Mastering Condo Association Risk with a Master Policy

Condo associations have unique insurance needs because each unit owner often times also owns a portion of the building. Determining what that portion is can sometimes be tricky. This is one reason Condo Associations form a board to make these types of determinations through what is known as the association by-laws. The board is also set up to oversee the management of the property.

All condo associations need from an insurance perspective what is known as a “Master Policy”. To do this a condo association first needs to establish themselves as a legal entity or organization (i.e. incorporate or LLC). Then they can go out and purchase a master policy which primarily consists of 3 components: property, general liability and director’s & officers (D&O).

Property

The property portion of the policy will mainly provide coverage for the building (or buildings). Depending on what the association by-laws say usually the master policy property portion covers the building all the way to the interior walls, interior ceilings and interior flooring of an individual’s unit. Often times the individual unit owners property coverage policy will start at the interior walls, ceiling and the flooring of their condo. Condo unit owners should have their own individual HO-6 (condo policy) policy to cover their interior finishes, personal contents and personal liability. The property portion of the master policy should also cover common areas such as hallways, elevators, roofs, basements, sidewalks etc. Ideally the building converge limit should be based on the replacement cost value of the entire building.

General Liability

General liability (GL) under the master policy would primarily protect the association from a liability claim whereby they were deemed to be negligent. A classic example would be a slip and fall claim where someone is injured on the premises and files a law suit for their injuries. General liability policies are designed to cover an insured against bodily injury claims. Normally the coverage limit for a GL policy is up to $1M per occurrence. This is why it is important (especially for larger condo associations) to also carry an umbrella policy. The umbrella will extend additional liability coverage (usually anywhere from an additional $1M to $20M) that can be added for additional protection. The GL policy should also be scheduled to include an outside property management company as an additional insured if the association contracts with one.

Directors & Officers

D&O is also a very important coverage that all associations that have a board should carry. This coverage provides protection to the board members in the event they are sued in conjunction with something the board decided upon or an error in judgment or performance. Like the GL policy the D&O coverage’s should also extend coverage to an outside property management company if one is used by the association.

There are certainly other coverage’s such as back-up sewer and drains, ordinance of law, crime—employee dishonesty (coverage for this should extend to the property management company if they handle the association’s finances), business income etc that are all conducive to a condo association’s master policy. Many condo associations are surprised when they see that they can get a lot of additional enhancement coverage’s for usually a small amount of extra cost.

As a rule of thumb association boards in conjunction with their property management companies and insurance agent should try and make sure their policies line up with what their by-laws require them to insure. There should also be a clear understanding with each unit wwner as to what their HO-6 policy should cover for them individually. This will help avoid those “grey area” claims where it is difficult to determine whether or not it is an association claim or a unit owners claim.

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Mastering Condo Association Risk with a Master Policy

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