Robert E. Ducharme
“Insurance – an ingenious modern game of chance in which the player is permitted to enjoy the comfortable condition that he is beating the man who keeps the table.” – Ambrose Bierce
Some may think the topic of insurance is dull, and perhaps to some it is, but it’s also extremely important at your condominium association. Your board of directors likely knows the basics, i.e. that the Condominium Act requires every association to carry an insurance policy to cover the full replacement value of all structures on the property.
In most condominiums associations the boundary of the unit extends to the interior plane of the wall studs, the interior plane of ceiling or roof joists, and the upper boundary of the unfinished flooring. In English this means the roof, siding and foundation are common area and thus are structures on the common area, and are thus covered.
They other basic is the requirement of carrying a liability policy to protect the association should it or its officers or directors get sued. They are covered, in other words, for every bad decision made unless the decision was grossly negligent or criminal such as draining the reserve account and retiring to the Caymans.
If your board or officers continue to make bad decisions and your association gets sued, your association will likely be covered. Your premiums will go up a lot and so your condo fees will go up, but there’s little chance of personal liability. (As Judge McHugh once asked from the bench, and those few older attorneys who read this column will remember him well, “If the board is so bad, why do they keep getting reelected?”)
Simply put, there has to be a liability policy to protect board members from decisions they make and officers from the acts they take, or no one ever would or should sit on a board or act as an officer.
But there are some finer points associations need to understand and address within their insurance coverage.
Far too many insurance policies do not include language that covers ordinance coverage, also known as building code upgrades coverage. Let me give you an example. Units get old; some are 50 years of age or more. If there is a fire, and the association has to rebuild the interior it’s likely the building code has changed from when the unit was originally built. It might now require hard-wired fire alarm systems, for example.
If you don’t have ordinance coverage, then insurance companies have been known to deny payment for any required building code upgrades as you did not ask for that coverage. One association a few years ago was out approximately $50,000.00 in uninsured building code upgrade requirements, and the municipality would not issue a building permit until it came up with the money up front. Confirm with your insurance agent or carrier, in writing – always in writing, that you have it. If you do, wonderful. If you don’t, get it.
Then amend your documents to note the master policy has to have coverage for the “full replacement value of the Units, including ordinance coverage, aka building code upgrades, …”. Once it is in your declaration, the carrier is bound by law to cover it.
Another area to address is how to handle a problem, such as a fire, that has led to an insurance claim. If you have an insurance claim, if at all possible, do not call the insurance agent or carrier first. If you do, they will send an adjuster out whose job, shockingly, is not to represent your association, but to represent his or her employer, the insurance company, so they tend to underestimate the costs of the needed repairs.
What associations should do is that it, at least initially, as if it was a regular maintenance project, such as rebuilding decks. Go get two or three quotes for the costs of what needs to be repaired. Once done call the insurance company; file the claim; and ask to have an adjuster assigned. Then you meet with the adjuster, and give the insurance company’s employer the three quotes. The adjuster will pick one of them, quickly close their file, and your association gets a check for a quote that will actually match the cost of repairs versus the current system where the insurance company cuts a check, and the association has to then try and find a contractor who will do it for what the insurance gave, a rare occurrence.
More on insurance tips next time. Who knew condominium insurance could be so interesting?!
Attorney Robert E. Ducharme is a former teacher whose civil practice is limited to condominium law, primarily in Rockingham and Strafford counties. He can be reached at red@newhampshirecondolaw.com and Ducharme Law, P.L.L.C., found at www.newhampshirecondolaw.com.
Clinton Mora is a reporter for Trending Insurance News. He has previously worked for the Forbes. As a contributor to Trending Insurance News, Clinton covers emerging a wide range of property and casualty insurance related stories.