Insurance can seem like a mundane administrative afterthought – right up to the moment you need coverage. In a community association, just because a responsible board handles the lion’s share of maintaining the policy covering common areas doesn’t mean that non-board residents are off the hook. It’s vital that owners see to it that their individual units – and the items therein – are appropriately covered as well, lest an accident or act of negligence causes damage to not only the respective owner’s property, but to the neighbors’ units as well.
In fact, an owner who lets his or her coverage lapse or never gets insured at all – or a board that doesn’t maintain some sort of registry of individual homeowner’s policies – can cause a world of hurt for their entire communities. As such, it’s crucial for boards to disseminate the necessary information about what must be covered, and keep track of who’s insured for what, under what circumstances, and when that coverage expires. A database of every active owner’s policies can save an association a significant amount of money down the line.
Ideally, information pertaining to individual owner’s insurance requirements will be contained in an association’s bylaws. That can give residents a clear mandate as to what needs be covered. From there, it’s important that they know the risks inherent in opting out.
“Owners are responsible for certain portions of the units which they own or lease,” says Edward J. Mackoul, President of Mackoul Risk Solutions, an insurance agency with offices in New York and New Jersey. “Their responsibility is dictated in the bylaws, and can be as little as just finishing – such as paint on the walls – or as much as everything inside the unit other than the four walls, floor, ceiling, and partitions. Most bylaws indicate that an owner is responsible for finishings and improvements made to the unit, which include improvements made by a prior owner. So even if the current owner hasn’t made any changes, they may still be responsible for insuring them if they want things to be restored in the event of a covered loss.
“If they fail to carry insurance, they run the risk of not being able to restore the unit to the condition it was prior to the damage,” Mackoul continues. “The insurance for the property will only pay to put the unit back to the condition it was in at the time when the property was built. So if the building is only a few years old, that may not be much of an issue. But if the building was constructed in the ‘50s, it’s a safe bet that the bathrooms and the kitchen have since been improved, at the very least. Without that proper coverage, the owner would have to pay out of pocket for anything for which they’re responsible in the unit. In addition, if they fail to carry insurance, the owner runs the risk of being unable to replace possessions like clothing, electronics, and furniture, and they may even have to pay out of pocket to live elsewhere, should the unit be rendered uninhabitable due to the cause of loss.”