The best place to start is with the master insurance policies determined by the complex.
Condominium complexes universally carry master insurance policies, which are similar to the policies that apartment building owners or landlords hold. Complex master policies are usually paid for using condominium unit owners’ homeowners’ association fees. Master policies provide coverage for damage to shared or communal spaces of the complex and liability coverage for injuries sustained in those spaces. This may include complex grounds, fitness rooms, pools or other recreation areas, hallways and stairways or elevators.
Master policies also typically cover some or all of the structural aspects of the exteriors of complex buildings, such as roofs. In this respect, complex master policies are roughly equivalent to homeowners’ insurance or landlords’ insurance. Coverage applies to most standard weather damage, fire damage or theft but does not generally extend to catastrophes or floods. Unlike landlords’ insurance, condominium complex master policies may not cover functional damage to pipes, wiring or other utilities located within the walls of a unit owner’s condominium.
Master policies can vary widely, so it is never safe for unit owners to make assumptions about what is or is not covered by their HOA’s policy. Condominium unit owners have the right to review their complexes’ master policies before or during their own search for personal insurance. They also have the right to review their HOA’s policy or policies with qualified insurance professionals who can assist them in interpreting the documents and determining their private coverage needs.
It is important for unit owners to be aware that complex master policies, like all insurance policies, are subject to limits, caps and maximum payouts. In the event of catastrophic damage to the complex, it is possible that even the maximum payout from the complex’s master policy will be insufficient to fully repair the damage or restore the building to its previous standard. If this happens, unit owners may be forced to pay the difference themselves from either their own insurance policies or personal funds.
Unlike renters, condominium unit owners are typically accountable for the maintenance or day-to-day care of some functional elements of their units. They are also responsible for insuring those elements against disaster or damage. Under this arrangement, unit owners can expect to need private insurance protecting against damage to the exterior frame of their spaces (e.g., walls, ceiling, floor), fixtures within their spaces (e.g., bathroom facilities) and any spaces directly attached to their units such as storage rooms or patios. As an example, if a storm were to cause massive damage to a unit, the complex’s master policy might pay for the restoration of the unit’s exterior walls but the unit owner’s private insurance would be required to cover ruined bathroom fixtures, kitchen components or flooring.
As is the case for homeowners’ insurance and renters’ insurance, both condominium complex master policies and standard condominium unit owner insurance routinely exclude certain costs and events from coverage. These include, but are not limited to:
Like homeowners, condominium unit owners must assess the risks associated with their geographic locations, building construction, personal assets and other factors to determine whether they need to purchase additional or supplemental insurance riders to protect their homes and possessions. Unit owners in condominium complexes located in areas with a higher than average risk of floods, hurricanes or other non-covered emergencies may be required to purchase special supplemental insurance by their HOAs.
If a complex’s homeowners’ association decides that an individual condominium unit owner directly or intentionally caused damage to a communal space, it may refuse to submit a claim for the damages to its insurer and require the unit owner to cover those costs themselves. The same may be true in cases where a unit owner’s actions are the direct cause of injury to another complex member, in which case all costs associated with the injury liability will fall to the unit owner. Condominium unit owners may purchase private loss-assessment coverage to insure themselves against such situations.
A complex’s insurance may also elect to purchase insurance that covers units only as they are in their standard or most basic configurations. Changes and upgrades that individual unit owners make will not necessarily be covered. Unit owners will need to secure additional private insurance to make up the difference.
Deductibles can quickly become complicated when unit owners are dealing with complex master policy claims. Like other insurance policies, the complex’s policy will have a deductible that must be paid by individual unit owners before insurance funds become available. If only one unit is damaged, the whole deductible may apply. If multiple units are damaged, the deductible may be spread across all affected units.
For example, an adverse weather event might impact 100 of a complex’s 300 units. If the complex has a deductible of $6,000, each affected unit owner would be required to pay $600 before coverage kicked in. If all 300 units were to be impacted, each unit owner might only be required to pay $200 before receiving insurance payouts. To account for and protect against this variability, unit owners may wish to purchase additional private coverage or to set a reasonable sum of money aside in an emergency fund.