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Condominium Insurance
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Welcome to your Insurance Community University
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Polling
• Throughout the class we will be conducting periodic polls
• We need 100% participation on the polls• The polls are intended to check
participation but also to create discussion topics throughout the presentation
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Forms To Complete for CE
• After class ends– Return attendance form– Proctors – return your form to email
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DOI Requirements
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Internet Failure
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DisclaimerInsurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions;
and state jurisdiction. This instructional material provided by Insight Insurance Consulting and the Insurance Community
Center is intended as a general guideline and any interpretations provided by Insight, Insurance Community or presenters do not modify or revise insurance policy language. When ISO language is included in the materials, all ISO content is protected by the ISO copyright. All parties to this presentation and creation of
materials assume neither liability nor responsibility to any person or business with respect to any loss that is alleged to be
caused directly or indirectly as a result of the instructional materials provided.
Copyright 2010 – 2013 All Rights Reservedwww.insurancecommunitycenter.com
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Your Instructor Today
Laurie Infantino, CIC, AFIS, CISC, ACSR, CISC, CRISPresident and Co-Founder of
The Insurance Community Center
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Condominium
The Five Key Issues you Must Know to Insure the Association and the Unit Owner
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What this class will cover1. Understanding the difference between
a Cooperative, Townhouse and Condominium
2. Condominiums: a. Relationships; b. Responsibility; c. Requirements d. Review of the Association CC & Rs
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What this class will cover3. Determining what coverages must be
provided on the Association Policy for both Property owned in association and the units as defined in the CC & Rs
4. Review of some key coverages the association and management company must carry
5. Review of the Unit Owners Policy
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#1--Understanding the difference between a Cooperative, Townhouse
and Condominium
They can look alike! Your insured does not know what they bought! It is all about “ownership”.
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Townhouse The term “townhouse” is often used as a
descriptive term to mean a two story living space .
The term “townhouse” used in this context is a description rather than referring to the “ownership” issues
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Townhouse
In general a “townhouse” is defined as: - A single or multi-plex building, but is seldom more than three stories high
- A townhouse is an attached living unit to another unit
- Each townhouse homeowner owns their home up to the middle of the attached wall which is the “unseen” division between the two units. Thus the use of the word row house depicting the houses in a row.
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Townhouse
• In a townhouse, the owner of the townhouse owns it as their sole property. The townhouse owner typically has fee simple title to the land under their unit.
• The appropriate coverage for a townhouse is a Homeowners Policy (HO OO O3) which covers the dwelling as well as other structures; personal property and loss of use. Additionally Comprehensive Personal Liability forms part of the package.
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Townhouse
• A townhouse owner may be part of a community that is governed by an association. – The association, which is made up of the
townhouse owners, may own common elements such as guard houses, swimming pools, landscaping.
– As with a condo association, the C C & Rs must be reviewed and the CC & Rs will determine what categories of regular and special assessments can be made against the townhouse owner.
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Polling Question #1
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Cooperatives• The concept of cooperatives began
in 1926 in New York. It is one of the oldest multi family type of housing.
• Many Apartments converted to coops as a legal method to sell off units
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Cooperatives• A cooperative is a multiple unit building
that is typically used for residential purposes.
• However, there are cooperatives that are used for commercial purposes or mixed occupancies in a building made up of residential and commercial occupancies.
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Cooperative• Cooperatives are different from
townhouses or condominiums. Cooperatives often resemble apartment houses.
• The distinction is that individuals purchase their cooperatives as compared with apartment dwellers who are non-owner tenants in a building.
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Cooperatives
• Often times when someone says they bought their apartment unit, they actually purchased a coop.
• As with a condo, the CC & R’s for the coop must be reviewed
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Cooperatives
• It is the cooperative ownership that is very distinctive. In a cooperative the individual units and the buildings in general are owned by the “cooperative” in common. The “cooperative” is typically a corporation and the owner of each unit is a shareholder in the corporation (cooperative).
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Cooperative
• The individual unit owner’s interest in the coop is typically expressed as a undivided fractional owner.
• For example if there were 18 units in the cooperative building each of equal size, then each unit owner would have an undivided fractional interest of 5.55%.
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Cooperative
• For insurance purposes the cooperative building and all common properties are insured on a Commercial Property program similar to that of an apartment form of insurance.
• Unit owners purchase individual insurance on the contents in their units on a Tenants Package Policy HOO O4.
