Q. I am the president of a medium-sized condominium association in this area. I would like to learn more about condominium insurance, and have had some difficulty in getting information. Do you have any comments about such insurance?
A. I most definitely do.
Unless your association's insurance package was put together carefully -- and is monitored periodically -- you and the other unit owners may find yourselves with a serious problem in the event of an accident, lawsuit or even a natural catastrophe.
Here are some common situations in which condominium unit owners often mistakenly assume that their insurance coverage is applicable:
*If your association and its board members are sued, attorneys' fees and court costs will be provided by the association's insurance policy. The policy also will pay all judgment costs or out-of-court settlements brought on by any lawsuit.
*If a guest is injured while visiting your association's swimming pool, the association's insurance policy will protect you from all personal liability and out-of-pocket expenses.
*When hurricane-force winds uproot your association's trees, break its windows and splinter its ornate gatepost sign, the association's policy will cover the damage.
In all of these three very common incidents, the association's insurance policy may not be adequate. According to condominium insurance experts, some condominium associations "are pitifully underinsured and represent a significant risk to association members."
Insurance is a very complex area that most lawyers and property managers do not fully comprehend. Often, the manager of a condominium association uses his or her own policy or brings the friendly insurance agent into the picture, and a "bare-bones" policy is issued. Often, the desire to keep costs down outweighs the need for adequate insurance coverage.
Here are some items to look for when considering the kind of insurance policy for your association. (This list is far from exhaustive.)
*Full repair and replacement of damaged property. Some policies cover the depreciated value of the damaged property. Let's take the following example: Your clubhouse roof is six years old and has a 10-year life expectancy. A fire damages the roof. Under a depreciated-value policy, the insurance may cover only $4,000 on a roof that cost $10,000 six years ago. The association would end up footing the rest of the bill.
*Full comprehensive general liability coverage. You should have at least $1 million worth of insurance, but depending on the size of your association, $2 million may not be too much.
*Liability insurance covering the association's directors and officers. Because more and more lawsuits are being filed, you should discuss this with your insurance agent and attorney to determine coverage needed.
Coverage for business-related personal property, appurtenant structures, exterior signs, valuable papers and records, outdoor trees and shrubs, medical payments and "personal injury" coverage to protect against charges such as libel, slander, defamation of character and wrongful eviction.
You should contact a number of insurance carriers that specialize in condominium insurance. I also highly recommend the Community Association Institute, (703) 548-8600, which has developed a number of excellent publications in this area.