The Association’s governing documents always dictate the association’s responsibilities versus the owner’s
responsibilities.
Single family dwellings are easy to decipher who is responsible for what – the homeowner would need to
purchase an HO-3 or HE-7 homeowners policy to insure the dwelling and the association would need to
insure shared property such as clubhouses, swimming pools, ball courts, etc.
For townhome and condominium associations, the governing documents of most associations specify that the
association shall provide coverage for common elements and each unit owner must insure his or her unit. This
implies that the association insure “walls and floors out” and the unit owner insure the interior. This would
suggest that a unit owner would need to include Coverage A – Building under their own insurance policy to
cover the elements of the unit that are actually part of the building (contrasted to “contents” such as clothing,
furniture, TVs, etc.).
The parts of the unit which cause concern are building type items such as floor coverings, wall coverings,
built-in cabinets and interior non-load bearing walls and partitions. Some governing documents can have
language broad enough to require the association insure the entirety of the building – i.e. common elements
and items in individual units that are permanently attached to the building. In this case, what are actually
townhomes (in which the owner owns the land, not just the unit) are technically insured as if they were
condominiums.
When the governing documents have this broad language, the insurance maintained by the association should
include the units but need not include improvements and betterments installed by the unit owners. In other
words, the master policy would include all that comes with the unit at the time of original purchase (with
standard allowances). The unit owner would need to purchase an HO-6 policy and insure the value of any
upgrades under the Coverage A – Building part.
In this scenario, another issue is the association policy deductible can be a higher amount – $10,000 or more.
Perhaps the individual unit owner is uncomfortable with such a large deductible. A solution would be to
purchase an amount of Coverage A – Building under the HO-6 equal to the cost of upgrades plus the
deductible amount.
The alternative method is to say in the declarations that the association will provide coverage on the common
elements only and each unit owner will have to cover all parts of the unit (including walls, floor coverings,
built-ins, etc.). This method calls for the developer/builder to inform each unit owner as to what the
replacement cost of such items is so that the proper amount of Coverage A – Building coverage can be
obtained by each owner. Not only is this a cumbersome method, but it is impossible to get that information as
time passes.
Author: Alex Haynes, Insurance Advisor – Hood Harget & Associates
January 30, 2025
