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New Md. law says condo associations can require that unit owners have insurance

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Starting in October, condominium associations in Maryland can vote to require that all unit owners carry homeowner’s insurance. What is unique about this law is that it only requires the approval of 51 percent of all condo owners.

Traditionally, to amend condominium legal documents, a super majority vote is required — usually up to 75 percent. In this case, however, the Maryland legislature has made it easier to change a condo’s bylaws.

The Maryland legislature was trying to address a common issue in condo politics: who has to pay the insurance deductible if there is an accident or problem in one unit that causes damages to other units or the association’s common elements.

Every condominium association must have a master insurance policy. The master policy covers the cost of repairing damage to individual units as well as common elements. For example, if a waterpipe bursts, the master policy will cover the cost of the water damage to the common elements such as the halls or elevators and to individual units.

But, in the past, the insurance deductible caused serious financial problems for some associations. Maryland law — like many states — stated that unless the condo’s governing documents stated otherwise, the insurance deductible for the master policy was a common expense. This meant that all unit owners had to absorb the loss.

That changed in 2009. Now, the law in Maryland makes clear that if the cause of the damage comes from within one unit, that unit owner can be forced to pay up to $5,000 as an offset against the master policy deductible.

What does this mean for Maryland condominium unit owners? Simply stated, every unit owner should have their own homeowner’s insurance policy, known as a “HO-6.”

A Maryland law going into effect Oct. 1 makes it easier for condo associations to require unit owners to have this insurance. But it is a good idea, no matter what.

That’s because there are many limitations to a condo association’s master policy that homeowners should be aware of. If, for example, a flood in your condo building destroys your 50-inch plasma television set, the master policy would not cover the cost of replacing it. Also, many master policies will not pay for replacing “betterments,” such as your upgraded kitchen counter tops or new hardwood floors.

Here is where the “H0-6” policy comes into play. It is a separate insurance policy that would supplement what the master policy does not cover, such as theft in your apartment, vandalism and personal liability coverage in the event you are sued. It will also cover a portion of the master policy insurance deductible if an accident in your unit causes damages to another unit or in a common element.

The cost of such insurance is nominal — generally between $250 to $350 per year — and can come in handy.

Several years ago, a Washington condominium suffered significant loss because of a massive fire in the building. All the unit owners had to vacate the property for a year.

I know one owner who had a homeowner’s policy and received $1,800 a month from the insurance company to pay for his apartment rental while his unit was being repaired. His neighbor, who did not have homeowner’s insurance, not only had to pay the mortgage on his condominium unit but had to pay rent at a temporary lodging while the repairs were being made.

You should carefully review the terms and conditions of your master policy. Talk with your insurance agent to see what kind of supplemental coverage you might need.

Shop around. There are many insurance companies that offer this kind of insurance protection. But here’s a suggestion: Consider obtaining coverage from the same company that issued the master policy.

Why? I have often encountered a situation in which, after a fire or other casualty, the master policy claims it is not a covered event and shifts the responsibility to the individual unit owner. However, the homeowner’s insurance carrier says, “Wait a minute! This was a common element disaster, which should be the responsibility of the master policy.”

When both the master and the homeowner’s policies are issued by the same company, I have simply told the insurance agents: “Guys, your company is responsible either under the master or the HO-6 policy, so you get together and decide which arm of your company will pay the claim. We don’t have to litigate the issue when both policies are covered by the same company.”

We often ignore insurance issues until it is too late. But when disaster strikes — such as a fire, flood, or vandalism — you should be prepared and have a good homeowner’s policy. Indeed, many condominium associations are amending their legal documents to require such coverage, and the new Maryland law will make that easier to do.

Benny L. Kass is a Washington lawyer. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. For a free copy of the booklet, “A Guide to Settlement on Your New Home,” send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036.

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