Property Insurance - Isn't it All the Same?

We get questions about property insurance for community associations all the time - What insurance is the association supposed to carry? What insurance are the owners required to carry? Who pays the deductible under the association's policy? Are there special coverages that the association should carry, even though it is not required to? These, and a whole host of other insurance questions are the topics of whole books on the issue. We don't pretend to be experts in insurance - there are insurance professionals (and even some attorneys) who are. But it is probably useful to provide some basic understanding of association insurance coverage. This topic will warrant additional discussion in future blog posts. But for now, here's some basic information.

As with so many other issues that an association has to deal with, when you need to know what insurance your association must carry, you should review your governing documents. Most of the time the declaration will set out in some detail what the requirements are. However, sometimes we see declarations that simply say that an association will carry the insurance required by CCIOA.

While that is some direction, it is not particularly useful. In addition, not surprisingly, the insurance that a single family home community must carry is going to be substantially different than what a condominium community must carry, which in turn, may be different from what a townhouse community must carry. If your community was formed before July 1, 1992, unless it has opted into CCIOA, it is not going to be governed by the CCIOA insurance provisions, so its insurance obligations will be completely dependent on what the governing documents provide.

Property insurance, in many older documents, is often referred to as "casualty" insurance. However, the current term of art is property insurance which is protection against loss to property, and casualty is often equated to liability insurance. Whichever term is used, you will need to review your documents to see what actual type of insurance is being required. It is useful to do this with your association's insurance professional to make sure the proper coverage is obtained.

In a single family home community (what CCIOA defines as a planned community, and which is not a condominium - be careful here, as some stand-alone single family home communities are actually condominiums), CCIOA requires the association to maintain property insurance on the common elements for broad form covered causes of loss. This coverage does not typically cover the individual's home (although in a townhome community it can). In a condominium, the property policy, in addition to covering the common elements (typically walls, roofs, etc.), the property policy must also cover, at a minimum, the units themselves. Whether the interior finished surfaces and improvements need to be insured by the association will be completely dependent on what the declaration says.

In a single family home community (again, one that is not a condominium), owners should (and if they have a mortgage, will be required to) obtain their own insurance policy insuring the home. This is typically an HO-3 policy (but can be a more comprehensive HO-5 policy). An owner in a condominium community will need to obtain an HO-6 policy. Each owner should work with their own insurance professional to make sure that the insurance they obtain dovetails with the association's policy, without having overlaps or gaps in coverage.

There is much more to know about association insurance than can be put in this short blog post. This is intended to be a short introduction, with further information coming in future posts. In the meantime, if you have questions about your community's insurance obligations, check with your insurance professional or call us.