association insurance coverage of homeowner units....

Hi everybody - i am on the board of directors of a 113 unit condominium association in Texas. Our governing documents (as they stand now) require that our Association not only cover the outside of our buildings, but also to cover the inside of the units (with the exception of any upgrades/betterments the homeowner may have done). We all live in single story buildings....with some buildings having 4 units and some having 5 units and of course, there are common walls between the units.

I am wondering if any of you have a similar situation...such that your association is required (by your governing documents) to cover both the inside of each unit and the outside of the buildings too. It is commonly felt by community that our Association should definitely cover the outside of the buildings; however, some have questioned whether our governing documents should be changed - such that each homeowner has insurance coverage responsibility for the inside of his or own unit.

What do you think?

oljim, in texas

Yes, we have it. The association's coverage is primary, too.

Our insurance has a fairly high deductible, so in case of damage, we may not make a claim on the association's insurance. For example, suppose there is water damage to the unit amounting to $1500, but our deductible is $2500. Just because we have insurance on the units, does not mean that we have to make any repairs on the units. The unit owner has to pay for the repairs. Suppose the water damage to the unit is $3,000. The association may make a claim for $500, but the unit owner still has to pay $2,500.

Your association could have a policy to pay for all of the repairs on units, even those under the deductible.

If the unit owner is grossly negligent, the association might not make a claim at all. In that case the unit owner pays for everything.

The unit owner still needs to have their own insurance for (at least) three things: liability insurance (in case they do something stupid), personal belongings, and to cover the association's deductible.

Fortunately for us, we have had very few claims to test these ideas.

If you have this insurance of the units, it can vastly simplify claims without the association suing your owners or vice versa. You are just covered.

What is the cost of the association's insurance with and without unit coverage? If you drop the unit insurance, what is the increased cost to unit owners on their own insurance?

The cost of a group policy will be far less per unit than individual coverage.

DOH

Plus, it actually insures (pun intended) that individual units actually have coverage.

As I understand it, you have no obligation to pay that $8,000, except that some of it will probably be to repair common elements for which the association is responsible. Just because you have insurance, that does not mean you have any obligation to pay for repairs, unless your documents specify that you have to do repairs, which is unlikely. Your unit owners have to cover the deductible, usually through their own insurance. As usual, the association covers repairs to the common elements, even if the association has insurance coverage for more than the common elements.

JimR24, It is my understanding that condo unit owners only own the air space in their unit. So the Association would be responsible for all repairs which are not covered by insurance.

First consider the simple case:

Your docs require your association to have insurance for the units, so you have it.

Your docs do not require your association to repair units, so you don't pay for that, even in the case of an insurance claim. Spending money on the units is prohibited, except for these insurance premiums. Repairs to units are not a common expense, so the association does not pay for repairs to units.

Your docs only require you to pay common expenses such as repairs to the common elements.

So when damage occurs, the association only helps to make a claim and get the money from insurance, but the association does not pay the deductible portion.

On the other hand, it is not always that simple. Some governing docs give the association the discretion to take on some unit repairs as a common expense. I have heard that some associations pay the deductible portion for the unit damage as a common expense. Tricky. Not sure how that works.

Do an internet search on who pays condo association deductible, you will get plenty of articles about it. The gist: set a policy one way or the other in accord with your docs and stick to it consistently.

In the case of $8,000 in damage, that is below your $10,000 deductible, so you might not even make an insurance claim.

Hi Eddie - thanks for your response to my question. Here is the description of "unit" as found in our DCCR:

""Unit" shall mean the elements of an individual Condominium Unit which
are not owned in common with the Owners of the other Condominium
Units in the Project and each Unit shall include the air space assigned
thereto. The boundaries of each of such Units shall be and are the interior
surfaces of the perimeter walls, floors, ceilings, window frames, doors, door
frames and trim, and exterior surfaces of the patios and balconies; and the
space includes both the portions of the Building so described and the air
space so encompassed, excepting the Common Elements. The individual
ownership of each Unit space herein defined shall further include the
interior construction, partitions, appliances, fixtures and improvements
which are intended to exclusively serve such Unit space, such as interior
room walls, floor coverings or finish, closets, cabinets, shelving, individual
bathroom and kitchen fixtures, plumbing and appliances, individual lighting
and electrical fixtures and other separate items or chattels belonging
exclusively to such Unit, any of which may be removed, replaced, disposed
of or otherwise treated without affecting any other Unit space or ownership,
use or enjoyment thereof. None of the land in this Project on which any
Unit space or porch space is located shall be separately owned, as all land in
this Project shall constitute part of the "Common Elements" of the Property
as herein defined, and shall be owned in common by the Owners of the
Units in this Condominium Project."

