For Maryland Condo Owners, Misfortune Just Got More Expensive

By Benny L. Kass
Saturday, June 20, 2009

Effective June 1, Maryland condominium owners may have to pay up to $5,000 if a fire or other hazard causes damage within their own unit.

Equally important, if the proper disclosures about a new insurance law are not given to a prospective buyer, the real estate sales contract is not enforceable.

A brief bit of background is important. Last year, the Maryland Court of Appeals (the highest court in the state) ruled that condo associations are not required to repair or replace property inside owners' units if it is damaged. For years, many condominium associations obtained what is known as a "single-entity" insurance coverage. The "master policy" would pay the association to repair and replace certain damage -- both in the common elements as well as within a unit itself, subject to any deductible spelled out in the policy.

When the Maryland court rejected this approach, basically holding that unit owners had to pay to repair their own units, this caused considerable consternation among property insurers, condominium managers and boards of directors, and owners of individual units about what kind of coverage should be obtained.

But the Maryland legislature acted, overturning the Court of Appeals case and requiring condo associations to repair property inside a unit and buy insurance that covers that obligation.

Unit owners also have certain duties. If the cause of any damage or destruction to a condominium originates from the unit -- whether or not the unit owner is negligent -- the owner of that unit is obligated to pay the association's deductible, up to $5,000. So, if a fire starts in your unit and damages the building, you pay the deductible.

A deductible is an insurance concept. If you want complete and total coverage for a loss, your premium will be high. However, if you agree to pay a certain portion of the damage yourself, the premium will decrease proportionately. A typical condominium association deductible can be $5,000 or higher.

Before the Maryland appeals court case, the deductible issue caused serious financial problems for associations. If a unit had a plumbing leak and the damage caused was below the deductible threshold, in many cases the association had to bear the cost. The law in Maryland -- as it is in the District, Virginia and many states -- was that unless the governing documents stated otherwise, the deductible was a common expense. This means that all unit owners had to absorb the loss.

The new Maryland law now makes it clear that if the cause of the damage comes from within the unit, that unit owner may need to pay up to $5,000 to the association.

What does this mean for Maryland condominium unit owners? Simply stated, you should have your own insurance policy that will cover the deductible. This is known as an HO-6 policy and is something that all condo owners -- regardless of whether they live in Maryland -- should obtain.

The master policy does not provide all-inclusive coverage. It will pick up the cost to repair your walls or floor, but you are on your own with any personal belongings. And if your apartment is flooded, it's not just your valuable carpet but also your 50-inch plasma TV that could be ruined. Additionally, most master policies exclude what is known as "betterments." If you have the floors installed by the developer in your unit, coverage will probably be available if they are damaged. But if you or a previous owner installed parquet flooring, this is a betterment and will not be covered under most master policies.

Here is where the HO-6 policy comes into play. This will cover your personal losses and should supplement what the master policy does not cover, such as theft, vandalism and personal liability.

The new law now requires potential condominium unit buyers to be put on notice of their responsibility for the master policy deductible. If this notice is not given, the buyer has the absolute right to walk away from the contract. The Greater Capital Area Association of Realtors has just amended its form "Condominium Resale Addendum for Maryland" (Form 1328), which all sellers must give to their buyers no later than 15 days prior to settlement. What happens if the wrong form is used? Simply put, the contract is not legally enforceable.

To put even more teeth into the new law, condominium associations must, on an annual basis, advise all unit owners in writing about their responsibility for the master policy deductible, as well as the amount of the deductible.

This is new law in Maryland, and only time will tell how it will be implemented and interpreted.

However, accidents happen. All condominium owners -- especially in Maryland -- must make absolutely sure they are adequately covered by their own H0-6 policy, and that the coverage includes the $5,000 deductible the new law imposes on them.

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, at

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