Maryland Condo Change Effective Oct. 1

MARYLAND: CONDOMINIUM MASTER POLICIES WILL NOT COVER DETACHED UNITS

By Timothy Brambrick

Several months ago the Maryland Legislature passed a bill amending the insurance provisions of the Maryland Condominium Act and Governor Moore has signed same into law. While §11-114 of the Maryland Condominium Act has required that the Associations obtain insurance on the entire condominium including the units less improvements and betterments installed by a unit owner, the new provision provides that the Master Policies will not cover residential, detached units (“cottages”) and that the owners of these units shall carry Homeowners insurance on their units.

§11-114 REAL PROPERTY ARTICLE

. . The Council of unit owners shall maintain, to the extent reasonably available:

(a) (1) Property insurance against risks of direct physical loss commonly insured against in amounts determined by the council of unit owners, but not less than any amounts specified in the declaration or bylaws.

(I) For attached or multifamily dwelling units, on the common elements and units, exclusive of improvements and betterments installed in units by unit owners other than the developer; and

(II) For detached units, on the common elements; and

(e) (2) An owner of a residential, detached unit shall carry homeowners insurance coverage on the entirety of the unit.

By way of background, developers have been establishing condominium regimes and then building single family homes not attached to any other “unit”. This approach permits them to avoid local zoning provisions which, for example, set forth minimum lot sizes for new homes. While a zoning provision may require 1 acre lots for single family homes, a “condominium” might be able to build 4 units on an acre. There are already a number of condominiums which are comprised of midrise buildings, townhouses and unattached single-family dwellings and one can anticipate condominium regimes consisting only of unattached “cottages” being established.

From the point of view of property managers and/or the Associations, this will reduce its premium for the Master Policy and obviate the necessity of handling losses which affect these types of units.

If you are writing a Master Policy, it is reasonable to anticipate that the Association/property manager will contact you if any of the units in the condominium are “cottages” as they will want to provide you with reduced values and obtain a lower premium. While I suspect this will occur, it would be wise for an agent to check with its Master Policy insureds.

The situation with respect to unit owners of “cottages” is more troublesome as the failure to issue them the correct policy would potentially lead to a unit owner being under insured. HO-6 forms typically include modest limits for Coverage A and are intended to be adequate to cover Master Policy deductibles and improvements and betterments made by a unit owner. In the event of a major loss, such limits would be inadequate. In this situation, what would a “cottage” unit owner do: walk away from his/her equity in the unit or sue his insurance agent. Decisions, decisions.

So, if you know (that’s actual knowledge and not equivalent to “pretty sure”) your insured’s unit is in a high-rise or a mid-rise or is a townhouse, no further inquiry would be necessary and you would reissue the HO-6. But, if you don’t know, check with the insurer you are placing the business with as it may be addressing this issue with its insureds. And, of course, consider checking with your own HO-6 insureds. After all, that’s why you’re getting that big commission on the HO-6s.

Timothy Brambrick, partner with Niles, Barton & Wilmer, LLP, provided this article. You can reach him at 410-783-6342 or tbambrick@nilesbarton.com.

IA&B MEMBER RESOURCES

The amended law, which affects detached units organized under a condominium regime, takes effect Oct. 1, 2023. Remember: A condominium is a form of ownership, not a type of housing. Download a sample letter to unit owners at https://IABforME.online/MD-condo-ltr

IF YOU INSURE THE CONDO ASSOCIATION

For new and existing business, ask the Association or property manager:

1. if they have any detached single-familyhome units, and

2. how much property to EXCLUDE from the Association’s master policy (the amount of property coverage attributable to the single-family units)

E&O risk – Overinsurance/Overpayment

It is more likely that the association will volunteer the information to get a premium reduction.

IF YOU INSURE THE UNIT OWNER

For new and existing business: ask unit owners if their condo ownership is for a detached unit.

For detached single-family-home units, the unit owner must cover “the entirety of the unit” (not just the improvements and betterments and personal property) and needs more coverage than a traditional HO-6.

CONSULT WITH EACH CARRIER TO UNDERSTAND HOW THEY INTEND TO ADDRESS THE CHANGE BY EITHER:

• Placing coverage using an HO-3 type policy (if so, consider appropriate endorsements to offer since the ownership is still under a condo regime (e.g. increased loss assessment) or

• Increasing Coverage A under an HO-6 with limits sufficient to rebuild the entire unit

E&O risk – Underinsurance (incl. Cov. A)

The law does not include a notification requirement. It is likely, but not certain, that the association will notify unit owners.

Questions? Contact IA&B VP-Advocacy Claire Pantaloni at ClaireP@IABforME.com or 717-918-9202 or IA&B Legal & Corporate Affairs Director Don Bankus at DonB@IABforME.com or 717-918-9204.