Coverages

The following are some of the most common coverages for associations. Click on any coverage for more information.

Association Property Coverage

The purpose of this coverage is to protect the association from loss of or damage to association property.

In Georgia, the Georgia Condominium Act (Insurance Required Section) states that “The association shall obtain: (1) A casualty insurance policy or policies affording fire and extended coverage insurance for and in an amount consonant with the full replacement value of all structures within the condominium;”. This means that the association is responsible to insure to at least “Original Specifications” (this is explained in detail below).

We produce an “Association Replacement Cost Estimate (SAMPLE TOWNHOME)” for all of the associations we work with as part of our “Condominium Association Process”.

Because each unit owner owns a portion of the building, condominium associations are unique entities with specialized insurance needs. There is a “split” of the ownership of contiguous property between the association (one legal person) and the unit owner (a natural person). The key question that must be answered is: Who is responsible for what property?

The association’s review of property covered should examine what items are covered. Any items that the association chooses not to cover under their master property insurance policy will be, by default, self-insured by the association. Self-insured means that the association will be paying for repairs through special assessments.

Buildings:

Could include residences, club houses, meeting centers, boat houses, carports, garages, sewage treatment facilities, and heating and air conditioning plants. Could also include foundations; pipes, wires, conduits and utilities whether above or below ground; heating, ventilating and cooling systems, sprinkler, fire protection and security systems; permanently installed building machinery and equipment; balconies; porches; decks; and patios.

Structures (some of these items may not be insurable):

Could include arbors, awnings or canopies, bridges, bulkheads, cabanas, courts for handball, courts for racquet sports, flagpoles, fences, walkways, roadways, fountains, gatehouses, gazebos, piers, docks and wharves, pump houses, recreation fixtures, retaining walls, swimming pools and statues.

Levels of Condominium Association Responsibility

There are three levels of condominium association’s responsibility;

1) All-In

2) Original Specifications

3) Bare Walls-In

Each of these different levels of association’s responsibility determines which part of the real property the association is responsible to insure.

To determine which level of policy your association requires you will need to read your association documents (By-Laws/Covenants). Your association documents will outline the requirements for your association’s insurance, including specific requirements for the coverage (deductibles, coverage limits, types of coverage) that your association must purchase.

We review all condominium documents as a part of our “Condominium Association Process” and propose the appropriate policies to match your association’s responsibility as delineated in your association’s documents. In addition, we will when appropriate make recommendations for changes to your documents.

To understand the three levels of association responsibility it is important to first understand the four categories of condominium real property;

Categories of Condominium Real Property

1)  Common Element

Common elements are owned by and benefit all or nearly all members of the association. Examples of common elements include but are not limited to; land, parking lots, club houses, pool houses, pools, fences, gates, playground equipment, tennis courts, the building’s structural foundations and load-bearing walls, and other property owned by and allocated to all unit owners. Not all property categorized as a common element is insurable by a standard property policy (i.e. land), but most can and should be scheduled.

2)  Limited Common Element

Limited common elements are beneficial to more than one but less than all unit owners. Examples of limited common elements include but are not limited to; common hallways or corridors providing access to several units, walls and columns containing electrical wiring or sprinkler piping serving or protecting multiple units, enclosures providing heating and cooling to multiple units, and other property beneficial to more than one unit owner but not all unit owners. Fixtures designed to serve a single unit but located outside the unit’s boundaries are often categorized as limited common elements because the appearance and safety of these fixtures directly affects multiple unit owners although connected to just one unit. Examples of this type of limited common element include but are not limited to; doorsteps, stoops, decks, porches, balconies, patios, exterior doors and windows.

3)  Unit Property

Unit property is defined by the association’s documents or state statute and is limited to and benefits only the unit owner. Examples of unit property include but are not limited to; the inside of the exterior walls, interior partition walls, counter tops, cabinetry, plumbing fixtures, appliances and any other real property confined to the unit.

