Insurance Issues for Condominium & Cooperative Apartment Communities (part 2)
There are three main kinds of multi-family housing ownership – Landlords and tenants, condominiums, and cooperative ownership. We first addressed insurance issues related to the landlords and tenants in our last blog. In this blog, we will explain about insurance issues pertinent to condominium and cooperative apartment communities.
“Condominium ownership” means owners individually own their dwelling units and collectively own other aspects of the building where their dwellings reside through an association.
“Cooperative ownership” is where an individual owns a share of a residential corporation and the right to occupy a unit.
Condo ownership interest and insurance coverage
Where does a condo unit’s ownership begin, and an association’s ownership end? The precise ownership rights in a condominium apartment building is established in the “declarations” or the master agreements of condo apartments. (A condo association’s bylaws contain processes and procedures for regulating the association and individual unit-owners.)
What condo associations own:
Only the unadorned, load-bearing walls, floors and ceilings, plus plumbing, heating, air conditioning, radiators, wiring, and electrical systems that serve all units, — so called the “bare walls”. If the unit owners add permanent fixtures such as lighting, wall covering, installed carpeting and shelves, etc. The unit-owners own these additions which are not insured under the association’s property insurance.
Alternatively, a master agreement may designate the association to be the owner of permanent alterations and improvements within dwelling units. How the condo association documents spell out ownership interest can either cover or exclude insurance coverages.
Co-ops ownership interest and insurance coverage
In Cooperative apartment communities, commonly known as “co-ops,” an owner who is usually a resident as well does not own a unit but rather a share in the corporation that owns the structure(s). The co-ops shareholder’s share is usually commensurate with the size of the unit. The corporation then leases the unit to the owner/resident for their unit. Other than this, co-ops function very much like condos.
Transfer of the right of occupancy by a co-op resident requires the approval of the co-op board of directors. Co-op documents can determine ownership rights and insurance considerations regarding fixtures and improvements to a unit by an occupant.
Insurance Issues for both Condo and Co-ops
Building structure (fixtures, systems and load bearing walls)
Usually insured under a condo association or cooperative commercial insurance policy.
Fixtures or improvements in dwelling units
Using “standard” insurance base forms will be risky for insurance policies, since each Condo or Co-op’s master agreement defers, hence customized attention from experienced brokers like Rick Callaway Insurance Team can help you catch the “gaps”. For example, some condominium agreements assign ownership of fixtures in units, and/or the duty to insure them, to the association. Other insurance policies of condo associations or co-op corporations extend property coverage to appliances, fixtures, alterations and improvements within dwelling units. Some other association policies provide primary coverage first before any other policy. If the association’s insurance limit is sufficient, the unit-owners’ policies don’t need to cover damages to building property within units.
A thorough review of all insurance policies can avoid overlapping and extra payment. For instance, if the owner of an apartment building or apartment communities has a retail store on site that is already covered with its separate insurance for fixtures, machinery and equipment at the insured location, the building’s commercial insurance policy can have a separate limit for business personal property of the insured.
Personal property in dwelling units
A unit-owner’s or resident member’s personal property is insured under a unit owner’s policy.
In a commercial insurance policy for the association or the corporation of condos or co-ops, insurance limit is usually included for property of others under the insured’s custody, such as an apartment complex owner storing property of its tenants in the insured building as a service. The limit applies for payment for an insured loss to that property while in storage.
Building owner’s loss of revenue (when all or part of a structure cannot be occupied)
If the peril causing damages to the building is covered in the commercial insurance policy, the loss of business income coverage is available.
Resident’s loss of use (when a unit cannot be occupied)
Unit-owners’ policies provide additional living expenses incurred due to inability to access apartment units resulting from building damage caused by a covered peril.
Increased Cost of Construction: Building Owner
If commercial insurance policy covers replacement cost, condo associations and co-ops are insured for increased additional cost of construction to bring undamaged parts of a building into compliance with building ordinances. However, an endorsement is needed for similar coverage for property insured for actual cash value.
Increased Cost of Construction: Residents
A typical percentage, usually capped at 10% of the dwelling property limit, can be provided by insurance to pay for increased costs to bring undamaged property into compliance with building ordinances.
Anyone who owns an apartment unit, condo or co-op, is required to have personal liability insurance for any bodily injury they cause to other residents or guests, staff and for any damage they cause to property of the community, other residents or guests. This is because condo or co-op master agreements require owners to take out personal liability insurance to protect both the apartment communities and its residents. Personal liability insurance is also required by mortgage lenders to avoid having their collateral encumbered by liability judgments.
Usually, liability to shareholders by officers and directors of association is insured with D&O policies. In condo associations and co-op corporations, some residents serve on their boards managing common property in the interest of all residential communities under duty of care. They should be protected by D&O insurance taken out by the condo associations or co-op corporations.
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