What You Need to Know About Condominium Association Insurance
Selling condominium association insurance (COA insurance) for the first time comes with a steep learning curve. On the surface, COA insurance is simply coverage for the common areas and shared amenities within the building or complex. However, dig deeper and you’ll find layers of complexity that make every COA’s insurance needs unique. Everything from state laws to a COA’s CC&Rs impacts what type of and amount of coverage a condo association needs.
These challenges make finding insurance for COAs a bit of a headache for the uninitiated. It doesn’t make it impossible, though. This article will guide you through the basics of condominium association insurance — who buys it, what it covers, and some state laws that you’ll need to follow. This guide will bring you up to speed, so you can confidently help clients find the right insurance for their condo association.
Who Buys and Pays for Condo Association Insurance?
The board of directors is responsible for purchasing insurance. These people are unit owners who have been elected to the board to make decisions, such as insurance coverage, for the association. The board governs the maintenance and servicing of condos, sets and enforces rules, and determines condo fees. Since they are volunteers, they’re probably not experts in insurance (that’s where you come in).
Although the board is in charge of choosing insurance, it’s the unit owners who pay for it with their monthly assessments. For this reason, it’s important that unit owners have a strong understanding of the coverages and associated costs.
What Does Condominium Association Insurance Cover?
The goal of condominium association insurance is to provide coverage for common areas within the association, such as pools, walkways, and clubhouses. It can also include insuring the association’s board against liability.
However, the devil is in the details, so let’s take a closer look at COA insurance coverage.
General liability insurance protects the association against lawsuits in the event of an incident in a common area. For instance, if a light fixture in the lobby falls out and hits someone on the head, general liability protects the association from a potential lawsuit and provides defense costs.
General liability does not cover incidents inside the units. Unit owners will need to rely on homeowners insurance for that.
A condo association’s property insurance falls into one of three coverage options:
- Bare walls coverage: This policy covers communal structures only, including (you guessed it) the structural walls and floors of each condo unit (though not the pretty tiles or wallpaper you add to them). Everything inside those walls is up to the owner’s condominium insurance. For this reason, this kind of policy is considered the most limited property insurance option.
- Original specs coverage: This policy covers both communal structures and individual units. The catch? It only covers the basics of the interior — think flooring, cabinets, and fixtures. Anything added, like your client’s personal belongings, betterments, or extensions, is up to them.
- All-in coverage: This policy provides maximum coverage — all real property is covered by the association.
Usually, the COA’s CC&Rs will outline what type of coverage is required and what the responsibilities of the unit owners are. Getting the wrong level of property insurance can either leave condo owners overinsured and paying too much or dangerously underinsured.
D&O covers board members if they’re sued while performing their duties for the condo association. With D&O coverage, all relevant parties must be listed as insureds. This usually includes the before-mentioned board members as well as any property management firms, employees, or volunteers.
It’s also advisable to include an umbrella policy to top up a COA’s liability policy. Umbrella policies add extra protection for COAs and are triggered once the underlying coverage has been exhausted.
Many COA boards may not be aware of what other coverages are available. This can be a good opportunity to educate them and showcase your expertise as a broker.
Some additional coverages include:
- Crime insurance: Includes coverage against employee dishonesty, forgery, and computer fraud, along with certain financial crimes.
- Cyber insurance: Covers costs associated with data breaches and other kinds of cybercrime.
- Sewer backup: Covers costs if a sewer backup leads to water damage.
- Flood insurance: Covers costs in case of flooding that leads to property damage.
Many of these coverages come standard in Distinguished’s suite of Community Association products. If you’d like to learn more, you can chat with one of our insurance experts.
Resources to Share with Clients
Board members may want resources to look over or share with condo owners. Here are a few that you could pass along.
- Community Associations Package Insurance pamphlet
- Directors and Officers Insurance pamphlet
- Large Loss Infographic
Cost of Condo Association Insurance
COA insurance premiums vary widely based on the association’s size, coverages, limits, exposures, and deductibles. Other factors like loss history, location, and construction type will also factor in.
To get an actual quote reflecting the realities of a particular COA, you’ll need to fill out an application and submit it to Communityassociation@distinguished.com. You should expect to get a quote in as little as 24-48 hours.
Selling COA Insurance in Different Markets
Each state and jurisdiction can have slightly different laws and regulations that govern COA insurance coverage. Although board members may know that there are state regulations in place, that doesn’t mean they’ll know the ins and outs. They’ll be relying on you to navigate through the details and get them the insurance they need.
Here’s a quick breakdown of some of the regulations in a few of the larger condo markets. If you don’t see what you’re looking for, try to find the piece of legislation that determines COA regulations in your state. Google is always a good bet for sniffing out the document that holds the answers you’re looking for.
Florida Condominium Association Insurance Requirements
In Florida’s condo associations, the law requires that:
- COA property insurance is equal to the replacement cost of the property (a number determined every 36 months by an independent appraisal). COAs can also provide adequate property insurance through a self-insurance fund.
- Property insurance must cover “all portions of the condominium property as originally installed or replacement of like kind and quality, in accordance with the original plans and specifications.” It must also cover “all alterations or additions made to the condominium property.”
- Property insurance cannot include “personal property within the unit or limited common elements.” This can include floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, and more.
To learn more, read through Florida’s Condominium Act.
California Condominium Association Insurance Requirements
In California’s condo associations, the law requires that:
- COAs have at least a minimum amount of D&O insurance based on their size. For COAs of less than 100 units, they’ll need at least $500,000 of coverage. Otherwise, they’ll need at least $1,000,000.
- COAs need to carry $2 million (fewer than 101 units) or $3 million (more than 100 units) of general liability coverage.
- COAs need to carry crime insurance coverage “equal to or greater than the combined amount of the reserves and total assessments for three months.”
To learn more, take a read through California’s Davis-Stirling Act.
Illinois Condominium Association Insurance Requirements
In Illinois’s condo associations, the law requires that:
- Property insurance and GL are included in any COA insurance policy to certain minimum thresholds. Property insurance minimums require a bit of math (you can find the details here), and GL requires $1 million or more.
- Crime insurance or a fidelity bond is required for COAs with six or more units equal to “the full amount of association funds and reserves in the custody of the association or the management company.”
Learn more from this mercifully brief document.
The Benefits of Distinguished’s COA Insurance
Distinguished has worked with countless insurance brokers and agents to get COAs, HOAs, and other community associations the insurance they need.
We’re also incredibly convenient for brokers. We offer the essential coverages COAs need to succeed and have a dedicated claims management team ready to answer your questions.
If you’d like to learn more about Distinguished’s condo association insurance and condo building insurance, check out our Community Association Program page or register your agency and fill out an application form to get a COA insurance quote.
About Distinguished Programs
Distinguished Programs is a leading national insurance Program Manager providing specialized insurance programs to brokers and agents with specific expertise in Real Estate, Community Associations, Hotels, and Restaurants. Property and liability products are distributed through a national network of agents and brokers. Serving the same core markets and partnering with the most stable and reputable carriers, Distinguished Programs’ high-limit umbrella programs remain the clear choice in its areas of specialty for superior coverage, competitive pricing, and attentive service. Through thoughtful innovation, stemming back to 1995, Distinguished Programs fosters growth and opportunities for its brokers, carriers, and employees.
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