Insurance claims have been growing. One common issue that arises is who is responsible- the association or the owner- when damage occurs. Whether the association’s master policy, or a unit owner’s HO6 policy will be covering the damage can be answered in the Condominium Association’s Governing Documents, Declarations or Bylaws. These are the documents that define what the association or owner is responsible for.

Generally speaking, condominium declarations or bylaws usually take the position that common elements which all unit owners share ownership of are the association’s responsibility to insure, maintain, repair, and replace. However, these policies can also cover some originally installed unit items. Owners are responsible for personal property and any renovations or additions to their unit, including items upgraded from what was originally installed. Personal liability within the unit and loss of use or loss of rents will be the responsibility of the respective owners under their HO6 Unit Owners Policy. Tenants should also obtain their own HO4 Renters Policy to cover their personal property, personal liability, and loss of use.

Association’s Master Policy

As you might expect, an association’s policy usually covers things like buildings and the common elements such as exterior and interior walls, floors, ceilings, elevators and other building equipment as defined by the association’s governing documents.

However, the governing documents may also cover a list the fixtures inside the units that the association is responsible for. These can include items such as refrigerators, cooking ranges, built-in appliances, built-in cabinets and countertops or any other fixture as originally installed in a unit. The association’s insurance policy may cover the fixtures as originally installed and will repair or replace with like kind or quality.

HO6 Unit Owner’s Insurance Policy

A HO6 Policy is coverage an owner would purchase, with premiums starting around $350 per year depending on coverage limits. Here are some things an HO6 policy may cover

  • Building Additions and Alterations. It is important that owners carry protection through an HO6 policy because the association by law is not required to cover improvements to units, unless specifically provided for in declarations or bylaws.

In some cases the association’s and owner’s insurance fit together to make the unit whole again. Here’s an example:

If an owner upgrades the flooring from carpet to marble, the owner is responsible for the insuring the upgraded cost. In the event of a claim, the association may only be responsible for the cost to repair or replace carpet of a like kind and quality. The difference between repairing or replacing carpet or the same work for marble floors would be the responsibility of the owner’s insurance policy.

  • Contents/Personal Property. Personal property, including any contents inside the unit, are not covered by the association. An owner would need to cover these under their own policy.
  • Loss of Use Coverage. Another area covered under an owner’s policy covers expenses when a unit becomes unlivable from a covered loss. This can include living expenses like temporary housing in a hotel and the increased cost of meals.If the unit was rented, but becomes unlivable at the time of a covered loss, an owner’s policy can cover the rental income that the unit owner is missing out on.
  • Personal Liability. A similar division of responsibility occurs when someone is injured on an HOA property. If the injury occurs in a common area such as the lobby, an elevator, clubhouse or common hallway, the association’s Commercial General Liability Policy will provide coverage. If an injury occurs inside a unit, the owner is responsible. In addition, there are cases where an owner may be legally liable outside of their unit, such if a unit owner’s dog bites someone. That would fall to the owner’s Personal Liability Coverage. However, there are many variables in liability situations, sometimes resulting in more than one party being at fault to different degrees.
  • Loss Assessment Coverage. If a loss occurs in a unit, but affects a common area, the association can apply a Loss Assessment, applying the association’s master policy deductible to the unit where the loss originated or to the units affected by the loss.

If property damage or bodily injury occurs in a common area, the association may also charge a special assessment to all the unit owners.

HO4 Renter’s Insurance Policy

Renters can expect to pay around $200 and up per year for an HO4 policy depending on coverage limits. Here’s what such a policy typically covers:

  • Contents/Personal Property. Renters should be aware that their personal property is not covered by the association’s or owner’s insurance policies. They will need their own HO4 Renter’s Insurance Policy.
  • Loss of Use Coverage and Additional Living Expense. A tenant may not be obligated to pay rent when there is an incident, but the cost for them to relocate to a temporary accommodation is not covered. An HO4 policy can cover these additional living expenses.
  • Personal Liability. There are many situations where a tenant may be found personally liable for an incident- pet bites, causing a fire or other property damage, an overflowing bathtub that damage both the unit and ones below, inadvertently setting off fire suppression systems causing water damage. The list of personal liability and property damage goes on.

A tenant would be wise to have the protection of insurance. An owner can require tenants carry HO4 Renter’s Insurance as part of a lease agreement.

Final note

This article was summarized from a longer piece by Elaine Panlilio, CRM, CIC, CISR for the DCCA Real Estate Division Condominium Bulletin. The information presented is general in nature and not intended as legal advice.