4)  Unit Improvements and Betterments

Unit improvements and betterments benefit only the unit owner. A unit improvement or betterment is created when the unit owner upgrades part of their units permanently attached structure and thus increases the value of the real property within the individual unit. Examples of improvements and betterments include but are not limited to; upgraded cabinetry in the kitchen or bathroom, upgraded counter tops, upgraded flooring, upgraded wall covering.

Here are the three different levels of condominium association’s responsibility and the master insurance policies for those levels;

Levels of Condominium Association Responsibility

1)  All-In

The association is responsible to insure; common elements, limited common elements, unit property, and unit improvements and betterments.

Unit owners are responsible to insure only their personal property within the unit.

2)  Original Specifications (Georgia requires at least this much coverage – this is the most common)

The association is responsible to insure; common elements, limited common elements and unit property.

Unit owners are responsible to insure both their personal property within the unit and unit improvements and betterments.

3)  Bare Walls-In

The association is responsible to insure; common elements and limited common elements. Bare walls-in does not cover fixtures and installations within each condominium units. Under the association’s bare walls-in policy, kitchen and bathroom built in cabinets, counter tops, fixtures, wall coverings, and flooring are generally not covered.

Unit owners are responsible to insure, their personal property within the unit, unit improvements and betterments, and unit property.

The problem with Bare Walls-In is the definition of unit. Unit does not have a universal or even uniform definition. Unit boundaries, the beginning of the area the association is not responsible for insuring, can be everything from the studs; or the unfinished walls (meaning the paint is insured by the unit owner); or the sub-floor and the underside of the ceiling, or any other variation.

Important Property Insurance Policy Forms & Conditions

1)  Causes of Loss Covered (Perils)

a)  Special Form (broadest form available) – This coverage form is also known as “all risk” and provides protection for all perils except those specifically excluded. While the special form is the broadest available, there are many variations in the perils that are excluded, such as; sewer back-up, artificially generated electrical current, or mysterious disappearance of property of others.

Standard exclusions include; flood, earth movement, war and military action, nuclear reaction, material factors such as wear and tear, rust, corrosion, deterioration, hidden or latent defects, settling, cracking, bulging, shrinking, or expanding.

b)  Named Perils– This coverage form can include or excluded protection for any perils explicitly defined in the policy.

2)  Limit of Property Insurance – This is the value you are insuring your buildings for.

a)  What is the current reproduction value of your buildings? How did you arrive at this value? We always produce a replacement cost estimate for every association we work with.

“Association Replacement Cost Estimate (SAMPLE TOWNHOME)”

b)  Are your buildings covered on a “Blanket” basis (this is preferred) - With respect to property insurance, the term “blanket” generally means the “TIV” (Total insured value) applies to every building.

c)  Or are your buildings scheduled with separate limits for each building

3)  Valuation Basis – This determines how the insurance company is going to pay your claims.

a)  Guaranteed Replacement Cost - In the event of an insured loss, this will fully provide for repair or replacement of your buildings without any deduction or depreciation even if the cost to replace or repair is more than the stated amount in your policy.

b)  Extended Replacement Cost - In the event of an insured loss, this will provide for repair or replacement of your buildings without deduction for depreciation up to a specified amount of the total insured value stated in the policy (usually between 125% and 150%).

c)  Replacement Cost - In the event of an insured loss, this will provide for repair or replacement of your buildings without deduction for depreciation to the maximum of the policy limit.

d)  Actual Cash Value - In the event of an insured loss, this will provide for repair or replacement of your buildings with deduction for depreciation.

e)  Agreed Value – In the event of an insured loss, this will provide for repair or replacement of your buildings with the coinsurance clause waived. This eliminates the possibility of a coinsurance penalty if the property is not insured to value at the time of loss. Some policies have no coinsurance clause and are automatically written on an agreed value basis.

4)  Co-Insurance – This is a clause contained in most property insurance policies designed to encourage policy holders to carry the correct amount of insurance. If the insured fails to maintain the amount specified in the clause (usually between 80% and 100%), the insured shares a higher proportion of the loss.

