Question: I am the President of a medium-sized condominium association. I would like to learn more about condominium insurance, and have had some difficulty in getting information. Do you have any comments about such insurance?
Answer: Unless your association’s insurance package was put together carefully — and is monitored periodically — you and the other unit owners may find yourselves with a serious problem in the event of an accident, lawsuit or even a natural catastrophe.
Here are some common situations in which condominium unit owners often mistakenly assume their insurance coverage is applicable:
o If your association and its Board members are sued, attorneys’ fees and court costs will be provided by the association’s insurance policy. In most cases, the policy also will pay all judgment costs or out-of-court settlements brought on by any lawsuit.
o If a guest is injured while visiting your association’s swimming pool, the association’s insurance policy will protect you from all personal liability and out-of-pocket expenses.
o When hurricane-force winds uproot your condominium’s trees, break its windows and splinter its ornate gatepost sign, the association’s policy will cover the damage.
In all of these common incidents, the association’s insurance policy may not be adequate. And in some cases, there may not be any coverage at all. According to condominium insurance experts, some condominium associations “are pitifully under insured and represent a significant risk to association members.”
Insurance is a very complex area that most lawyers and many property managers do not fully comprehend. Often, the manager of a condominium association uses his or her own policy or brings the friendly insurance agent into the picture, and a “bare-bones” policy is issued. Often, the desire to keep costs down outweighs the need for adequate insurance coverage.
Here are some items to look for when considering the kind of insurance policy your association needs. The list is far from exhaustive.
o Full repair and replacement of damaged property. Some policies cover the depreciated value of the damaged property. Let’s take the following example: Your clubhouse roof is six years old and has a 10-year life expectancy. A fire damages the roof. Under a depreciated value policy, the insurance may cover only $4,000 on a roof that cost $10,000 six years ago. The association would end up footing the rest of the bill.
o Full comprehensive general liability coverage. You should have at least $1 million worth of insurance, but, depending on the size of your association, $2 million may be more adequate. Look at your association’s legal documents. In my experience, they all spell out the minimum coverage that you must have. Of course, if you, your board, and your attorney believe you need more coverage, you always have that option to increase the policy limits.
o Liability insurance covering the association’s directors and officers. Because more and more lawsuits are being filed, you should discuss this with your insurance agent and attorney to determine the coverage needed.
o Coverage for business-related personal property, connecting structures, exterior signs, valuable papers and records, outdoor trees and shrubs, medical payments and “personal injury” coverage to protect against such charges as libel, slander, defamation of character and wrongful eviction.
Contact a number of insurance carriers that specialize in condominium insurance. I also recommend the Community Association Institute in Virginia (703) 548-8600, which has developed a number of excellent publications on the issue.
One very important caveat: every policy I have ever seen requires the association to promptly advise the carrier if the association is put on notice of a potential lawsuit or is actually sued. “Promptly” us usually no more than 30 days. The carrier wants an opportunity to review the facts and possible help to resolve the issue short of court. If you delay notifying your insurance agent of an issue, you may lose all coverage.
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