Coverage for Property Owner’s Improvements

Under the new law, policies covering the real property for condominium associations must extend to “any, fixture, improvement, or betterment installed by a unit owner… including a floor covering, cabinet, light fixture, heating or plumbing fixture, paint, wall covering, window, and any other item permanently part of or affixed to a unit”. That means that if a unit owner’s carpet is damaged by an insured peril, the cost of repairing or replacing the carpet is covered by the condominium association’s property policy, not the unit owner’s HO-6 policy. Further, the law stipulates “the total amount of coverage provided by blanket insurance property policies may not be less than 100% of the full replacement cost of the insured property”.  The limit must include the value of the individual unit owners’ improvement and betterment. Lastly, the law prohibits insurer’s from subrogating against unit owners.  However, it states “the unit owner’s policy (HO-6) applies to that portion of the loss attributable to the policy deductible”.  In other words, the unit owner is responsible for reimbursing the condominium association for damage to their improvements, up to the association’s deductible. Practical Considerations To avoid paying nuisance claims for minor damage to carpets and other unit owner improvements, insurance companies will probably increase property deductibles to $5,000 or more.  The associations’ management committees are required to tell the individual unit owners in writing what deductibles are applicable. Management committees face the daunting task to surveying each unit to determine the collective value of the improvements and arranging 100% insurance-to-value on a replacement cost basis, as the law requires. The law requires condominium associations to purchase insurance for “all risk of direct physical loss commonly insured against, including fire and extended coverage perils”.  It’s unclear whether the provision mandates the association to arrange coverage for earthquake and/or flood since those perils are “commonly insured against”. How Can We Help? We are available to assist you in the placement of your condominium accounts if this new law impacts the incumbent carrier’s willingness to renew coverage.  We would love the opportunity to quote your Non-profit Directors & Officers – Property and general liability – Monoline earthquake/flood Ask your Beehive Insurance broker for assistance!

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