Condo/Townhouse Unit Owner Insurance aka H06 Unit Owner’s Policy
Read your CC&Rs
One of the best time-investments unit owners can make is to read their association’s Covenants, Conditions and Restrictions (CC&Rs), especially the Maintenance and Insurance Sections. The next step is to interview your Community Manager and the Homeowners Association’s Board of Directors to determine how they interpret the CC&Rs with regard to claims settlements so that the unit owner can then discuss critical coverage issues with their personal insurance agent who can recommend appropriate coverage to reduce or eliminate gaps in coverage when the unit owner purchases a condo or townhouse unit owner’s policy.
Walls-In Dwelling Coverage
Well-written CC&Rs typically define how the HOAs insurance policy should insure the HOA. With regard to insuring the inside of units (Walls-In Coverage) the three typical methods are:
1. Bare Walls – After sustaining major damage such as from a fire, the HOAs policy will pay to construct the perimeter exterior walls of your unit and the roof. The unit owner will be responsible to pay for reconstruction of everything else inside the unit, including interior walls, cabinets, counter tops, floor and window coverings, etc.
2. Per Original Construction aka Single Limit – After a property damage loss, the HOA policy will pay to construct the interior of the unit using Like-Kind and Quality materials pursuant to original plans and specifications. However, the net increase in value of Upgrades, such as hardwood floor instead of carpet or granite counter tops instead of tile will not be covered by the HOAs policy.
3. All Inclusive – Pays to reconstruct the unit interior Per Original Plans and Specifications plus also pays for the net increase in value of Upgrades installed by unit owners after original construction was completed. In addition to paying to reconstruct the interior of a unit, HO6 Unit Owner’s Dwelling Coverage may also help the unit owner pay for their share of the HOA policy Deductible, depending on how the HO6 policy is written.
Loss Assessment Coverage
Loss assessment Coverage is designed to help unit owners pay the unit owner’s share of under-insured losses. The HOA Board of Directors may send a Loss Assessment letter to unit owners requesting that the unit owner help pay for an HOA’s under-insured loss. An Example of an Under-Insured Loss is if a fire causes a death or if a serious injury occurs at the swimming pool, a law suit against the HOA wins a judgment and there is insufficient General Liability coverage to pay the entire court judgment. The under-insured portion of the claim will have to be paid by all of the unit owners. Loss Assessment Coverage will help pay your share of the assessment. Another example is when a unit owner is required to pay the HOA policy Deductible after the HOAs policy pays for repairs inside a unit. The HOA Deductible may be considered the “underinsured” portion of the loss. Interview your personal insurance agent or their claims office supervisor to determine under what circumstances your HO6 policy will help you pay the HOA policy deductible. Having Loss Assessment Coverage endorsed onto your HO6 policy is one way to cover these expenses.
Sewer Drain Backup Coverage
Most HOA policies limit the amount of Sewer Backup coverage so have your personal agent include additional limits for your unit. A Sewer Drain Backup is typically caused by a plugged sewer line that backs up sewage water into a unit owner’s premises because other up-stream users continue to use toilets, sinks and showers. However, a sewer drain back up can also be caused when the City’s main sewer line reverses flow and then backs-up, potentially flooding multiple units.
Personal Property generally includes everything you carry into your condo when you move in: furniture, art, dishes, clothing, jewelry, electronics, etc. If items such as book shelves, entertainment centers or appliances are then permanently attached to the structure (think screws or nails) they may become part of the structure and may need to be covered by Dwelling Coverage. (also known as Betterment and Improvements coverage)
Floaters for High-Value Target Items
HO6 policies typically limit coverage for target items such as art, jewelry, coin, stamp or doll collections, and antiques so ask your personal agent if current-dated appraisals and special endorsements (also known as Personal Articles Floaters) are required to cover the full value of these items.
Proof of Loss
Ask your agent and or personal policy claims supervisor what proof of loss/ownership is required in order to receive full value for replacement of your items. Paid receipts or documentation that came with the item is usually accepted… We recommend taking photos or video by opening up all drawers, closets and cabinets and then taking a video or photos of all of your household furnishings and personal property as a quick and easy way to prove ownership and to remember what is missing after a burglary or fire. Save the photos at another location such as on a private secure website or on a thumb-drive kept at a relatives home.
Loss of Use
Loss of Use will help pay your rent at another location when you move out while your home is being reconstructed after a loss.
Loss of Rent
Loss of Rent will pay you for lost rent if your tenant has to move out of your rental unit during the time your rental unit is being reconstructed after a loss.
Workers Compensation will help pay for medical bills or loss of wages if a worker you hire is injured on the job you are paying for. Some handy-man teams or subcontractors may get hired by you on the basis of being Independent Contractors, but after being injured, then claim to be your employee making you their Employer so ask your personal agent how your HO6 policy can cover your workers comp exposure. The HOAs work comp policy is designed to cover work contracted by the HOA for work in the common area, not the individual unit owner’s exposure.
Earthquake Endorsement and Earthquake Loss Assessment
Your personal unit owner’s policy can be endorsed to include coverage for damage to your HOA caused by earthquake. In addition, if your association carries earthquake insurance or when the HOA is damaged by an earthquake, the HOA may send you an Earthquake Letter of Loss Assessment requiring you to pay your share of the Earthquake Damage or Deductible. Earthquake Loss Assessment Coverage endorsed onto your HO6 policy can help you pay your share of the Assessment or your share of the Earthquake Policy Deductible.