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CAROLE RICHELIEU
Differences Between AOAO and Unit Owner Policies Why boards, owners need to understand exactly who covers what when damage occurs Editor’s note: This is the second of a two-part series about condominium associations and insurance issues.
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ost condominium association and individual unit policies designate the condominium association coverage as primary for building damage losses over individual unit owner policies. When damage loss occurs at a covered building, the condominium association insurance will take precedence for the loss over all other individual condominium unit owner policies covering the same type of loss and building property, subject to the association policy’s deductible, limits and exclusions. The condominium association policy usually covers common areas of the association and “as built” building damage of individual units. Some condominium association policies may cover improved building property of individual units, so unit owners need to verify the extent of the condominium association building coverage with their association representatives. Examples of “as built” building property may include the original carpet flooring or particle board cabinets of a unit when it was first constructed. Examples of improved or upgraded building property would be an individual unit owner changing the “as built” carpet flooring to ceramic tile or replacement of the original particle board cabinets with solid wood cabinets. The condominium association policy will likely only indemnify for the original building construction material and labor costs following a covered loss. The individual unit owner policy can provide coverage for both “as built” building damage and upgrad-
ed building material costs, including additional labor charges that may be required for the upgraded material installation above the costs to install the “as built” original building construction and design. Condominium association policies in Hawaii are often referred to as “master policies” by associations, property managers, insurers and insurance agents. Personal property of unit owners or occupants are not covered under the master policy. Most master policies will not cover building upgrades or improvements within a unit and likely will not cover additional living expenses, such as lodging or increased meal expenses, or loss of rents that may result from a covered building property loss. Coverage for personal property, additional living expenses or loss of rents of individual unit owners or occupants
may be covered under individual unit owner or renters’ policies.
Insurance deductible assessments Most master policies carry large deductibles applicable to building property claims. The individual unit owner policies will likely have building coverage provisions or separate lines of coverage that can cover the master policy deductible, where a portion or the full amount of the master policy deductible is assessed to an individual unit owner, all unit owners or unit owners receiving building damage insurance benefits for a covered loss. These deductible assessments are usually levied on condominium unit owners once master policy claims are filed and processed. Assessments are often made after the condominium association receives building damage in-
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