Condominiums are not monolithic, and neither is the insurance marketplace. Jamie Schraff, community association program manager at The Distinguished Programs Group, explains, “We place coverage for homeowner associations (HOAs), residential condominiums, office and commercial condominiums, timeshares, cooperatives, and planned unit developments of all sizes and demographics in all 50 states.”

Similarly, Gail C. Pierce, senior commercial underwriter at Roush Insurance Services, Inc., says, “We can offer property and liability coverage for almost any condominium association, regardless of the number of units, construction, or location. This includes the ones with clubhouses, lakes, security guards, playgrounds, and other additional exposures that are typical for them."

Charles Bushong, president of Coastal Insurance Underwriters, explains that they concentrate on the large southeastern market. “We do mainly residential condominium associations. We also have some facilities for commercial condominiums like offices and retail space. We do business mainly in Florida, Texas, and Alabama, all of which have huge numbers of condos.”

Some markets are particularly interested in either urban or suburban exposures. However, Robert G. Morgan at Philadelphia Insurance Companies explains, “We have a fairly broad eligibility appetite. We insure new construction, conversions, garden style, townhouses, mid-rise, and high-rise accounts. From an occupancy standpoint, we insure year-round communities, as well as rental and seasonal communities. From a location standpoint, the emphasis is more on evaluating catastrophe exposures, i.e., terrorism, hurricane, hail, earthquake, winter freeze, etc., than on the urban vs. suburban distinction.”

This broad demographic approach is similar to that espoused by George Cvengros, underwriting supervisor at Burns & Wilcox. He says, “We arrange coverage for residential and commercial condominium associations in urban and suburban locations. We can write associations as small as one unit up to several hundred units, one story or the high-rise variety. All types of construction can be considered.”

Our contacts all explained that coverage is available in both admitted and non-admitted markets. Among the carriers that write condominiums are Century Surety Company, Chartis, Companion Property & Casualty Insurance, Essex Insurance Company, Great American, Ironshore, Philadelphia Insurance, Scottsdale Insurance Company, and Tudor Insurance Company.

The property line of business develops most of the premium and also most of the losses. Mr. Morgan explains, “Frequency is seen in older condo properties, which typically have a higher percentage of rental units. Frequency is evidenced in water-related losses and fires. Severity is seen when a fire can make it to the building roofline that allows for an uninterrupted rapid spread of fire."

Mr. Cvengros is particularly concerned about high-rise condominiums and says, “Agents should ask the insured if the local fire department is equipped to handle a fire in a high-rise condominium building. Other questions include: Are there standpipes and hoses on every floor of a high-rise condominium? Are there sprinklers on the premises, either partially (just in common areas) or totally, throughout the condominium?"

“There are some additional hazards in coastal states, such as wind and flood, that need special products. As a result, the agent must be knowledgeable about coastal exposures and coverages.” according to Mr. Bushong. “For the flood exposure, the condo association needs not only federal flood insurance for the primary coverage but also excess flood insurance. A lot of big high rises have large square footage per unit, and they can quickly use up the maximum limits provided by the national flood program, which is $250,000 times the number of units in the building. These insureds can buy excess flood insurance in amounts ranging from $5 million to $50 million or more if needed. There are a good half dozen carriers that offer these excess limits.”

There are also general liability exposures. “Slip and fall exposures in common areas like sidewalks, pools, and clubhouses are a frequency concern,” according to Ms. Pierce. “However, water exposures (lakes, ponds) can add to the liability exposure from both a frequency and severity standpoint.”

Mr. Cvengros explains, “In a high-rise condominium, life safety factors are critical. Again, important questions are: Does the building have sprinklers, fire escapes, adequate fire extinguishers, etc.? Also, many condo associations have picnics with amusement devices such as bounce houses, which could expose young children to injury and result in lawsuits against the association. Animal bites, especially from dogs, present another liability exposure for condo associations.”

Professional liability is a very real but often overlooked exposure. Ms. Schraff explains, “We most frequently see claims alleging a presumed breach of fiduciary duty. Many of these are actually non-monetary demands, but allege mishandling of association monies. Similarly, allegations of breach of governing documents are quite frequent, as the board’s interpretation of the bylaws and the community members’ interpretation of them can be quite different. In terms of severity for professional liability, employment practices disputes and challenges to architectural review decisions are some of the most costly claims.”

The recession and deterioration of the housing market has had a significant impact on condominium associations. According to Mr. Bushong, “There are a number of vacant units and foreclosed units. A key issue is water damage from fixtures breaking in an unoccupied unit. If no one is in a unit and a water line becomes corroded and breaks, the claim could be a lot larger than if the unit were occupied and the resident discovered the problem and dealt with it immediately. These claims can get messy if the unit owner is underwater on the mortgage and walks away. In the event of damage, it’s hard to find the owner. The association may get stuck fronting the money to repair the damage and clean up the unit. The association will usually put a lien on the unit and, if someone wants to buy it, that person must reimburse the association.”

The recession is also having an impact on professional liability coverage, according to Ms. Schraff. “Boards and their communities are forced to make decisions regarding underfunded reserves, delinquent dues, collection procedures, and sometimes foreclosing on their neighbors’ homes. These are complicated and sensitive issues for even the most experienced business professionals, and sometimes they are left in the hands of completely inexperienced volunteer board members.”

Condominium associations are attractive risks to many carriers, but there are potential coverage gaps that can be uncovered only by asking the right questions. Ms. Pierce provides this excellent advice: “When it comes to a condominium risk, the best thing for agents to remember is to be sure to review the entire risk for all exposures that may exist. This class can have some interesting and unusual exposures that many applicants would not think of when answering their insurance agent's questions. The more information agents have, the better they are able to properly underwrite and rate these risks.”

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