EXAMPLE:

Your property’s value is: $100,000
The coinsurance percentage for your policy is: 80%
Your property is insured for: $60,000
Your deductible is: $5,000
You have a loss of: $50,000
Minimum amount your property needs to be insured for: $100,000 x 80% (0.8) = $80,000
Percentage of the insured value you are currently insuring: $60,000 ÷ $100,000 = 60% (.60)
Amount of the loss that will be covered: $50,000 x 60% (.60) = $30,000
Amount of the loss that will be covered less the deductible: $30,000 - $5,000 = $25,000
The insurance company won’t pay more than $25,000 on the loss, the other $35,000 will the insured’s responsibility.

a)  Is your co-insurance waived? (this is preferred)

b)  Is your co-insurance 80%, 90%, or 100%?

5)  Deductibles

If your association’s buildings are damaged by a covered cause of loss, then your association would make a claim against the association’s master insurance policy. The deductible amount attached to the association’s master insurance policy can be spread among all unit owners or assessed to specific unit owners.

In Georgia, the Georgia Condominium Act (Insurance Required Section) limits the amount of deductible an association can pass on to an individual unit owner to $5,000 for coverages required by state law (last updated 8/20/13). Association bylaws can also further limit the amount of deductible an association can pass on to an individual unit owner for coverage required by state law.

6)  Ordinance or Law Coverage

Older buildings that are damaged may need upgraded electrical, heating, ventilating, air conditioning or plumbing in order to satisfy current building codes. This coverage is made up to three parts;

a)  Contingent Liability (Coverage A) – This pays for the value of any undamaged portion of the building when construction codes require a building damaged by a covered loss to be demolished.

b) Demolition Coverage (Coverage B) – This covers the cost to tear down and remove debris of any undamaged portion of the building.

c)  Increased Cost of Construction (Coverage C) – This provides coverage for the increased cost of construction caused by the enforcement of ordinances or laws regulating construction and repair of damaged buildings.

7)  Boiler & Machinery (Equipment Breakdown)

Often also called “Equipment Breakdown” covers physical damage to and financial loss from the breakdown of your association’s equipment. The most common things this would cover would be either pool pumps, common area HVAC, or elevators.

8)  Blanket Coverage vs. Scheduled Coverage

Blanket – With respect to property insurance, the term “blanket” generally means the “TIV” (Total insured value) applies to every building. Instead of a scheduled limit per building.

Scheduled – With respect to property insurance, the term “scheduled” generally means that each building is insured up to a specific limit.

Unit Owner Property Coverage

The property not insured by the association is the responsibility of the unit owner and should be covered by their unit owner’s insurance policy. We provide all associations we insure with “Association & Unit Owner Policies (SAMPLE)” letter stating what the association is covering and what the unit owner should be covering.

Each Unit Owner should carry a Condominium Unit-Owner’s Policy (or a Dwelling Fire policy if you do not live in your unit) to insure the following;

Contents – This is personal property inside the unit.
Improvements and Betterments – This is to cover any upgrades made within the unit.
Liability Coverage – This is to cover personal liability exposure.
Loss of Use - (to cover your expenses if you are required to move out of your unit during repairs)
Loss Assessment – This is to protect against an assessment from the association for an uninsured loss, or an under insured loss, or as a result of the deductible.
In Georgia, the Georgia Condominium Act (Insurance Required Section) limits the amount of deductible an association can pass on to an individual unit owner to $5,000 for coverages required by state law (last updated 8/20/13). Association bylaws can also further limit the amount of deductible an association can pass on to an individual unit owner for coverage required by state law.
These items cannot be included in the Association’s Master Policies.

If you would like a review of your current Unit Owners policy to make sure it is providing you with the correct coverage please contact us today.

Flood Coverage

The purpose of this coverage is to protect the association from loss of or damage to association property caused by flood. Your association’s buildings do not have to be in a designated flood zone to experience a loss due to rising water. Flood insurance is never covered by an associations master property policy, it is always a separate policy.

