Filed Under (Real Estate) on 04-26-2012
By Douglas S. MacGregor, J.D., M.S.W.
If you own a condo or town home in a HOA-governed community, you may wonder how much property insurance to buy. After all, won’t the HOA or “common interest community association” buy property insurance? Where does your responsibility for damages begin and the association’s end?
What the law says
Colorado law, as stated in the Colorado Common Interest Ownership Act, requires that your association buy property insurance to cover units stacked on top of each other. Associations are not required to cover “the finished interior surfaces of the walls, floors, and ceilings of the units” –– although they may do so.
The association’s policy does not need to cover improvements installed by unit owners. (If improvements are covered, the association must charge owners for additional insurance fees).
Your HOA’s governing documents or declaration may provide more detail.
And finally, these rules generally only apply to common interest communities created after July 1, 1992, when the CCIOA went into effect.
Given these complexities, it may be difficult to tell exactly what your association’s master insurance policy covers. That, in turn, makes it difficult to determine how much coverage to buy.
For instance, the association’s policy will have a deductible —or even different deductibles for different perils —that can be as much as $25,000 or more. You may want to consider coverage that protects you from a loss that would be covered by your association’s policy but that is less than the deductible amount.
What you need to do
Experts would advise you to avoid negotiating the complexities of property insurance by yourself. Instead, follow these steps.
1. Work with a highly reputable insurance agency.
2. Before you meet with the agent, obtain a copy of the association’s master insurance policy. The association’s community association manager can provide you with a copy, or you can request one from the association governing board.
3. Bring the policy to your agent with an attached cover letter that references the policy by number and states your request for coverage.
Basically, you want coverage for any property — real, personal, or fixtures —— not covered by the association policy and any property that would be covered by the association policy except for a deductible. Also, in the cover letter, remind the agent that the association’s policy may change during the term of your policy —— for example, deductibles may increase —and ask how your policy will address such changes.
4. Keep a copy of the letter. If the agent negligently fails to obtain the coverage you need, the letter provides evidence that you specifically requested particular coverage and may help your attorney bring an action against the agent.
5. Ask your agent about ‘‘gap insurance,’’ which covers special assessments that may be levied by the association to meet the deductible under the association’s master policy.
6. Finally, when the policy is issued, read it. If you aren’t sure about whether it provides the coverage you need, send the agent an email with your questions.
Print out your email and the agent’s response and put them in a file with your cover letter, the policy, and any other documents or correspondence you receive that relates to the policy.
For more information see Colorado Community Association Law: Condominiums, Cooperatives, and Homeowners Associations, by Douglas S. MacGregor, J.D., M.S.W.