In this Analysis, Douglas Scott MacGregor*
discusses the evolving requirements and problems involved in providing property
insurance in condominium projects. He explains the complex nature of
condominium ownership and analyzes pertinent statutory requirements. He
assesses the practical import of the growing requirement that condominium
governing associations provide property insurance for both common property and
individual units. Mr. MacGregor writes:
ASSOCIATION INSURANCE REQUIREMENTS
State Condominium Acts Require Associations to Obtain Real Property Insurance
Condominium Acts of the great majority of states address the duty of a
condominium association to obtain real property insurance. The most
comprehensive insurance statutes are usually found in the states that have
enacted one of the two uniform acts. The law in non-uniform act states varies
widely. A few of them say little or nothing about insurance at all and others
contain requirements even more thorough than those of the uniform acts. The
statutory real property insurance requirements of all 50 states are set forth
below broken down into three categories: states that have adopted the Uniform
Condominium Act; states that have adopted the Uniform Common Interest Ownership
Act; and, Non-Uniform Act States.
Uniform Condominium Act States
Uniform Law Commission of the National Conference of Commissioners on Uniform
State Laws ("NCCUSL") first completed the Uniform Condominium Act
("UCA") in 1977 and then amended and approved it in 1980. A prefatory
note by the Commissioners says the Act contains comprehensive provisions that
were designed to "unify and modernize the law of condominiums." It
was adopted by 16 states: Alabama, Arizona, Kentucky, Maine, Minnesota,
Missouri, Nebraska, New Mexico, North Carolina, Pennsylvania, Rhode Island,
Tennessee, Texas, Virginia, West Virginia, and Washington. Two of those states
- Minnesota and West Virginia - subsequently adopted the broader Uniform Common
Interest Ownership Act.
The basic property insurance provision of the
"Commencing not later than the time of
the first conveyance of a unit to a person other than a declarant, the
association shall maintain, to the extent reasonably available... property
insurance on the common elements insuring against all risks of direct physical
loss commonly insured against or, in the case of a conversion building, against
fire and extended coverage perils. The total amount of insurance after
application of any deductibles shall be not less than 80 percent of the actual
cash value of the insured property at the time the insurance is purchased and
at each renewal date, exclusive of land, excavations, foundations and other
items normally excluded from property policies ...."
language presents nothing surprising, however, the UCA also provides that in a
building containing units having "horizontal boundaries" described in
the declaration, the property insurance, "to the extent reasonably
available" must "include the units, but need not include improvements
and betterments installed by unit owners." A commentary to the Uniform Act
says that language "... represents a significant departure from the
present law in virtually all states by requiring that the association obtain
and maintain property insurance on both the common elements and the units
within buildings with 'stacked' units." The comment goes on to say that
given the great interdependence of unit owners where there are stacked units,
requiring property insurance for the entire building is preferable and will
simplify claims procedures, especially when both common elements and portions
of a unit have been destroyed. It also notes that when common elements and
units are insured separately, insurers may dispute the coverage provided by the
UCA states - Alabama, Maine, Missouri, Nebraska, North Carolina, New Mexico, Rhode
Island, Tennessee, and Texas- track the language of the uniform legislation and
require association coverage for stacked units. One, Pennsylvania, is broader, requiring
the association to maintain, to the extent reasonably available, property
insurance "on the common elements and units exclusive of improvements and
betterments." Louisiana and Maryland, although they have not adopted the
UCA, have enacted statutes on association insurance that are nearly identical
to that of Pennsylvania. Apparently, then, Pennsylvania, Louisiana and
Maryland, require the association to insure units regardless of whether they
have "horizontal boundaries described in the declaration." Washington
is similar. It requires the association to maintain, to the extent reasonably
available, property insurance on the condominium, "which may, but need
not, include equipment, improvements, and betterments in a unit." Washington
- and the UCA - define "condominium as "... real estate, portions of
which are designated for separate ownership and the remainder of which is
designated for common ownership ...." It appears then that Washington also
requires the association to insure units regardless of whether there are
horizontal boundaries. Pennsylvania and Washington may have been concerned
about the confusion that could occur where some units in a development have
horizontal boundaries and others do not. In that case, notes a comment to the
UCA, the Act requires association insurance for the units with horizontal
boundaries, but not for the other units.
Arizona, and Kentucky depart significantly from the UCA. The Virginia statute
says the "... condominium instruments may require the unit owners'
association ... to obtain ... [a] master casualty policy affording fire and
extended coverage in an amount consonant with the full replacement value of the
structures within the condominium, or of such structures that in whole or in
part comprise portions of the common elements." That language would appear
to allow the association to insure units, but leaves it to the individual
condominium declaration to determine what will be required. Arizona, says that
the association property insurance, "if determined by the board, includes
the units or any portion of those units," thus granting discretion to
condominium governing boards to decide the extent of coverage. Kentucky simply
omits any reference to insuring individual units.
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* Douglas Scott MacGregor has been an update
author for the Appleman on Insurance Law treatise for over 10 years and has
authored more than 15 books, mostly on real property issues. He earned his law
degree from the University of Florida, Levin College of Law and a Masters in
Social Work from the University of South Florida.
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