It is important to know that the limit the National Federal Insurance Program (NFIP) will pay in the event of a building loss is $250,000 per unit which includes the association and individual unit owner’s policies. Additional Flood coverage is available in the private insurance marketplace if higher limits are needed. Flood Insurance premiums are determined by the dollar amount of coverage needed, the designated flood zone, and the deductible selected.

General Liability Coverage

The purpose of this coverage is to protect the association from liability imposed by law from bodily injury and property damage occurrences, both on your association property and away from the premises. The insurance company also has the duty to defend the association against any claim which alleges injury or seeks damages regardless of whether the association is negligent.

In Georgia, the Georgia Condominium Act (Insurance Required Section) states that “A liability insurance policy or policies, in amounts specified by the condominium instruments but not in amounts less than $1,000,000.00 for injury, including death, to a single person; $2,000,000 for injury or injuries, including death, arising out of a single occurrence; and $50,000.00 for property damage;”

How much coverage an association should carry is generally decided by the board of directors, with guidance from property managers and insurance professionals.

Liability Limits

Occurrence Limit – This is the maximum amount the policy will pay per occurrence. An occurrence means an accident that results in injury or damage neither expected nor intended from the standpoint of the insured.

General Aggregate Limit – This is the most the insurance company will pay for any and all liability occurrences or losses under the policy during any one policy year.

Extensions of the coverage

Additional Insureds – Provides employees and property managers acting within the scope of their duties the same liability protection afforded to the association.

Advertising Liability – Protects the association against injury arising from advertising activities including slander, defamation of character or libel.

Contractual Liability - Provides coverage if the association has entered into any contracts where it agrees to indemnify or hold harmless the other party.

Cross Liability – Provides protection if an owner or member of the association sues the association for bodily injury damages occurring on a common area as a result of negligence by either a unit owner or the association.

Garage Keepers’ Legal Liability – Provides protection for the automobiles of unit owners or guests that are in the care, custody or control of the association, such as attendants that park cars. Coverage is provided for such perils as collision, vandalism and theft.

Host Liquor Liability – Provides coverage for liability that may arise if the association sponsors events where liquor is consumed or served.

Independent Contractors Liability – Protects the association from loss due to liability arising from operations of sub-contractors. (Many carriers now exclude or limit this coverage.)

Medical Payments – Provides medical expense coverage for people injured on the common property, regardless of whether the association is liable.

Personal Injury – Extends bodily injury to include false arrest, detention or imprisonment, libel, slander, malicious prosecution, defamation of character, invasion of privacy, wrongful eviction and wrongful entry. Some forms may also include coverage for humiliation and discrimination.

Property Damage – Provides coverage for the association for property of others in the association's care, custody or control at the time of loss. Some forms limit coverage to the peril of fire only.

Severability of Interest – Precludes the insurance company from denying liability because of negligent acts of the association or a unit owner.

Automobile Liability Coverage

Association Owns Vehicles

The purpose of this coverage is to protect the association from liability for the operation of motor vehicles. The policy includes liability coverage for protection against third party claims arising from alleged bodily injury or property damage to members of the public. Coverage may also be provided for medical payments, collision, comprehensive perils and hired and non-owned autos.

Hired and Non-Owned Auto (the association does not own any vehicles)

The purpose of this coverage is to protect the association from liability for the use of rented or loaned automobiles used by your association. This coverage can usually be added to the Association’s General Liability policy. Coverage applies if an employee, director, or volunteer using his/her own car or a rented vehicle on an errand for your association is in an accident which results in damage exceeding their personal auto limit.

Directors and Officers Liability Coverage

The purpose of this is to provide coverage for claims alleging losses arising from mismanagement or wrongful acts. A wrongful act means any breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted by the association.

Your association’s Directors and Officers coverage should include management decisions made by the past, present or future directors, officers, trustees, employees, committee members, volunteers, or property management company employees of your association.

All Directors and Officers policies are not as comprehensive as others. Here is a list of possible coverage problems to look out for with some Directors and Officers policies;

1)  Defense Costs included in the policy limit – They should be in addition to the policy limit (Outside)

2)  Does not cover Non-Monetary Damages – Examples include but are not limited to;

A)  The Board’s failure to maintain common areas

B)  The Board’s failure to adhere to association By-Laws

C)  The Board’s failure to properly disburse funds

D)  The Board’s failure to give the proper notice of elections

E)  The Board’s failure to accurately count votes/proxies

F)  The Board’s improper removal of other board members

G)  The Board’s improper levying and application of assessments

H)  The Board’s improper granting of easements

I)  The Board’s or the architecture committee’ improper approval of variances

J)  The Board’s decisions that result in physical damage to the association’s property

3)  Does not cover acts of the property manager

4)  Does not cover acts of Non-Board members (like volunteers, committee members, and employees)

5)  Does not cover the failure to maintain or obtain insurance (this requires defense cost coverage)

6)  Does not cover discrimination & fair-housing claims

Umbrella Liability Coverage

The purpose of this is to provide additional coverage when the limits of insurance on an underlying policy are exceeded. Underlying policies include; General Liability, Directors and Officers Liability, Automobile Liability, and Workers Compensation.

Fidelity Bond/Employee Dishonesty Coverage

The purpose of this coverage is to indemnify the association for the loss of money, securities or any property because of acts of fraud, dishonesty, forgery, theft, larceny, embezzlement, wrongful abstraction, willful misapplication, misappropriation or any criminal act on the part of directors, officers, committee members, association employees, board members, volunteers, or property manager employees.

In Georgia, the “Georgia Real Estate Law (Fidelity Bond Required Section)” states that any community association management service who collects, maintains, controls, has access to, or disburses community association funds in excess of $60,000 shall be covered at all times under a fidelity bond.

The amount of the bond shall at no time be less than an amount equal to the sum of three months assessments due from all the members of the association or associations managed by the broker plus the amount of reserve funds that the community association or associations require the broker to maintain.

Workers Compensation Coverage

Association Has Employees

The purpose of this is to provide coverage for work related injuries or diseases suffered by association employees that are compensable by statute and/or imposed by law as damages. Coverage is provided for payment of medical expenses and reimbursement of lost wages.

Volunteer (the association has no employees)

The purpose of this is to provide coverage if an association volunteer is injured while working on behalf of the association. This policy will provide coverage for medical and rehabilitation cost for the injured volunteer. It does not usually pay the wage portion because there is no “wage” associated with the work.

This policy is not intended to cover employees of the association or any contractors working on behalf of the association. However, if required by local law to step in as the “employer” as it relates to benefits owed an employee of an uninsured contractor that is injured on the association property this policy will provide typical workers compensation coverage. This policy requires the association to maintain certificates of insurance showing workers compensation coverage for all contractors used.

Sports Team Coverage

Most association general liability policies exclude coverage for “Athletic Sports Participant” injuries.

If the association has any sports teams (Swim Team/League, Tennis Team/League, or any other sport Team/League) there are policies available that will cover any and all teams and the association for this type of liability exposure.

Most of these policies include medical expense coverage which is available without having to establish negligence. Often included is coverage for traveling to events and coverage for coaches. Some additional policy options include Directors and Officers and team equipment coverage.

Additionally, there are some other “sports” related liability exposures that the association should be mindful of;

1)  Team or League are separate legal entities – Have the Team/League provide the association with a certificate of insurance naming the association as an additional insured, not just a certificate holder. Some swim teams maybe be part of a county league that has its own coverage. This is only acceptable if your association can be added as an additional insured.

2)  Instructors using association facilities – The instructor will have to carry their own liability policy and must provide the association with a certificate of insurance naming the association as an additional insured, not just a certificate holder.

3)  Your association uses a lifeguard service – The lifeguard service will have to carry their own liability policy and must provide the association with a certificate of insurance naming the association as an additional insured, not just a certificate holder.