Insufficient Insurance Coverage, Running With Play-Doh, and Other Risky Activities

Posted in Community Associations

As someone who manages risk for a living and can find potential liability in even the most mundane and (seemingly) harmless activities, I don’t get invited to many parties. Statements such as “Are you crazy!?! Those kids shouldn’t be running with an open container of Play-Doh” and “You do realize that mistletoe is poisonous” tend not to ingratiate me with the host and guests.

You can imagine my horror when a unit owner informs me that he doesn’t have his own property insurance. My horror increases when the unit owner informs me that the reason he doesn’t have insurance is his belief that he is covered by the condominium association’s insurance. For the record, your association’s property insurance does not adequately protect you. Add “Call Insurance Agent/Broker to Review Coverage” to your New Year’s Resolutions.

Even though you live in a condominium, you still need to purchase your own property insurance. If you own the condominium unit, the product that you need to purchase is referred to as an H-O6 policy. The importance of this type of coverage cannot be overstated. Please contact your personal insurance agent as soon as possible to review your current level of coverage. So that your insurance agent can thoroughly assess your coverage needs, provide them with the contact information of your association’s insurance broker. Together these insurance professionals can identify any gaps or deficiencies in your personal insurance coverage.

Condominium associations are required by the Pennsylvania Uniform Condominium Act to maintain property insurance for the common elements and units exclusive of improvements and betterments installed in units. These insurance policies are often referred to as master policies. Unfortunately, many people think that the master insurance policy provides them with enough protection. This incorrect assumption often stems from the “maintenance free living” concept that attracts many people to condominiums. Some individuals assume that as long as they pay their assessments on time that they will be covered in a loss. This belief is false. Unit owners should not rely exclusively on the association’s master policy to fully insure their interests.

The coverages provided by a good HO-6 policy include:

  • The Association’s Master Policy Deductible. The association’s master insurance policy does not respond to any claims that are below the amount of the master policy’s deductible. The deductibles for many associations are $10,000 or higher. Under most governing documents, the unit owners impacted by the insurance loss are responsible for any damages up to the master policy’s deductible amount. A good HO-6 policy will cover any portion of the master policy deductible for which you may be responsible.
  • Improvements Not Covered By the Master Policy. Most master insurance policies do not provide coverage for any improvements that you made to the inside of your unit (this does not include builder installed upgrades). The master policy will typically be limited to restoring the unit to the condition that existed at the time of purchase. So be sure to inform your insurance professional of any improvements so that he or she can adjust your H0-6 policy accordingly.
  • Loss Assessments. If the policy limit of the master insurance policy is exceeded, then the association will likely levy a special assessment in order to make up any shortfall. A good HO-6 policy will cover the amount of the loss assessments.
  • Loss of Use. The master policy will not cover the costs that you may incur if your unit is rendered uninhabitable as a result of a loss and you are required to live elsewhere during the repairs. Those without this coverage face the prospect of continuing to pay their mortgage and assessments while paying for a hotel or other living arrangements. A good HO-6 policy will cover or at least defray the costs you may incur in this type of situation.
  • Your Stuff. The master policy does not cover any of your personally owned items such as furniture, electronics, jewelry, or clothing. Be sure that your HO-6 policy provides sufficient coverage for your stuff.
  • Personal Liability. The master policy does not cover any personal liability that you may incur. This would include property damage or personal injury that is attributed to you — think of those funny television commercials for some of the bigger insurance companies. Make sure that your HO-6 policy provides you with this protection.

While insurers provide other coverages under HO-6 policies such as sewer backup and flood, the items that I highlighted are some of the most critical areas of risk that every owner of a condominium unit should manage through proper insurance coverage. Given the importance of these coverages, it really pays to shop around. Not all insurance companies and policies are created equal. Consulting with an independent insurance professional who is not directly employed by a specific insurance carrier is a great place to start.