Multi-Family Complexes (Apartment and Condo)

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Special Condominium Insurance Problems

For condominiums, a further problem must be considered: How much of the building must be insured by the condominium association and how much of each unit by the unit owner? Here it is necessary to look to the condominium declarations and bylaws to see who is to insure what. Under the “bare walls” provision referred to earlier, the unit owner covers the interior of the unit up to the bare floor, ceiling (or roof) and exterior walls of the unit and the association insures the remainder of the building. Interior paint, wallpaper, floor coverings, or other interior decor is the unit owner’s responsibility, and should be covered under the unit owner’s condominium policy along with the unit owner’s personal property.

The “bare walls” concept was most widely used during the early days of condominium development, but now has largely been superseded by a provision calling for the association to insure all property originally included in the unit, but the unit owner to insure additions made by the unit owner. This can present problems when a unit is sold to a new owner after a previous owner has made substantial improvements and additions. Where this situation applies, the new owner should clarify with the association in writing who should insure what and set up the insurance to fit.

But beyond these two, there are a wide variety of condominium declaration or bylaw provisions in this area, so in arranging the association’s coverage, these must be analyzed and appropriate insurance arranged to reflect the actual value of the property to be insured by the association. And the individual unit owners should be alerted to these provisions as well so they can arrange for proper coverage under their individual condominium unit owner’s policies.

Also important is the unit owner assessment feature of most condominium declarations, which can mandate that the unit owners make up for deficiency of income to the association, especially following an uninsured or only partially insured loss. Individual unit owners usually have a small amount of assessment liability coverage in their unit owner’s policy ($5,000 or $10,000 is common) and can purchase higher insurance limits if desired.

A further problem with condominiums is how to proceed if, after a major loss, it is deemed for whatever reason impossible or undesirable to rebuild, or a major number of unit owners prefer to abandon the property and take their share of the insurance proceeds as cash. The condo declarations will usually provide for this, stating what proportion of the unit owners (usually a substantial majority—such as 75 percent or 80 percent) must agree to the abandonment. The same often applies to cooperatives.


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