Condo association insurance is the first line of defense against liability and property damage. It protects the association’s finances by covering the elements the COA is responsible for. In addition to the master policy, there are other types of insurance condo boards should obtain.
What is Condo Association Insurance?
A condo association master insurance policy covers the building’s physical structure and the common elements or areas shared by all residents. It also offers liability coverage. Unit owners pay for this shared policy through their condo fees.
Condo association insurance and HOA insurance share many similarities. They are both insurance policies that cover the association and its properties. Yet, COA insurance tends to be more extensive, as condominiums have more common elements. Coverage typically extends to the building’s walls, roof, and foundation.
Is Condominium Association Insurance Required in Texas?
Yes, Texas law does require condo association insurance. According to Section 82.111 of the Condominium Act, associations must obtain:
- Property Insurance. This must cover the common areas against typical types of damage, such as fire and other common risks. The coverage amount must be at least 80% of the cost to replace the property (or its current cash value). This requirement applies when the policy starts and every time it is renewed.
- Commercial General Liability Insurance. This includes coverage for medical payments. The board decides how much coverage to get, but it cannot be less than the minimum amount stated in the governing documents. This insurance must cover injuries, deaths, and property damage arising from the use, ownership, or maintenance of the common areas.
In addition to state law, condo associations must also refer to their governing documents. The CC&Rs and bylaws, in particular, may contain additional or more stringent insurance requirements. They may also dictate other types of insurance that boards must maintain.
What Does a Condo Association Insurance Policy Cover?
Condo association insurance comes in many forms, and the specific coverage will depend on the policy type. In general, a master policy includes coverage for the following:
- Building Structure. This includes the exterior walls, foundation, roof, and structural elements of the building in the event of damage due to a covered peril.
- Common Areas. This includes shared spaces such as lobbies, hallways, elevators, stairwells, and parking lots.
- Amenities. This includes recreational facilities like swimming pools, gyms, clubhouses, and shared outdoor spaces.
- Liability Protection. This covers legal fees and medical expenses if someone is injured in a common area and sues the association.
Condo boards must speak with their insurance provider to understand the type and extent of their policy coverage. Coverage limits and deductibles can also differ from one policy to another.
It is a good idea to shop around first before committing to a purchase. Compare quotes from various condo association insurance companies and seek help from a manager or lawyer when reviewing bids.
Types of Master Insurance Policy for Condo Association
There are three types of condo association insurance coverage: bare walls, single-entity, and all-in. Let’s break these down below.
Bare Walls
Bare walls coverage is the most basic, insuring only the structural components and common areas of the association. These include walls, ceilings, and floors. Residents must secure individual policies for their own units, as the bare walls policy doesn’t cover appliances, cabinets, or personal property.
Single-Entity
A single-entity policy covers everything under bare walls, plus the original fixtures and finishes that came with the unit when it was first built. This includes the original cabinets and appliances. That said, upgrades and personal belongings are not covered.
All-In (All-Inclusive)
All-in coverage is the most comprehensive and, therefore, the most expensive. This covers the building structure, common areas, and most of the interior fixtures and finishes within the units. All-inclusive policies even cover owner upgrades.
That said, owners must still obtain a separate policy for personal belongings. All-in policies also don’t cover unit owners’ personal liability.
Other Essential Types of Condo Association Insurance
While a condo master policy already covers property damage and insurance, it is not complete. There are other types of policies crucial to a COA’s operations. Some governing documents even require them.
1. Directors & Officers (D&O) Liability
A D&O policy protects board members from personal liability arising from decisions made while serving the community.
Unit owners may become disgruntled due to rule changes, alleged violations, and increases in dues. They may lash out and sue board members by name. When this happens, D&O insurance will help cover any legal fees and damages.
2. Fidelity Bond
A fidelity bond, also known as crime insurance, protects the COA against financial losses arising from theft, fraud, or embezzlement by board members or employees. This is an important policy, especially for communities that handle large sums of money.
3. Workers’ Compensation Insurance
Associations that employ workers or independent contractors must obtain workers’ comp. This policy covers injuries or illnesses related to the job. It also protects the association from liability in case of workplace accidents or issues.
Do Unit Owners Need Individual Condo Insurance?
Yes, unit owners must still carry individual condo insurance even if their COA has a master policy. Even with an extensive master policy, the association’s insurance won’t cover everything. Owners must still secure HO-6 insurance, also known as wall-in condo coverage, to fill any gaps.
Unit owners must first find out what type of policy their COA carries. From there, they can obtain the right policy for their own units. Generally, an HO-6 policy covers the following:
- Personal Property. This covers personal belongings, including furniture, electronics, clothing, and other items.
- Interior Unit Damage. This covers interior finishes and upgrades that the master policy doesn’t cover, such as new flooring, cabinets, or countertops.
- Personal Liability. This offers protection from lawsuits if someone is injured inside the unit.
- Loss Assessment Coverage. This helps pay for a special assessment if a major claim goes over the limits of the master policy.
- Additional Living Expenses. This covers temporary housing, meals, and other expenses if the unit becomes uninhabitable due to a covered loss.
Requirement or Not
Condo association insurance plays an integral role in a COA’s long-term financial stability. In Texas, property and general liability insurance are required by law, but boards must also consider other types of policies. When in doubt, getting professional help is the best course of action.
PAMco offers exceptional condo management services to communities in Central Texas, including help with obtaining condo insurance. Call us today at 512-918-8100 or contact us online to learn more!
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