Condo Associations Don't Have to Pay for Damage To Units, Md. Court Says

Typically, as the appeals court suggested, a unit is defined as a "block of airspace surrounded by walls, a floor and a ceiling." The association's declaration contains the definitions, and usually the unit's boundaries are the "finished side of the interior sheetrock, ceilings and floors." If damage occurs between the walls of two units and causes drywall damage inside the units, who is responsible for that repair?

"This decision might be interpreted to mean that associations are no longer required to purchase and maintain property insurance coverage to include the interior of individual units. However, it does not stipulate that associations are statutorily prohibited from purchasing and maintaining such coverage," said Steve Dickerson, senior vice president at USI Insurance Services in Falls Church and a recognized expert on community association insurance issues.

"A basic purpose of single-entity coverage is to assure with a reasonable degree of certainty that sufficient property insurance is purchased and maintained to protect the financial integrity of condominium associations and unit owners. We are not comfortable that this reasonable degree of certainty can be accomplished by eliminating the single-entity coverage," he said.

Why? According to Dickerson, this would require associations to "rely on multiple unit owners individually to purchase adequate property insurance coverage for all structures and components within the interior walls, ceilings and floors of their units."

What does this case mean for condominium associations? They have to carefully consider the type and scope of their master insurance policy. Dickerson's company and other insurance experts continue to recommend that Maryland associations maintain -- rather than reduce or eliminate -- their single-entity coverage policies.

What does this mean for condominium unit owners? First, make absolutely sure that you have an HO-6 policy to cover your unit. Whether the master insurance policy will or will not cover you, the HO-6 will provide at least some protection in the event of an unforeseen casualty.

Next, find out the amount of the deductible in the master policy and make sure that your HO-6 policy provides coverage and is at least in that amount. Condominium owners should talk with their insurance carriers to make sure that they have adequate coverage.

It is also recommended that the HO-6 policy be issued by the same company that issued the master policy . Often, insurers point fingers at each other; each company says, "This is not our responsibility -- look to the other policy." If that happens, you can tell the insurer to work it out internally.

It remains to be seen whether the Maryland legislature will review the law in the light of the court decision and whether courts in other states will follow the Maryland model.

Clifford Treese is the founder of Association Information Services, a California organization that assists community associations on issues including insurance. According to Treese, "There is a large public policy issue here: Should all owners [and tenants] be required to obtain personal insurance . . . or suffer whatever might be the consequences?"

Benny L. Kass is a Washington lawyer. 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. Readers may also send questions to him at that address or contact him through his Web site,http://www.kmklawyers.com.