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Polling Question #2
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Insuring the Condominium
They come in all forms and shapes
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Attached—Mariners Cove Detached
High RiseBeach Front Condo
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Condo zoned residential and commercial
The World of Resident Sea Four Seasons
Mixed Occupancy Condo and Retail
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Condominium• A condominium may appear as many
different types of living spaces:• Single Family• Multi-plex living units (2, 3, 4 family
connected units)• Multi residential units in multi-story
buildings• Mixed residential and commercial
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Condominium
• The word “condominium comes from the Latin word meaning joint ownership or control.
• Condominiums were originally developed by the Romans to solve congested living conditions and to promote conservation.
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Condominium
• What is common about all the types of condominiums is the “ownership” of the units and the duality of ownership concerns and considerations between the “unit owner” and the association.
• In the condominium risk there are two parties that have ownership interest in the condo complex and “unit”. (Additionally there is ownership interest in the unit if there are lenders involved)
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Time Share• Time Share Units differ in many ways from
“traditional” condominiums.– In a time share there is an added dimension
in ownership which is “time”.– Ownership interest is expressed as an
undivided fractional interest based on time such as l/51st interest in the condo.
• The insured’s primary Homeowners Policy typically will provide coverage for any personal property away from the premises that they take to their time share.
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Polling Question #3
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Condos and Solutions
•HO6•Can be added to primary HO (Seasonal)•Condo Association Policy
Owner Occupied
•HO6 with endorsements•Can be added to HO•DP + Liability•Condo Association Policy
Rented to Others
•NO HO 6•Contents would be on primary residence policy•Condo Association Policy
Time Share
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Polling Question #4
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Condos and Solutions
•A Commercial Package Policy for the unit•Condo Association Policy
Commercial Condo
•A Commercial Package Policy for the unit•HO 6 for residential units•Condo Association Policy
Mixed Residential and Single Owner Commercial Condo Units
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Condominiums:
Relationships; Responsibility; Requirements; And
Review of the Association CC & Rs
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Relationships
• The Unit Owners ARE the association• The association elects a board of
directors that also forms sub-committees for certain projects
• In smaller associations, the association may directly hire an individual/individuals to handle business activities
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Relationships
• Most associations outsource certain business activities OR hire a management company specifically to handle there condos OR the management company may handle many associations
• The management company may then outsource some of the business activities
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Unit Unit Owner
Association
Handle
Rental
Hire Employees
(PEO?)
Shuttle
Owned/Non
ServicesDirect/Contrac
t
Common Area
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Polling Question #5 & #6
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Relationships• The importance in identifying
“relationships” is to identify:– Responsibilities– To make certain that the correct insurance
is written– To understand any contractual transfers OR
assumptions– To make certain that all interested parties
are “named” on the respective policies and afforded protection
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Responsibility and Requirements• The responsibility and requirements for
the unit owner and association are provided in the Covenants, Conditions and Restrictions (CC & Rs) of the association.
• There are also laws that govern condominiums that further define issues such as ownership and requirements.
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CC & Rs• Covenants, Conditions and Restrictions
(CC & R’s) are legal instruments created by associations to indicate rules; limitations; and responsibilities of individual unit owners.
• The CC & R’s are the governing documents of the association.
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CC & Rs
• A condominium typically has bylaws, as well, which set forth the process of elections for the board and officers and duties of same including manner of voting.
• Sometimes this information is included in the CC & Rs, as well.
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CC & Rs
• All purchasers of condominium units are provided with a copy of the CC & Rs.
• It is imperative that there is a thorough review of the CC & R’s prior to purchasing a unit.
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CC & Rs
• Additionally, the CC & R’s must be reviewed by the agent/broker who issues both the condo association policy and the agent/broker issuing the unit owners policy.
• The CC & R’s provide essential information in terms of ownership interest and insurance requirements
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CC & R’s and State Laws• When writing association insurance, in
particular, the broker/agent must be able to– Understand the CC & Rs and other
association documents– Be aware of the specific laws in the state
where the condo is located– Become an expert in the differences in the
policies available to write the condo coverages
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Individual State Acts, Statutes, Codes• Most states have Condo Laws, acts, states
and/or codes that apply specifically to that state.
• http://condolawyers.com/nationalaw.htm • http://www.megalaw.com/top/condo.php • NOTE: Not all links on these sites are
active however they do give you the web addresses of the acts so you can access
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Individual State Acts, Statutes, Codes ExamplesState Act
• Illinois PROPERTY(765 ILCS 605/) Condominium Property Act.
