Condominium Insurance Coverage Guide, 2nd Edition

Christine Barlow, Susan Massmann, Frank S.D. Alexander

• Verlag: The National Underwriter Company
• Jahr: 2016
• ISBN:
  9781941627839
• Thema: Business
• Thema: Insurance

Condominium Insurance Coverage Guide, 2nd Edition contains everything that made this book the instant, must-have reference for professionals seeking to properly insure the various condominium risks that unit owners and associations face. It delivers the clearest possible analysis of the most important documents, including state statutes, association agreements, and condominium master plans. Available insurance policies are explained in the context of defining documents, and all relevant concepts are thoroughly clarified.

Chapter 1

Condominium Property Acts and Condominium Insurance

Condominiums, their individual units and structures, cause a lot of confusion when placing coverage. Because the policy of the unit-owner needs to intersect with the association policy, coverage for various parts of property and liability is confusing. Add in state requirements, and the waters are even muddier.

The condominium property act is the bedrock upon which all matters pertaining to condominiums are built. Condominium acts vary by state, and provide definitions of property such as common elements, limited common elements, units, and boundaries between units, as well as insurance requirements and who is responsible for repairs on what type of property. The fact that the individual units are individually owned, and not simply rented, makes coverage for condominiums unique. The unit-owners need to cover their property, but the determination as to where the unit ends and the association property begins can be complicated.

The Declaration filed by the developer is subject to the condominium act as are the insurance provisions, bylaws, covenants, and rules pertaining to condominium associations. Already there are three moving pieces; the developer who constructs the condominiums and sells them; the association that develops in order to manage the complex itself, and the individual unit-owners who have interest in their unit, but also bear some liability to maintenance and upkeep of property used by all other unit-owners. It is no wonder that the journey begins with a review of the condominium property act and its importance in understanding condominium coverage. Specifically, we will review definitions of terms we often encounter in our policy wordings so that you understand the terms in context. We will review sections of the act that help define the boundaries of ownership and responsibility to sharpen your understanding of where coverage begins and ends for the stakeholders in a condominium complex. We will close this chapter with an examination of the insurance provisions stipulated in the act.

The excerpts from the Illinois Condominium Property Act that follow are for exemplary purposes only. Each state has its own act, and the acts vary from state to state. While acts change and are revised from time to time, the act remains the final authority on the division of responsibilities between the association and condominium owners. A chart of condominium statutes by state can be found online at http://nationalunderwriterpc.nuco.com/​booksupplements/condos.

The Illinois Condominium Property Act¹

The Illinois Condominium Property Act (765 ILCS 605)—long established, tested, and refined over time—provides an excellent example of a well-crafted condominium property act. It begins with definitions of terms regularly encountered in day-to-day insurance activities.

Definitions

Section 2. of the act defines the following terms:

• Declaration

• Parcel

• Property

• Unit

• Common Elements

• Unit-Owner

• Condominium Instruments

• Unit-Owners’ Association or Association

• Developer

• Building

Declaration

(a) “Declaration” means the instrument by which the property is submitted to the provisions of this Act, as hereinafter provided, and such declaration as from time to time amended. [Sec. 2. Definitions].

The condominium declaration is the constitution of the condominium corporation; it provides the structure by which the corporation is initially organized and managed. It incorporates the provisions of the act and is subject to the act in all respects. As the act clearly states, “Any provisions of a condominium instrument that contains provisions inconsistent with the provisions of this Act are void as against public policy and ineffective.” [Sec. 2.1. Applicability]

Once approved, the declaration becomes the central instrument in all matters pertaining to the management and administration of the condominium association. The association has authority to levy assessments against unit-owners in event of losses to common areas of the development. It should be one of the principal documents referred to in matters of insurance placement, underwriting, or claims settlement, especially when there are disputes surrounding loss situations.

It will provide the parties involved with the guidance necessary to determine boundaries around ownership and responsibility, thereby minimizing disputes and confusion.

Section 4. Declaration – Contents of the Act delineates those boundaries.

Sec. 4. Declaration – Contents. The declaration shall set forth the following particulars:

(a) The legal description of the parcel.

(b) The legal description of each unit, which may consist of the identifying number or symbol of such unit as shown on the plat.

(c) The name of the condominium, which name shall include the word “Condominium” or be followed by the words “a Condominium”.

(d) The name of the city and county or counties in which the condominium is located.

(e) The percentage of ownership interest in the common elements allocated to each unit. Such percentages shall be computed by taking as a basis the value of each unit in relation to the value of the property as a whole, and having once been determined and set forth as herein provided, such percentages shall remain constant unless otherwise provided in this Act or thereafter changed by agreement of all unit-owners.

