Condominium Unit Owners’ coverage can be tricky, and we’ve pulled together these claims stories to help demonstrate the importance of getting it right.
Claims Story #1:
Our client purchased a unit in New York City. We reviewed the master policy, which provided coverage for the unit interiors, with the exception of betterments & improvements, and determined they still needed a higher limit of Additions & Alterations (dwelling) coverage in order to ensure they had proper protection. Our client replaced the flooring throughout the entire 1500sf unit when he moved in and that affected how the master policy would respond to a covered loss. When the AC unit malfunctioned and leaked into the unit, the water damage impacted the flooring, sub-flooring, drywall and windowsill of his unit as well as entering the unit below. Because the flooring was continuous, the entire unit needed to be packed up and his personal belongings stored offsite, all of the floors had to be replaced, in addition to the repairs to the walls and window. The cost of the pack-out and storage was over $15k and the entire claim, including A&A, personal property, and loss of use exceeded $100k.
Takeaway: It is important to always provide appropriate Additions & Alterations/Dwelling coverage for condo unit owners, even if the master policy is robust. We use replacement cost estimators and other tools to help determine an adequate limit. There can be hidden costs, such as the pack-out of contents and storage while the unit is being repaired – in this case that coverage fell under A&A and would not have been covered by even the most comprehensive master policy.
Claims Story #2
Our client purchased a multi-million dollar condominium in a luxury high-rise. She renovated and customized her entire unit and when she approached us for coverage, she was initially shopping on price. The Advisor guided her toward a more comprehensive policy with a high-value insurance provider that did not have any water damage limitation. Shortly after placing coverage, the master boiler for the building had to be replaced. When they re-pressurized the system, it blew the connections in our clients’ penthouse and water infiltrated the unit and trickled down into three other units. The total loss exceeded $300,000.
Takeaway: Condominium coverage can be nuanced, and not every policy is the same. Water damage is the leading cause of loss for condominiums, and many policies have water damage limitations that can greatly impact a client’s out-of-pocket expense following a loss.
Claims Story #3
Following Hurricane Ian, the unit owner was assessed $22,000 by the HOA, even though his unit did not have any direct damage.
Most standard condominium policies only provide $1k – $5k of loss assessment coverage, and even the deluxe unit owner policies, with higher loss assessment coverage, still cap what will be paid out when it is hurricane related. In this case, our client had their unit owners coverage with a high-value insurance provider, who provides up to $50k in loss assessment, but limits hurricane loss assessment to $10,000; However, due to the coastal location, it was written ex-wind and the wind coverage provider only provides
$2k of loss assessment. The client has not made a claim because the amount they would receive is so low, and they don’t want to risk coverage acceptability by having a small loss. Ultimately, the client is paying $22,000 out of pocket for an assessment by their HOA.
Takeaway: Always offer the highest limits of loss assessment, but be sure to explain any restrictions and caveats to the client so they have a full understanding of their exposure. Even when we’re offering the highest limits available, the client may retain significant potential out-of-pocket expense that is inherent in being a condominium unit owner.
In addition to providing coverage for personal property, loss of use, and liability, unit owners’ coverage also includes additions & alterations/dwelling and loss assessment which are often assumed to be part of the master policy. It is crucial that unit owners understand their exposure.