• Idaho CHAPTER 15 Condominium property act 55-1509.Grant -- physical boundaries of Units
Site• http://
www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2200&ChapterID=62
• http://www.legislature.idaho.gov/idstat/Title55/T55CH15SECT55-1509.htm
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Individual State Acts, Statutes, CodesState• California
– Davis Stirling Act Civil Code 1350=1378 (783)
– Non Profit Mutual Benefit Corporations Code #7110 et sez
• Colorado– Colorado Common Interest
Ownership Act CCIOA
Site• http://
www.condo.com/StateLawDownloads/California.pdf
• http://www.cohoalaw.com/CCIOA%20-%202006%20annotated.pdf
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Individual State Acts, Statutes, Codes• Idaho
– The physical boundaries of the unit are the interior surfaces of the perimeter walls, floors, ceilings, windows and doors thereof, and the unit includes both the portions of the building so described and the airspace so encompassed.
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CC & R’s Key Areas of Review
• Typically CC & R’s will cite the applicable codes that apply based on law for the definitions in the document.
• Example in California they will cite 783 and 1350-1359
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CC & R’s Key Areas of Review
• Definition of Common Area• Definition of Limited Common Area• Definition of Unit• Assessments• Insurance Requirements
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CC & R’s Key Areas of Review
• The discussion of “common areas” in the CC & R’s defines property that the association unit owners own in common and have equal right of access and usage.
• Insured on the Association Policy
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Examples of Common Areas/Elements
Street Fountains Swimming Pools
Walks Golf Courses Tennis Courts
Guardhouses Restaurants Gyms
Gates Club Houses Shops
Landscaping Meeting Rooms Ski Lockers
Parking Lots Offices Reception Areas
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Limited Common Elements
• This may be the area in the CC & R’s that the discussion of “ownership” of the “unit” is referenced indicating the insurable interest of both the unit owner and association.
• This is one of the most important sections for the unit owner to determine to what extent they should insure their additions and alterations and whether the association is assuming any responsibility to insure the interior additions.
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Unit
• This also is a very important area for review as it clarifies the legal description of the unit.
• This definition indicates what the unit owner “owns” as their separate property and accordingly must insure on their unit owners policy.
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Unit
• There are three broad categories of “units” which include
• Bare walls, simple condo, airspace• All In• All in Inclusive
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Condominium
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Bare Walls
• The individual unit is often referred to as “airspace”.
• What the airspace concept means, in general terms, is that the unit owner owns as their sole and separate property everything structurally in the “unit-building” other than otherwise listed.
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Bare Walls
• Most unit owners do NOT think they have to insure any structural parts of their units
• Unit owners typically believe that everything structural is insured on the association policy
• The association cannot insure anything that they are not responsible to insure.
• Unit owners are responsible in most cases to insure the interior structure of these units.
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Bare Walls
• Unit owner insures all the additions and alternations as ORIGINALLY installed and any improvements
• Association does not insure anything on the interior unless defined like common elements
• Associations typically do NOT want to insure these items
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Bare Walls
• Many escrow companies are now requirement that the unit owner insure for a minimum of 15% of the unit replacement cost for additions and alterations.
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All In (Single Entity)
• In the single entity concept the association CC & Rs require that the additions and alterations of the individual unit “as originally installed” be insured on the association policy.
• Therefore the association policy would have a value of what the replacement cost would be for only the original build outs.
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All In (Single Entity)• The problem with this is that “as originally
installed” would be difficult to determine especially as units age and change ownership. New owners may be making improvements to the units as they remodel.
• The unit owner in this case would have to insure for the difference between the original installation cost and the improvements that are made. It may very well be that a new owner would not even know what the “original” installations may have been.
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All In (Single Entity)
• Note: the CC & R’s must be reviewed to determine the responsibility the association has to replace building items in conformance with new building ordinances in effect.
• The association policy must be reviewed to determine if there is any Building Ordinance Coverage built in and if so if it is sub-limited in amount of insurance provided.
• Typically Building Ordinance Coverage is added by endorsement
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All In Inclusive
• “All in Inclusive” is a term that refers to the language in the CC & R’s whereby the insurance requirement for the association is to insure for all of the additions and alterations whether as originally installed or as improved by the unit owner.
• The “all in inclusive” is what the unit owners believe is being covered by the association policy.
