HOA insurance snafu

A few months ago, there was a fire at one of the units in our condo community and the interior was gutted. There was also some smoke damage to two of the adjoining unit. The house had been rented and the tenant didn't have any insurance and the owner lives out of state.

The owner called his insurance company, as did the Association, and the Board of Directors (of which I'm a member) assumed his insurance would pay for damages because the fire started inside the unit (apparently, someone left a burning candle too close to the curtains). Well, we recently learned that the ASSOCIATION'S insurance is paying the claim - the money's currently sitting in our reserves until repairs begin.

When we discussed at last night's meeting, our property manager said she asked the agent why the Association was paying anything since it would appear this fire occured because of negligence. The claims rep said something about our insurance documents make the association responsible, so I plan to contact her for more information. And our lawyer.

Our insurance will be renewed later this year, and as you can imagine, we plan to take a very close look at the terms to make sure this type of thing doesn't happen again. I'm not an expert, but it seems to me one's condo homeowner's insurance would cover this type of stuff - otherwise, why buy it?

My question to you is - has anyone else had an experience like this? If so, how did your HOA handle it? Did you sue the owner?

Shelia:

If you can prove the fire started in the unit and was caused because of a candle burning then I don't know why your insurance would pay anything. I guess I am not an expert on condos or insurance but it would seem to me that the owner of the condo should be responsible for all damage even if it is common areas if they caused the fire.

On a side note, just because your insurance payed doesn't prevent you from suing. Courts are not bound by the insurance companies decision. I am not advocating doing this, just an fyi.

Sheila:

Since you are a condo, the insurance agent must cover the condo's per your governing documents. Therefore, if your documents read the HOA is responsible for the skin outwards, then the insurance would cover according to the doc's.

Most condo owners purchase "renters" insurance which covers contents only and find themselves under insured. Condo owners should purchase HO6 or HO13 coverage making sure it covers not only their contents but any upgrades they may have made within the unit.

It would be prudent for the board to place into your next newsletter informing the Owner to purchase the right insurance for your condo's.

The insurance funds you received from the insurance company needs to be spent on the repairs of that unit. The board can find the contractors to perform the work and pay them from the funds.

Have your agent review your policy with your documents so that the board understands the insurance needs of the community.

Joe,
Most every condo in Florida is seperated by a clear definition of what is common structural elements, which is association property. Roofing and the structures that support the rafters are common elements. Anything under that, including all drywall, cabinets, plumbing and wireing within the drywall is considered owner responsibility. All associations that I know of require a copy of the owners policy which is held in office recordds. Many associations state the amount of minimum amount of coverage to ensure that something like this poster has stated, does not happen.

Thanks everyone - I will keep you posted (whatever happens, I hope other communities can learn from this!) Right now, I'm just taking a deep breath and hanging on to my knickers (fortified with Depends!) because I have a feeling THIS is going to be a wild ride.

So far, I will say the owner of the burnt unit is as baffled as we are - although I suspect he's more upset because he won't be able to dictate what type of materials go to repair the unit (it's the Association's money, so we get to decide). If he indicates he's willing to cooperate, we may be able to avoid a messy lawsuit (we don't need this on top of the other legal action we have against delinquent owners!

Just curious: In this case, what if an owner causes this type of fire and it destroys an entire 20 unit condo building? Might the owner be liable for $millions in damage beyond his unit?

Usually, the owner who caused the fire would only be liable for the damage in their own unit (and possibly for the associations' deductible). The association's insurance would cover the common areas, and the individual's policies would cover the areas they were responsible for. If there was some kind of gross negligence involved, I guess the association could sue, but a cigarette left smoking or a scented candle that burned too far down probably wouldn't make the cut.

Most of the condo's up north the common areas include all perimeter and load-bearing walls, floors and ceilings, usually up to the primer coat. Interior non-load bearing walls would fall under the owner's coverage. Often doors, windows and floor coverings are included in the master policy. That's why its so important to match up the documents, master coverage and personal coverage.

Joe