A. All condominium insurance must cover the following: the units and the common elements, including the limited common elements.

B. In other words, the policy insures everything except the unit owners' personal property and decorating.

C. The policy must provide full insurable replacement cost coverage, less deductibles, including coverage for extra costs to comply with code requirements at the time of reconstruction.

D. The insurance companies are required to comply with these requirements.

E. The policy is to be "bare walls" except when the association board requests otherwise. Fixtures installed by the developer are included. Floor, wall and ceiling coverings are excluded. Therefore, the Association must determine whether its declaration obligates it to provide insurance greater than the law requires, such as to floor and wall coverings, various internal installations, and decorating. In the event the declaration so requires, the board may have a duty to request the coverage required by the Declaration.

F. In addition the law allows the declaration to provide requirements for other insurance coverage not mentioned in the law, such as workers compensation, employment practices, environmental hazards, and equipment breakdown insurance. Again, the board must ascertain whether its declaration requires any such additional coverage.

G. The insurance does not have to cover improvements and betterments installed by a unit owner, but in the event the insurance does cover such improvements and betterments, the extra premium for such coverage can be assessed against the units that are benefitted. Improvements and betterments include fixtures, appliances and cabinets added by the unit owners.

ACTION RECOMMENDATIONS

Each board should obtain a written opinion from the association attorney specifying the insurance coverage that is required, and then the board must make sure that the association's insurance policy includes the required coverage.
The Association should maintain accurate records of the type and quality of the fixtures and decorating installed within the original units sold by the developer. This may require investigative work, depending on the age of the units and the record-keeping to date.

II. GENERAL LIABILITY INSURANCE

A. The policy must provide general commercial liability insurance for at least $1,000,000.00 of coverage for the association, its board and managing agent, and their employees and agents.

B. The policy must cover as an additional insured the developer in its capacity as a unit owner, manager, board member, and officer.

C. The unit owners also must be covered as additional insureds.

D. The policy must cover claims between insured parties.

E. The law obligates the insurance companies to provide this coverage.

ACTION RECOMMENDATIONS

The board must ensure that the minimum statutory coverage of $1,000,000.00 will be sufficient to cover the risk of exposure to the particular association.
The board should obtain a qualified insurance adjuster's risk assessment to determine adequate levels of coverage.

III. FIDELITY BOND AND DIRECTORS AND OFFICERS

ERRORS AND OMISSIONS INSURANCE

A. For associations with six or more units, the board must obtain a fidelity bond.

B. Management companies that have custody or control over association funds must obtain the maximum available fidelity bond coverage.

C. The association has standing to recover against such a bond for losses sustained.

D. Coverage must be for the full amount of funds in the insured's custody or control.

E. The Board must obtain a "reasonable" amount of directors and officers liability coverage (or the amount required by the declaration or bylaws) over all contracts and actions taken by the board members in their official capacity as directors and officers, except when they are not entitled to indemnification under the declaration, bylaws, or Not for Profit Corporation Act.

ACTION RECOMMENDATIONS

The board must make a determination of what is a reasonable amount of directors and officers liability coverage.
The board should obtain a qualified insurance adjuster's risk assessment to determine adequate levels of coverage.

The board must obtain proof from management having custody or control over association funds that management has a proper fidelity bond.

IV. DEDUCTIBLES

A. The association may pay the deductible for damage claims to units or common elements as a common expense.

B. Or, the board may assess the deductible against the owners of the units affected.

C. After notice and an opportunity for hearing, the board may assess the deductible against the owner who caused the damage or from whose unit the damage originated.

ACTION RECOMMENDATIONS

The board should consider whether to adopt rules and regulations governing the assessment of insurance deductibles so that the association follows a clear and uniform policy.
In taking such action, the board must follow proper rule enactment procedures, and should work with association counsel to ensure that the proposed rules are most likely to be enforceable.

V. OTHER INSURANCE REQUIREMENTS

The new law imposes a variety of other requirements for condominium policies, including the following:

A. Each unit owner and secured party must be an insured person.

B. The insurance company must waive its right of subrogation against the unit owner and his or her household members and against the board members and the association, and the unit owner must waive his or her right of subrogation against the board and the association.

C. The association's policy is the primary insurance.

D. The insurance settlement must be adjusted by and with the association, and made payable to the association for the benefit of the unit owners and secured parties. All funds shall be held in trust for the repair and restoration of the common elements, the bare walls, floors and ceilings of the units, and then to any improvements or betterments insured by the association. Unit owners are not entitled to any proceeds unless there is a surplus of funds after complete repair and restoration.

E. The board may require the unit owners to maintain insurance covering their personal liability and for damages caused by their negligence or originating from their unit, including payment of deductibles and for unit decorating, furnishings, appliances and equipment. In the event the unit owner does not provide proof of insurance, the association may obtain it at the unit owner's expense.

F. Contractors providing more than $10,000.00 per year of services must provide proof of insurance naming the association, board, and managing agents as additional insured.

G. Insurance companies must notify the association of any settlement ten days before settling any claim.

H. Non-residential condominiums may opt out or vary from the insurance requirements imposed by the law.

ACTION RECOMMENDATIONS

Unless the declaration or bylaws already require unit owners to provide insurance, the board will need to adopt rules and regulations to govern unit owner insurance requirements.
Rule adoption must comply with the Act. Rule content should be reviewed with an eye toward enforceability.
The board must institute procedures to ensure that it receives certificates of insurance from its contractors.

In the event your association would like assistance with any of the actions recommended, or would like a more specific review and advice regarding its insurance rights and obligations, please feel free to contact us at 1-847-931-2436.