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All In Inclusive
• The problem with this approach is that the association would have to be advised whenever a unit is improved and increase the coverage on their master policy.
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All In Inclusive
• In addition, the policy would be disproportionate as relates the unit owners in that some owners may make substantial improvements while others do not. The premium is divided amount the unit as part of their maintenance fee and individuals would be paying for values that are inflated based on their risk.
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Polling Question #7
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From Condo Quiz Flash
• One of the unit owners at Big Sky has put in substantial improvements to their unit for a cost of $100,000. This includes a new kitchen; remodeling of three bathrooms; and new carpeting throughout. The unit owner has asked the association to add the value of these improvements to the association policy as they are permanently attached and “part of the structure”. What is the CORRECT answer as to how these improvements should be insured:
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Insurance For the Condo Association
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Association Policy
• Association Policy is a package policy including– Commercial Property– Commercial Liability– Directors and Officers Liability (often
separate– Miscellaneous specialty “Condo”
enhancement coverages
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Management Company Policy
• Remember: The Management Company for the Condominium is typically where a lot of coverages will be written because they are responsible for the business end of the operation.
• The management company policy must be reviewed and depending on what the operation involve could include the following coverages
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Polling Question #8
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Management Company Policy
• Business Auto– If they own their own vehicles– If contracting then association should be
named• Workers Comp• Crime• Most Important is that the association is
named on the policies
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Condominium Insurance
• MOST important is that the unit owners are named as insureds on the association policy
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Condominium Property Insurance (Building)
• Insures all common areas• Insures units ONLY to the extent they
are required. MANY association policies insure for more then legally responsible for and have NO insurable interest
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Condominium Property Insurance (Building)• Include ALL buildings and structures blanket• Make certain building includes otherwise
excluded items such as foundations, pavements, walkways, etc
• Landscaping and Hardscape are significant issues and there are usually limitations on trees, etc.
• Golf Course properties to include greens• Waterfront to include docks
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Condominium Property Insurance (Building)• Replacement cost with either Extended
or Guarantees (Margin Clause)• No coinsurance (waive)
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Condominium Property Insurance (Building)• Review definition of building as relates
the “units”• ISO Form has clarity
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Condominium Property Insurance (Building)CP 0017(6) Any of the following types of property contained within a unit, regardless of ownership, if your Condominium Association Agreement requires you to insure it:
(a)Fixtures, improvements and alterations that are a part of the building or structure; and
(b)Appliances, such as those used for refrigerating, ventilating, cooking, dishwashing, laundering, security or housekeeping.
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Condominium Property Insurance (Building) Company A• Typical language:
– Business Real Property (Building)• We cover the building at the location which
includes completed additions and permanently installed fixtures, machinery and equipment Company A
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Condominium Property Insurance (Building) Company B• Building and structures include:
– Completed additions– Fixtures outside of individual units
including building structures– Permanently installed machinery and
equipment
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Condominium Property Insurance (Building) Company B• Property Not Covered within the unit
– Fixtures, improvements and alterations that are part of the building unit
– Appliances such as those used for refrigerating, ventilating, cooking, dishwashing, laundering, security or housekeeping; and
– Any other personal property owned by or in the care, custody or control of the unit owner.
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Condominium Association Unit Coverage Endorsement• This is a buy back for property contained
in residential units
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Condominium Property Insurance (Building)• Ordinance or Law• Equipment Breakdown
– Mechanical, Electrical, on and off• Off Premises• Special Form and appropriate
enhancements– Flood, EQ, Sewers
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Condominium Property Insurance (Personal Property)• Usually a lesser issue• Review of common area personal
property and values
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Business Income
• Must determine what type of income the association is really earning: fees, rents?, other?
• Association Fees. Some policies specifically cover association fees:– We will pay for Association fees you have been
unable, after reasonable effort, to collect from any unit owner(s) whose unit(s) has been rendered uninhabitable due to direct physical loss or damage caused by or resulting from any Covered Cause of loos
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Business Income
– We will only pay for loss of Association Fees that you sustain during the “period of restoration” and occurs within 12 consecutive months after the date of direct physical loss of damage
• If there is a property management company then they are receiving rental income from properties and they would be insuring the loss of rents
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Condominium Liability Insurance key areas of review• Normal CGL issues to include “normal”
enhancements such as Personal Injury, Advertising Injury
• Fungi as a result of a covered cause of loss (typically sub-limited)
• Pollution??• Hired and Non-Owned• EPL (may be included in management
company policy as they are transactional)
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The Claim—This could and did happen!• 10 year old boy becomes very ill after
swimming in the community pool. After being admitted for E-Coli bacterial infection, the boy developed Guillain-Barre Syndrome which is a disorder that occurs when the body’s immune system mistakenly attacks part of the nervous system which left him paralyzed.