The declaration contains the legal description, which delineates the specific piece of real property of the condominium units as a whole and individually. Each unit has a specific legal description that identifies what part of real property the unit-owner owns. The percentage of ownership interest in the common elements is also defined. This is so that if the common elements are damaged and the association needs to make an assessment, each unit-owner can be fairly assessed for his ownership share of the common elements. As will be seen later in the review of insurance matters outlined in the act, this instrument, along with the association bylaws and rules, should be mandatory reference tools when dealing with the issue of condominium coverage.

Parcel

(b) “Parcel” means the lot or lots, tract or tracts of land, described in the declaration, submitted to the provisions of this Act. [Sec. 2. Definitions]

This definition, among other things, helps in clarifying boundaries where there might be multi-layered, multi-phase condominium developments and where there might be potential for confusion about lot lines and possible liability exposures. Hand-in-hand with the definition of “parcel” in clarifying boundaries is the definition of “property.”

Property

(c) “Property” means all the land, property and space comprising the parcel, all improvements and structures erected, constructed or contained therein or thereon, including the building and all easements, rights and appurtenances belonging thereto, and all fixtures and equipment intended for the mutual use, benefit or enjoyment of the unit-owners, submitted to the provisions of this Act. [Sec. 2. Definitions]

This definition identifies the building itself and the common elements owned communally by the unit-owners. The parcel is the land the building is on, but the property is the actual tangible structure itself.

Unit

(d) “Unit” means a part of the property designed and intended for any type of independent use. [Sec. 2. Definitions]

This definition draws the distinction between independent use of the unit-owner versus common use by all unit owners. This is significant since a unit owner needs to provide coverage for his unit only, but be prepared for assessments for damage to common areas.

Common Elements

(e) “Common Elements” means all portions of the property except the units, including limited common elements unless otherwise specified. [Sec. 2. Definitions]

This definition as with the others is of paramount importance in setting insurance requirements. As mentioned at the outset, it is the understanding of the boundaries between the unit-owners property and the association property that facilitates understanding of coverage needs and establishing the details of coverage. Is the walkway directly outside of a unit the unit-owner’s property and responsibility or the associations? When common areas are damaged, it is common for the unit-owners to be assessed equal shares of the damage that the association policy does not cover.

Unit-Owner

(g) “Unit-Owner” means the person or persons whose estates or interests, individually or collectively, aggregate fee simple absolute ownership of a unit, or, in the case of a leasehold condominium, the lessee or lessees of a unit whose leasehold ownership of the unit expires simultaneously with the lease described in item (x) of this Section. [Sec. 2. Definitions]

Fee simple absolute ownership means that the unit-owner in entitled to the full enjoyment of the property with limits set only by zoning laws, deeds, subdivision restrictions, or covenants. Unit-owners have fee simple rights to the individual units they purchase. The duration of the ownership is not limited and can be passed along to the owners’ heirs. This defines the who is to be insured by a unit-owners policy. In addition to understanding who is to be insured, it is also important to understand the instruments that govern those insureds and to which they are subject.

Condominium Instruments

(l) “Condominium Instruments” means all documents and authorized amendments thereto recorded pursuant to the provisions of the Act, including the declaration, bylaws and plat. [Sec. 2. Definitions]

The bylaws, which set out the rights and responsibilities of the unit-owners and the association, are also subject to the act. It is a very important document of reference in placing, underwriting, or settling claims for condominiums. It will assist in drawing the lines around the responsibility of unit-owners and condominium associations.

“Unit-Owner’s Association” or Association

(o) “Unit-Owner’s Association” or “Association” means the association of all the unit-owners, acting pursuant to bylaws through its duly elected board of managers. [Sec. 2. Definitions]

The association is a valid entity under condominium acts. It is guided by bylaws laid out in the constitution of the association and registered under the terms of the condominium property act as contained in the developer’s original declaration submission.

Developer

(q) “Developer” means any person who submits property legally or equitably owned in fee simple by the developer, or leased to the developer under a lease described in item (x) of this Section, to the provisions of this Act, or any person who offers units legally or equitably owned in fee simple by the developer, or leased to the developer under a lease described in item (x) of this Section, for sale in the ordinary course of such person’s business, including any successor or successors to such developers’ entire interest in the property other than the purchaser of an individual unit. [Sec. 2. Definitions]

Here, too, the act clearly defines the role of the developer as well ...