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The Rough Notes Company Inc.



June 25
10:03 2019

Mind the Gap

By Marc McNulty, CIC, CRM


Read association bylaws to identify coverage needs

As a new producer looking to build up your book of business, you welcome any slam-dunk personal lines opportunities that allow you to quote a nice account, write it, then move on to the next prospect without any complications getting in the way.

Condo policies should fall into this category, right? After all, you don’t have to mess with homeowners replacement cost estimates and then go into the tiresome spiel regarding replacement cost versus market value.

Unfortunately, the answer to this question is no.

It’s all too easy to fall into this trap: Take the square footage of the unit, multiply it by the going rate to rebuild the interior of a condo, then come up with a Coverage A – Dwelling figure. Ask the prospects how much coverage they need to replace their stuff, and you’ve got your Coverage C – Personal Property limit. Plug those into the rating software, get your quotes, sell a policy, rinse and repeat.

[I]t pays to take your time, understand your prospect’s exposures, then explain to your soon-to-be new client how best to address them.

You won’t do yourself—or your clients—any favors by falling into this cycle. The reason is simple: Bylaws vary from one condo association to another, which means that each association has unique insurance needs.

While “walls-in” is the most common setup, meaning the unit owner is responsible for dwelling improvements from the walls inward, in some situations, unit owners are responsible for more, including exterior dwelling property. In other situations, the association covers almost everything.

Fixing the problem

Before you even log in to your rating software, you should ask your prospect for a copy of the association’s bylaws and any other documents that specifically address insurance responsibilities. In some cases, these documents don’t spell out what the unit owner needs to insure, but they’re usually specific about what the association is required to insure and describe what unit owners are responsible for from a maintenance standpoint. From there you can back in to what your client needs to cover.

The language in association bylaws isn’t always easy to comprehend, so feel free to enlist the help of the association’s property manager and/or your prospect’s real estate agent (if it is a new purchase) to get further guidance on what the unit owners are responsible to insure.

When you start to work with condo unit owners, you may encounter unusual situations. For example, not all properties are set up as buildings with 10 or more units. Some properties consist of duplexes, and a few consist of single-family dwellings. I have seen agents in situations like this write HO 00 03 or HO 00 05 policies when their client only needed a standard HO 00 06 policy because the association insured the individual dwellings. This is why it is so important to read the bylaws.

Let’s examine a few examples to see just how much coverage needs vary from case to case.

Example one: Walls in. The insurance section of this association’s bylaws clearly spells out the association’s responsibilities versus the unit owner’s responsibilities. If only all bylaws were this clear!

“Association Responsibilities: The Association is responsible for the upkeep of both Common Areas and some Limited Common Areas. Additionally, the Association is responsible for insuring the common property and buildings.”

A table sets forth the different kinds of common property with notes on each.

The next section specifically states what the unit owner is responsible for insuring:

“Owner Responsibilities: Owners are responsible for everything in their unit from the walls in. This would include, but is not limited to, floors, ceilings, drywall, windows and any material covering such structures (i.e., paint, wallpaper, curtains/blinds, tile, carpeting), as well as appliances, and personal contents (furniture, clothing, etc.). Owners should obtain insurance against liability for events occurring within their homes or on their driveways or walks, as well as for losses with respect to personal property and furnishings and to improvements they installed. The recommended policy is a Homeowners 6, which is a condo unit policy.”

Wow! The association has done the hard work for you, and at this point you can use the previously mentioned sequence to calculate a cost per square foot to determine an appropriate limit for Coverage A. (Side note: Do your homework to figure out what the going rate is in your locale from a cost-per-square-foot standpoint, as I have seen this range from $50 to $150 depending on the area. If in doubt, use a higher cost per square foot, as you’re better off with too much coverage than not enough!)

Example two: A hybrid. I came across a situation where the association not only insured the buildings but also provided coverage for improvements that were made at the original time of construction. In this case the unit owners needed sufficient Coverage A limits for improvements that were made after those that were installed as part of the original construction.

Here’s how the insurance section of the bylaws reads:

“Fire and Extended Coverage Insurance: The Association shall obtain and maintain for the benefit of all Unit owners and mortgagees insurance on all buildings, structures or other improvements now or at any time hereafter constituting a part of the Condominium Property against loss by vandalism, malicious mischief, windstorm, sprinkler leakage (if applicable), fire, lightning, cost of debris removal and such perils as are at this time comprehended within the ‘all risk’ form of fire insurance policy with extended coverage.”

The section goes on to explain what is meant by “other improvements”:

“The policy shall be … inclusive of the cost of the following improvements and betterments (hereinabove and hereinafter ‘improvements’) to any Unit, added by the Declarant: wall coverings; light fixtures; refrigerator, range, dishwasher and other appliances; and any partitioning, trim, drywall, or other improvements or betterments. … Such policy shall provide coverage for built-in fixtures and equipment in an amount not less than one hundred percent (100%) of the replacement cost thereof.”

The key here is that the bylaws state that the association will cover improvements and betterments added by the Declarant, which is defined as the construction company. Therefore, any improvements that replace what was added by the Declarant—or in addition to what the Declarant added —will need to be covered by the unit owner.

Example three: Association covers almost everything. In our final example, the association covers everything (except for the unit owner’s contents, of course):

“The Association shall obtain and maintain for the benefit of all Unit Owners and mortgagees, insurance on all building(s), structures, supplies, machinery, fixtures and equipment, common personal property or other improvements now at or at any time hereafter constituting a part of the Common Elements against loss or damage by fire, lightning and such perils as are at this time comprehended with the term ‘extended coverage,’ with no co-insurance and in an amount not less than one hundred percent (100%) of the replacement value thereof.”

Just to make things clear, this clause is added:

“No Unit Owner may purchase an individual policy of fire and extended coverage insurance for his Unit or his interest in the Common Elements as real property.”

In short, all the unit owners need in this situation is a renter’s policy (provided that will fly with their mortgage lenders).

As with all forms of insurance, it pays to take your time, understand your prospect’s exposures, then explain to your soon-to-be new client how best to address them. Most people will appreciate the thoroughness and expertise you demonstrate, and this will make it a lot easier for you to solicit referrals from them and continue to grow your book!

The author

Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001. He divides his time among sales, marketing, technology and operational duties. Email Marc at

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