All Things Condo: Carole Richelieu

Understanding Condo Insurance What condominium boards and owners need to know about insuring their property

This is the first article of a two-part series on condominium policies. In this part, we outline the four main types of policies that apply to most condominium associations. In next month’s article, we will discuss how these types of policies and their coverages collectively apply when a condominium building loss occurs and explain why cooperation and coordination by the association, unit owners, and their carriers are key to having claims run smoothly and efficiently in order to return damaged building property back to pre-loss conditions.

Hawaii residential communities are composed of numerous condominium associations and the state is seeing the development of many newer condominium projects which are expected to be completed within the next few years. Whether you are a condominium association board member, individual unit owner or renter, obtaining appropriate insurance is important to protect you financially from losses.

What are the types of condominium policies and what do they cover?

Condominium unit insurance for individual units is not required by law in Hawaii.

However, a mortgage company may require that an owner hold insurance on the condominium unit for the duration of the loan. The governing documents of the condominium association may also require that individual unit owners procure insurance that specifically covers their residential unit, or rental operations of the unit if the unit is leased out to other parties, for losses not covered under the condominium association policy.

In general, the condominium association policy, commonly referred to as the “master policy, ”covers the building structure, common areas, and original “as built” individual unit construction versus an individual condominium unit policy that covers “as built” building property, building improvements, and personal property of the unit owner.

Individual condominium unit owner

policies can either be a condominium homeowner’s policy covering a unit that an insured resides in, or a condominium rental unit policy that an insured may rent out.

Condominium association policies:

Building Coverage

• Covers building property damage due to direct physical loss or specific perils to the structure, common areas, and usually the original “as built” individual unit building construction. • Provisions include duties to mitigate damages and promptly notify the carrier of a loss that may be covered by insurance. • Most policies deem the condominium association building coverage primary over individual unit owner policies for insurance covering the same loss. • Most condominium associations carry large deductibles that may be assessed against unit owners after a covered building loss occurs and after the master policy claim is filed. • Condominium association policies will cover building damage as defined under the policies due to direct physical loss or named perils regardless of the loss origin subject to applicable exclusions. • Establishing liability on the condominium association or individual unit owners is not necessary to invoke building damage coverage under the master policy. The cause of loss and resulting damage need only meet the insuring agreements of the master policy in order to extend the master policy building coverage.

Business Personal Property Damage

• Covers business personal property owned by the condominium association for losses due to specific perils or direct physical loss.

Liability Coverage

• Provides coverage for defense and indemnification for property damage and bodily injury that the condominium association may be responsible for due to negligent acts arising from the association’s operations or occurring on its property. • Some policies may deem the property manager of the association an insured under the liability coverage.

Condominium homeowners policies:

Building Coverage

• Covers building property damage due to direct physical loss or specific perils of the individual unit. • Coverage includes building damage to original “as built” construction of the unit and improved building property and design. • Most unit owner policies deem building damage covered under this individual policy as excess coverage for the same building losses covered under the condominium association policy. • Provisions include duties to mitigate damages and promptly notify the carrier of a loss that may be covered by insurance.

Loss Assessment/Deductible Assessment Coverage

• Covers condominium association deductible assessments against individual unit owners for losses claimed under the master policy building coverage. • The loss assessment/deductible assessment coverage may be a stand-alone coverage under the policy or coverage included in the Building Coverage.

Additional Living Expenses

• Covers increased lodging or meal expenses due to displacement caused by a covered building damage loss. • Coverage may be applicable for temporary displacement due to mitigation if those services renders the condominium unit uninhabitable, and during the period of restoration if the unit cannot be occupied while being repaired.

Personal Property Coverage

• Covers personal property owned by the insured for losses due to specific perils or direct physical loss.

Liability Coverage

• Provides coverage for defense and indemnification for property damage and bodily injury that an insured may be responsible for due to negligent acts. The liability claims do not need to specifically arise from the use or occupancy of the unit in order to be covered.

Condominium rental unit owners policies:

Building Coverage

• Covers building property damage due to direct physical loss or specific perils of the individual rental unit. • Coverage includes building damage to original “as built” construction of the unit and improved building property and design. • Most rental unit owner policies deem building damage covered under this individual policy as excess coverage for the same building losses covered under the condominium association policy. • Provisions include duties to mitigate damages and promptly notify the carrier of a loss that may be covered by insurance.

Loss Assessment/Deductible Assessment Coverage

• Covers condominium association deductible assessments against rental unit owners for losses claimed under the master policy building coverage. • The loss assessment/deductible assessment coverage may be a s tand-alone coverage under the policy or coverage included in the Building Coverage.

Loss of Rents

• Covers loss of rental income when a unit is rendered uninhabitable due to a covered building damage loss. • Coverage may be applicable for temporary displacement of renters due to mitigation if those services render the condominium rental unit uninhabitable, and during the period of restoration if the rental unit cannot be occupied while being repaired.

Business Personal Property Coverage

• Covers business personal property owned by the rental unit owner included in the rental of the unit for losses due to specific perils or direct physical loss.

Liability Coverage

• Provides coverage for defense and indemnification for property damage and bodily injury that an insured may be responsible for due to negligent acts arising from the use or business operations of the rental unit or occurring on the rental premises. • Some policies may deem the rental property manager of the rental unit an insured under the liability coverage.

Renters policies:

Additional Living Expenses

• Covers increased lodging or meal expenses due to displacement caused by a covered building damage loss. • Coverage may be applicable for temporary displacement due to mitigation if those services renders the condominium unit uninhabitable, and during the period of restoration if the unit cannot be occupied while being repaired.

Personal Property Coverage

• Covers personal property owned by the insured for losses due to specific perils or direct physical loss.

Liability Coverage

• Provides coverage for defense and indemnification for property damage or bodily injury that an insured may be responsible for due to negligent acts. The liability claims do not need to specifically arise from the use or occupancy of the rented unit in order to be covered.

This information is for educational and informational purposes only. Associations and owners should always check with insurance professionals regarding insurance and coverage. ❖

Carole R. Richelieu is the senior condo specialist in the state Department of Commerce and Consumer Affairs’ real estate branch. Contact her office at 586-2644 or go to hawaii.gov/hirec.