Understanding the scope of association insurance coverages is basic to protecting the vital interests of the owners. Do you understand what the association’s duties are when a fire, windstorm or burst pipe damages the common elements or unit interiors?

The association’s insurance duties are addressed in the governing documents (sometimes called CC&Rs -- Covenants, Conditions & Restrictions). The insurance company’s duties are based on the wording of the policy. The two documents often contradict. Surprisingly, the insurance policy often pays for the repairs that aren’t even an association’s responsibility. Are there reasons why such broad coverage may not be in the association’s best interest? If an owner negligently causes a loss, is it fair that the repairs be done under the association’s policy?

Traditionally, association insurance policies have fallen into one of three different categories. The narrowest is called "bare walls" and covers little of the owner’s fixtures and finishes. Next, and most common, is the broader coverage known as "single entity". This type expands coverage to include standard fixtures and finishes provided by the builder. The broadest is referred to as "all-in" or "modified single entity" which includes coverages for owner installed upgrades such as cabinets, light and plumbing fixtures.

Many association insurance policies are the "all-in" type which creates a dilemma. While the association could cover many owner claims, it’s unwise to do so. The association’s policy is somewhat like an auto policy in that multiple claims may increase future premiums or cause the policy to be cancelled. So, many association governing documents require the owners to insure their own interior finishes and fixtures and the association insurance only comes into play if there is multiple unit damage due to, say, a fire. This spreads the risk around and keeps the association insurance viable.

Since the association and owners each have distinct repair and insurance responsibilities, it’s very important that those responsibilities be clearly delineated. "Inside=Owner" and "Outside=Association" won’t cut it because there are exceptions. And at some point, "Inside" and "Outside" meet. Where exactly is that dividing line? A way to clarify this has been developed called the "Maintenance & Insurance Areas of Responsibility". It lists grounds and building components like the roof, gutters, downspouts, plumbing-interior, plumbing-exterior, etc. and assigns responsibility either to Owner or Association. For more on this subject, see www.regenesis.net.

The Areas of Responsibility not only eliminates many disputes, it advises both association and owners’ insurance agents what kind of coverage is necessary. It also helps the Board and Manager perform consistent maintenance because there is a clear roadmap. This document is one of the building blocks of community harmony. Don’t wait for the next insurance "event" to come crashing or burning in. Write your own "Areas of Responsibility" and be prepared.

Published: December 20, 2000

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .