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Unit-owners are bearing more of the load when it comes to insurance.
AUTHORScott S. Greenspun and Jillian Menna
One of the more daunting tasks for condominium boards and managing agents is sorting through damage to a building when there’s a property loss, such as water infiltration or fire. Part of handling such a loss includes navigating the remediation of damage to the common elements versus damage to the inside of apartment units. As any board or management company that has handled a major property loss knows, there is typically a great deal of focus on what’s covered by the condominium’s property insurance versus what’s covered under the unit-owner’s individual policy.
While condominium property insurance policies always cover damage to the common elements of a building, they don’t always provide coverage for damage inside unit-owners’ apartments. That depends on the precise language of the bylaws.
Condominium bylaws traditionally require boards to secure a property policy insuring the entire building. The condominium’s property policy will not only provide coverage to repair the common elements, but also to repair or replace damaged floors, non-load-bearing walls, kitchen cabinets, bathroom fixtures and other items inside the apartment units. The only two types of property not covered by the condominium’s insurance in this situation are unit-owners’ personal property (furniture, clothes, etc.) and unit-owner “improvements and betterments,” or upgrades, that were performed after the apartment was purchased from the sponsor. In other words, if a unit-owner upgrades his or her kitchen cabinets or flooring, then that person’s insurance, not the condominium’s, would cover it.
However, over the last few years, condominium bylaw provisions regarding insurance coverage have changed significantly. The bylaws for many new condominiums provide that the board should procure insurance to repair the common elements only, leaving unit-owners with the responsibility to obtain insurance to cover damage inside their apartments, including floors, non-load-bearing walls, cabinets and fixtures, whether originally installed by the sponsor or upgraded by the unit-owner. The significant economic effect of this change is that the condominium’s property insurance premiums will be reduced, while unit-owners will need to purchase broader, more expensive policies — or pay to repair property loss damages out of pocket.
This shift of insurance burden in the event of a casualty loss is not applicable to cooperatives, where proprietary leases already provide that in the event of damage, the corporation would restore the walls only to the basic building “standard” — the plain-vanilla walls and the ceiling — while the shareholder is responsible for covering damage inside his or her apartment.
If a condominium’s bylaws provide property damage coverage only for the common elements, it’s critical for the board to ensure that unit-owners purchase insurance that will cover their units (as defined in the declaration). The board should also require that unit-owners submit certificates of insurance to the building’s managing agent on a yearly basis confirming that they have complied with their obligations. If a unit-owner fails to carry sufficient property insurance and does not have ample assets to remediate the damage to his or her apartment after a loss, there is risk that it will remain in disrepair for an extended period of time, which could in turn cause other damage to the building — and bring down the overall value of units.
If a condominium is purchasing property insurance that covers only the common elements, the board should review its bylaws to make sure that it has the right to require unit-owners to carry their own property insurance and attempt to amend the bylaws if such right is missing. The board cannot require unit-owners to carry insurance by simply amending the rules and regulations if that obligation is not contained in the bylaws.
Scott S. Greenspun is a principal at the law firm Braverman Greenspun. Jillian Menna is general counsel for Genatt V Insurance Solutions.