Insurance Requirements For Condominium Owners
By: Thomas Mugavero, Esq.
Every condominium association is required, by statute and by governing document, to carry a master insurance policy on the building. Such policies cover the common elements and – in multi-story buildings at least – the individual units as well. The question has often arisen, however, whether unit owners themselves should carry homeowners' insurance, generally known as “HO-6 policies.” The answer is, resoundingly, YES. It is risky not to do so.
We should note that, in the District of Columbia, the law requires each homeowner to obtain homeowners' insurance, within a minimum coverage of $10,000 for property damage and $300,000 for personal liability. See D.C. Code § 42-1903.10. The Board may increase the minimum required coverage limits as a result of a properly noticed meeting. In Maryland, the governing documents may require unit owners to carry HO-6 policies, and to provide evidence of such coverage to the unit owners' association on an annual basis. Md. Code, Real Prop. Art. § 11-114.2.
The most obvious coverage provided by an HO-6 policy is property damage: remuneration when an accident, either within or outside the unit, causes structural damage inside the unit. In Virginia, the matter is covered mainly by the governing documents themselves: if the agency causing damage arises out of the common areas (a burst pipe, a fire started in the hallway, etc.), then the association would have primary responsibility for repairing the damage. If the agency started within the unit, however, repairs are the responsibility of that unit owner – even where the damage caused is in another unit.
In the District of Columbia and in Maryland, the association is responsible for repairs to both the common areas and the individual units, regardless of where the damage originated. In each of these jurisdictions, moreover, the amount of the master policy deductible may be recovered from any unit owner from whose unit the damage originated, provided that advance notice of such requirement is given to all unit owners. Two differences, however, lie between D.C. and Maryland. First, in Maryland, the unit owner would not be responsible for more than $5,000 of the master policy deductible, while in D.C., the governing documents may allow for recovery of a higher deductible. Also, the D.C. statute specifically states that the association remains free to seek to recover the full amount of the repair costs from a unit owner whose negligence caused the damage.
In all three jurisdictions, the association is only responsible for bringing the unit back to the condition it was in when the developer first sold the unit. Any betterments that the unit owner might have installed – granite countertops, high-end appliances, etc. – would still be the responsibility of the unit owner.
In short, therefore, if a unit is damaged because of some event arising in the common areas, the association will be responsible for structural repairs in the unit, but only has to put the unit back to its original condition, regardless of any betterments or upgrades. If the damage arose from an individual unit, however, a Virginia association would have no duty to repair anything but the common elements; a Maryland association would have to repair everything, but could recover up to $5,000 from the unit owner for the master policy deductible. A D.C. association could recover the entire deductible, even if it is more than $5,000, and if the individual unit owner was negligent, could recover the entire repair amount from the unit owner. The best-case scenario, therefore, is that the unit owner would only be required to pay for any betterments or upgrades – even that, however, could cost thousands of dollars. And, depending on where the association is, the bill for the individual unit owner could be far greater.
Again, this analysis leaves out personal property – in the event of a flood, or a fire, you're going to lose furniture, books, records and discs, electronic equipment, all the stuff that you will want to replace. Too, the condominium master policy is not going to provide any level of personal liability insurance. Thus, if a guest slips and falls in your kitchen because the floor is wet, or if your dog bites a neighbor, the existence of the association master policy will be of no comfort whatsoever.
The bottom line is that every unit owner should have an HO-6 policy, and it is in the best interests of the association that every unit owner have sufficient coverage. We recommend that, to the extent necessary and permissible under applicable law, the governing documents be revised to require such HO-6 policies.