Covered for Catastrophe?

After 19 units at the Cherry Glen condominium were damaged by last month's fire, property manager John Sheehy found that most of the owners had homeowners policies. But Sheehy heard from two who didn't. One appeared to think that the unit was covered under the master policy, while the other had let the policy lapse the month before.

The association's bylaws state that owners should carry additional insurance coverage for their personal items, said Sheehy, director of property management at D.H. Bader . Owners will receive "another mailing soon reinforcing that if you don't have insurance, you really need to have it," he said.

There are limits to what many master policies will cover. A kitchen damaged by a broken pipe, for example, will be restored to its original condition. But if owners have made any upgrades to the kitchen, such as new granite countertops or maple cabinets, their personal homeowners insurance would have to make up the difference in restoration costs.

Condo owners and their community associations can also disagree on who should pay the deductible if the association decides the damage to a unit should be covered by the master policy. "The deductible can be $1,000 or $25,000. Does the unit owner pay the deductible, or does the association pay the deductible?" said Shelah F. Lynn, a lawyer with Ballard Spahr Andrews & Ingersoll.

The Gables on Tuckerman, a Bethesda condominium community, faced a similar question when an owner asked to be reimbursed for repairs to her unit after a water-heater leak on the upper level of her two-level unit. The association declined to file a claim with its master insurance policy because the damage did not meet the $10,000 deductible.

The Montgomery County Circuit Court sided with the association in the dispute, which is now before the Maryland Court of Appeals in Annapolis. The condo board "has the duty to undertake repairs that affect the condominium as a whole," said Tom Mugavero, a lawyer with Whiteford Taylor Preston in the District, who is representing the association in the case. "When it affects only one person, the board has to consider the costs to the association as a whole and decide whether or not it is in the association's interest to send the claim."

The lawyer representing the condo owner declined to comment.

An excessive amount of claims could push insurance premiums higher and make it more difficult to secure a policy, Mugavero said. The board has "a fiduciary duty," he said. "Excessive claims on the master policy result in an extended loss report, which has a detrimental effect. You can effectively claim yourself out of the primary insurance market."