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Areas of Responsibility

Understanding the scope of association insurance coverage is basic to protecting the vital interests of the owners. Do you understand what the association’s duties are when a fire, windstorm or burst pipe damages the common elements or unit interiors?

The association’s insurance duties are addressed in the governing documents (sometimes called CC&Rs – Covenants, Conditions & Restrictions). The insurance company’s duties are based on the wording of the policy. Unfortunately, the two documents often contradict.

Surprisingly, the insurance policy often pays for the repairs that aren’t even an association’s responsibility. Are there reasons why such broad coverage may not be in the association’s best interest? If an owner negligently causes a loss, is it fair that the repairs be done under the association’s policy?

Traditionally, association insurance policies have fallen into one of three different categories. The narrowest is called “bare walls” and covers little of the owner’s fixtures and finishes. Next, and most common, is the broader coverage known as “single entity.” This type expands coverage to include standard fixtures and finishes provided by the builder.

The broadest is referred to as “all-in” or “modified single entity,” which includes coverage for owner-installed upgrades such as cabinets, lights and plumbing fixtures.

Many association insurance policies are the all-in type, which creates a dilemma. While the association could cover many owner claims, it’s unwise to do so. The association’s policy is somewhat like an auto policy in that multiple claims may increase future premiums or cause the policy to be cancelled. So, many association governing documents require the owners to insure their own interior finishes and fixtures, and the association insurance only comes into play if there is multiple unit damage due to, say, a fire. This spreads the risk around and keeps the association insurance viable.

Since the association and owners each have distinct repair and insurance responsibilities, it’s very important that those responsibilities be clearly delineated. Inside = owner and outside = association won’t cut it because there are exceptions. And at some point, inside and outside meet. Where exactly is that dividing line? The Maintenance and Insurance Areas of Responsibility document can clarify this. It lists grounds and building components like the roof, gutters and downspouts, plumbing interior, plumbing exterior, etc., and assigns responsibility to either owner or association.

The Areas of Responsibility not only eliminates many disputes, it advises both association and owners’ insurance agents what kind of coverage is necessary. It also helps the board and manager perform consistent maintenance because there is a clear roadmap. This document is one of the building blocks of community harmony. Don’t wait for the next insurance “event” to come crashing or burning in. Write your own Areas of Responsibility and be prepared.

Condo owners insurance
While a condominium association has its own insurance, equally important is the kind of insurance carried by the owners. Condominium Unit Owners Insurance is available to a condo owner who resides in an association that purchases blanket coverage on the structures. When purchasing it, provide the insurance agent with a copy of the governing documents and association insurance policy.

There are several key coverages:

  • Building property: This covers the unit features that are an owner’s responsibility to maintain and insure including finishes (wallpaper, flooring), fixtures (lighting, cabinets), unit alterations and additions.
  • Personal property: Covers items like clothing and furniture. Make sure to buy replacement cost insurance, not depreciated basis.
  • Inflation: This automatically increases the amount of coverage by an inflation index.
  • Loss of use: This coverage pays certain expenses if a condo is damaged and uninhabitable.
  • Additional living expense: This covers the expenses in excess of what the insured would normally have spent for food, shelter and related items, for the shortest time required to repair or replace your unit or to relocate elsewhere for a certain period of time.
  • Loss assessment: This will pay the insured’s share of a special assessment required if the association has an insured loss and the insurance does not cover it.
  • Personal liability: This pays the insured’s legal liability for financial damages resulting from someone being injured in the unit. It also pays for legal defense against these claims or suits.
  • Medical payments to others: This pays necessary medical expenses for guests who are accidentally injured.

It’s critical that the owners’ insurance provide coverage for those things that are their responsibility. The association should have a clear guideline as shown by an Areas of Responsibility list that defines those responsibilities.

Some final considerations: All condo insurance is not the same. It’s best for an association and owners to have the same insurance carrier to avoid gaps in coverage. Keep in mind that condo owners insurance is a personal insurance policy, so home businesses require additional riders or a separate policy. Also, if the condo is rented, landlord insurance is required. Cost for insurance can be reduced by taking a higher deductible (amount insured pays before the insurance company pays anything). Share this information with your association members and ask them to review it with their agents.


Contact (A Division of Baer Insurance Service, Inc.)
9701 Brader Way
Madison, WI 53562

Office Hours: M-F 7:30am to 5pm
Tel: (608) 830-5800
Toll Free: (888) 729-2237
Fax: (608) 830-5877

This Web site provides only a simplified description of coverages and is not a statement of contract. Coverage may not apply in all states. For complete details of coverages, conditions, limits and losses not covered, be sure to read the policy, including all endorsements, or prospectus, if applicable.

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