Condominium and co-operative insurance

Condominium ownership splits insurance responsibility between the association and the unit owner, and the split is defined by the association's governing documents rather than by any general rule.

The master policy

Purchased by the association, covering the building structure, common areas and association liability, funded through assessments.

The critical question is what the master policy covers within your unit, and there are three broad approaches.

Bare walls. The association covers the structure to the unstriped surfaces — studs, subfloor, ceiling framing. Everything inside, including drywall, flooring, cabinets, fixtures and appliances, is the owner's responsibility.

Single entity, sometimes called original specifications. The association covers the unit as originally built, including standard fixtures and finishes. Owner improvements and upgrades are the owner's responsibility.

All-in, or all-inclusive. The association covers the unit including fixtures and improvements, leaving the owner responsible mainly for personal property and liability.

Read the declaration and bylaws to determine which applies. This single fact determines how much coverage you need.

The unit owner policy

Typically an HO-6 form in the United States, covering:

Dwelling coverage for building property, meaning whatever falls to you under the association documents — improvements, betterments, and in a bare walls situation everything from the drywall inward.

People routinely underinsure this. In a bare walls building, replacing kitchen cabinets, flooring, bathrooms and fixtures after a fire is a very substantial cost.

Personal property, your possessions.

Personal liability, including liability arising from your unit.

Loss of use, covering additional living expenses if the unit is uninhabitable.

Loss assessment coverage, which deserves its own discussion.

Loss assessment

The coverage most owners have at a low limit and most need at a higher one.

If the association suffers a loss exceeding its coverage — or must pay its master policy deductible, which can be very large — it assesses unit owners for the shortfall.

Loss assessment coverage pays your share, up to its limit.

Standard limits are frequently modest, and assessments after significant events can be many times that.

Increasing this limit is inexpensive. Given the size of master policy deductibles in some regions, particularly for wind and hurricane, it is worth doing.

Check specifically whether your loss assessment coverage responds to an assessment for the master policy deductible, since some forms exclude or limit that.

The deductible problem

Master policies frequently carry large deductibles, and in catastrophe-exposed regions percentage deductibles applied to the whole building value.

The association allocates that deductible among owners, either by the governing documents or by assessment.

An owner's share of a large master policy deductible can be tens of thousands of dollars.

Ask the association what the master policy deductible is and how it is allocated. Many owners have no idea.

Water damage between units

The most common condominium claim scenario and the most contentious.

Water from your unit damages the unit below. Whose insurance responds?

Generally: your liability coverage responds if you were negligent; the other owner's policy responds for their property; the association's policy may respond for common elements.

The governing documents frequently address this specifically, and some associations have adopted rules assigning responsibility regardless of negligence.

The practical protections: adequate liability limits, loss assessment coverage, and knowing what your documents say before it happens.

Co-operatives

Different ownership structure with similar practical issues.

In a co-operative you own shares in a corporation and hold a proprietary lease, rather than owning real property.

The corporation's policy covers the building. Shareholders need coverage for their interior improvements, personal property, liability and loss assessment.

The relevant form differs and an agent familiar with co-operatives should be used, since the coverage triggers are not identical to condominium forms.

What to do

Obtain the association's declaration, bylaws and a certificate of insurance for the master policy.

Determine which coverage approach applies and what the deductible is.

Set your dwelling coverage to reflect what you would actually have to replace, which in a bare walls building is substantial.

Raise loss assessment coverage well above the standard limit.

Carry adequate liability limits and consider an umbrella policy.

Add sewer backup and, where relevant, flood coverage — note that ground floor and basement units have flood exposure that upper floors do not.

And review after any renovation, since improvements you make generally become your responsibility to insure.

General information about insurance concepts, not insurance or legal advice. Association documents, master policy terms and state condominium law vary. Read your governing documents and consult a licensed agent.