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The Claim—This could and did happen!• Cause: fecal matter had been
“deposited” in the pool and got stuck in the filtration system. Because the swimming pool cleaning company (not insured) did not put the correct amount of chlorine in the pool, the bacteria was not killed and multiplied rapidly in the warm water environment.
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The Claim—This could and did happen!• The claim (for $8,000,000 plus) was filed
against the association policy and denied due to two exclusions:– the mold/fungus exclusion, which includes
any microorganism or bacteria– the pollution exclusion contained in the
liability policy.• The insurance company denied both
defense as well as damages.
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Polling Question #9
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Directors and Officers Liability
• Directors and Officers Liability is one of the most important coverages to provide for a Condominium Association.
• Directors and officers have a responsibility to the association to manage the association in their best interest.
• Directors and officers are fiduciaries and MAY be held personally liable for their actions or inaction.
• D & O’s have several layers of legal duties including: duty of care; duty of loyalty; duty of obedience and duty of disclosure.
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Directors and Officers Liability
• Some considerations:– Verify “who the insured is” on the D & O
Policy. The following are consideration– - Insured = Committee Members, Volunteers &
Employees– - Association as an Entity– - Builder/Developer Representatives as Board
Members– - Property Manager– - Property Management Company
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Directors and Officers Liability
• Full Prior Acts• Duty to Defend• Pay on Behalf• Coverage for Non-Monetary Damage
Claims (injunctive & declaratory relief• Definition of “wrongful acts” to include
employment practices
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Directors and Officers Liability
• Coverage for Alleged Breach of Contract Claims and Discrimination Claims
• Defense outside the limit• NO libel, slander and defamation
exclusion
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Unit Owners Policy
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Unit Owners Policy
• The CC & R’s will not only define the “unit” but will also typically require that the unit owners insure their units. The CC & R’s must be reviewed to determine:– The definition of unit– What coverages are required for each
unit for property insurance in terms of perils and any other requirements
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Unit Owners Policy
• What coverages are required for each unit for liability insurance.
• Determine if the association is requiring that they be named on the unit owner’s policy
• Determine if the association is requiring a copy of the unit owners policy
• Determine if the association is requiring a notice of cancellation on the unit owners policy
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Unit Owners Policy• The unit owner will purchase an HO
00 06 form which includes both property and liability
• Coverage A is for Additions and Alterations
• Coverage C is provided for the personal property
• Coverage D is for the Loss of Use
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Condominium
• The individual Unit Owner is responsible for:– Their own personal property– That portion of the unit in which they have a
sole interest– Additions or alterations within their unit (for
which they have sole interest)– Loss of Use of the unit– Special condominium assessments
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Important Coverage Consideration• Additions and Alterations
– Building Ordinance• Personal Property• Loss of Use to include rents• Loss Assessment
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Unit Owners Policy• Loss Assessment coverage is another very
important coverage for a unit owner. There are normally two types of assessments that can be made by an association: general assessments and special assessments. – General Assessments are normal maintenance charges
that are part of the association dues. – Then there are “special assessments”. In looking at
assessments, the unit owner should determine the reserves of the association to determine if there are sufficient funds to pay normal costs of operation and normal improvements
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Unit Owners Policy• From an insurance standpoint the concern is
when the “special assessments” are made because of a covered insurance loss wherein the association policy may not have coverage; the coverage is inadequate in limits; or there is a large deductible.
• In these situations, individual unit owners would be assessed for the costs associated with these losses.
• Loss Assessment Coverage is typically provided in Unit Owners Policies for minimum limits of insurance.
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Unit Owners Policy
• Earthquake Damage Loss Assessment is a separate endorsement
• Review how it responds to an EQ deductible on the Association Policy
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Upcoming ClassesUpcoming University/Paid CE Classes
FREE to University Members$50.00/charge for non university members
5/23 Construction Liability
5/26 Workers Compensation
6/6 and 6/7 Ethics
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Upcoming Community Classes FREE to University Members$25.00/charge for non university members
5/16 New CGL Additional Insured and Construction Contracts
Join the University TODAY. www.insurancecommunitycenter.comClick Join University at the top of the bar