I've checked our state condo act, and here is what it says about "unit" - ....."Unit" means a physical portion of the condominium designated for separate ownership or occupancy, the boundaries of which are described by the declaration."

Here is what our state condo act says about unit boundaries...

"Sec. 82.052. UNIT BOUNDARIES. Except as otherwise provided by the declaration or plat:
(1) if walls, floors, or ceilings are designated as boundaries of a unit, then all lath, furring, wallboard,
plasterboard, plaster, paneling, tiles, wallpaper, paint, finished flooring, and any other materials constituting part of the finished surfaces are a part of the unit, and all other portions of the walls, floors, or ceilings are a part of the common elements;
(2) if any chute, flue, duct, wire, conduit, bearing wall, bearing column, or any other fixture is partially within and partially outside the designated boundaries of a unit, then the portion serving only that unit is a limited common element allocated solely to that unit, and the portion serving more than one unit or the common elements is a part of the general common elements;
(3) subject to Subdivision (2), the spaces, interior partitions, and other fixtures and improvements within the boundaries of a unit are a part of the unit; and
(4) shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patios, and exterior doors and windows or other fixtures designed to serve a single unit, but located outside the unit's boundaries, are limited common elements allocated exclusively to that unit."

We are about 10 yrs old with the building of our units beginning in 2004.

Sure do appreciate all of your help on this matter - very interesting stuff...huh?

oljim, in texas

Interesting question NpS..and it is one which our Board has discussed.

No attorney opinion on this; however, as far as we can tell - there is nothing in our governing documents which require a homeowner to carry insurance sold by an insurance company. My guess is that the reasoning on this is that everyone has a right to self-insure if they choose to do so.

What do u think?

oljim, in texas

I don't know about Jim, but in my association, the association's insurance is primary, which solves a lot of issues. Here is how we might do it. The association is the insured, so the association gets the check from the insurance company, and the association remains in charge of the repairs (coordinating with the homeowners to get the work done). The association also decides how to allocate the deductible, and as long as we do a reasonable job of it, then the differences won't be worth going to court. A lot of this will be handled by the association's adjuster, who will settle it with the other insurance adjusters.

On the other hand, we have never had to do it, so this is theoretical.

It's all theoretical. We need to do some research and then sit down with our agent and do a big insurance review. Which is something that is needed by many associations. We are in the middle of a claim now that may clarify issues.

I found this endorsement in our insurance policy, which provides the extra coverage for units and inside units (in addition to our association's normal coverage of the common elements).

"CONDOMINIUM ASSOCIATION COVERAGE",

" ... Building...including: ... Any of the following types of property contained within a unit, regardless of ownership, if your Condominium Association Agreement requires you to insure it: (a) Fixtures, improvements, and alterations that are a part of the building or structure; and (b) Appliances..."

I think "improvements" means any walls, wiring, baseboards, trim molding, plumbing, windows, doors, paint, and other items that are part of the building. I hope it also covers bath and kitchen cabinets and counters, since these are built in. Not sure about carpeting. The unit can be rebuilt after damage, not including furniture and personal belongings.

John
Wondering what would happen if HO bought an insurance policy that did not make the HOA a co-payee. How would you enforce?

Seems like most all of us appear to have lots of unanswered questions about association insurance, homeowner insurance, deductibles, who is responsible for what and when....and so forth.

Am guessing that it stands to reason that this is a complicated subject....with all the players in the game. Not an easy subject to address.

Sure do appreciate for everybody's responses to my original message!

oljim, in texas