Anuj Kasera
By Anuj Kasera
Every month I try to bring common issues that come up during my interactions with clients. With the growth of condos and townhomes in major cities like Charlotte and Raleigh, many clients have exposure to these units either as a primary resident or landlord. Condos or townhomes have unique coverages and risks because unlike single family homes, these units have shared common areas and structures.
So that raises an important question. How much coverage do I need? What does the HOA cover? What is the responsibility of my neighbors and conversely, am I liable for any damage that happens to their units. So, let’s talk about the condo insurance.
First, most condos will be within a Home Owners Association (HOA). It will purchase a master policy to cover common areas like clubhouses, pool, and parking lots. This insurance is paid for by your HOA monthly dues. Depending on the bylaws of your association, the master policy may range from a bare minimum policy or an all-inclusive policy which will cover your entire unit except personal property.
There are different levels of the master policy. The coverage can extend from stud-in which excludes the drywall to walls-in which includes the drywall. Be sure to understand the coverage provided by your HOA or else you will either end up buying duplicate insurance coverage or worse, you will have inadequate insurance.
Increasingly, the master policies are moving away from generous coverage to bare minimum and in some extreme cases, they will cover only common-owned areas like swimming pools, clubhouses, etc. But at a minimum, the master policy should cover the reconstruction of the building, roof and plumbing/electric behind the walls. As I went through the policies with my clients, I realized that many of them were not aware that they were vastly over or under insured.
If the HOA policy is not covering the exterior of your building, it will create a large exposure because not only are you responsible for getting the repairs done but also for any gaps if your neighbor does not have adequate insurance. This includes the inside paint, personal property, liability for injury and living expenses if your condo is uninhabitable due to a covered peril. For most of our clients, we ended up saving up to 40% of their costs by looking at their coverages and switching companies as needed.
Ideally, your condo policy should cover everything that the master policy doesn’t. All policies almost always exclude regular wear and tear, intentional damage and negligence. Other than hail/storm, the biggest claim is usually caused by water. So let us consider the various aspects of the coverage using water damage as an example. Consider the scenario where water leaks from your bathroom and floods the neighbor’s unit downstairs. Who is responsible?
If the water damage was caused by a water pipe inside the common walls, the HOA may step in and repair the damage to all units. If the HOA does not have adequate insurance, each unit holder is responsible for the damage within their unit.
If the water damage was caused by a leaking toilet in your unit, then the underlying circumstances will determine who is responsible: If the toilet just started leaking, it is treated as an accident and all owners are responsible for their individual unit. So, the neighbor will have to file damages under her policy and you will file under yours.
Now, if the toilet were leaking for some time and you as the owner were aware of the risk but did not repair it in a timely manner, that would be considered negligent behavior. While standard liability coverage protects you if you accidentally damage your neighbor’s property, this coverage may be voided if the damage is from negligence. This means that your insurer may deny your neighbor’s claim under your policy, leaving you personally liable for the repairs. Note that your liability does not go away if your insurance company does not pay. Most companies may still go ahead and pay the neighbor to avoid bad publicity but do understand that if it is a major claim, they may choose to invoke the negligence clause to avoid payments.
Furthermore, if you are the landlord, always make sure that the tenant carries renter’s insurance. If the damage was caused due to tenant’s negligence, like not informing you of potential leaks, then the damages may be filed under her policy.
Loss assessment coverage: One important add-on is the loss assessment coverage. Sometimes the association may incur expenses that it had not planned or budgeted for. In that case, it will levy additional fees along with the monthly HOA fees. This coverage is available based on the limit you choose. So, your insurance will cover any additional loss assessment fee up to that limit.
Hopefully, this will address some common issues that our readers may face. While each situation is different, the general information above should provide the reader with some insight into how insurance works for condos/townhomes. You will notice that the outcome of each scenario will really depend on the facts and circumstances of the situation. Fully understand what you are paying for to avoid surprises.
Anuj Kasera is a long term resident of Charlotte, NC and owns an insurance agency, focusing mostly on home, auto and business insurance. He can be reached at anujkasera@gmail.com.
