Condominium HO-6 Policies: Filling the Coverage Gaps

Dan Zimberoff

If condominium unit owners believe that all of their insurance needs and risks are covered by their condominium association’s master policy, they may be in for a costly surprise. There are serious gaps in coverage of a master association’s policy

for owners of

individual condominium units. In the event of a loss where the master policy does not pay, and a unit owner does not have individual unit owner’s insurance, the costs for repair or other damages may be assessed to the unit owner. Fortunately, these gaps are covered under condominium unit owner’s insurance, commonly known as “HO-6” policies.

What’s the Difference Between an HO-6 Policy and a Master Policy?

A condominium association’s master policy provides coverage for property damage to the condominium’s structures, improvements, common areas (e.g., lobby, elevators, hallways, roof, siding, courtyards and shared patios) and limited common elements (e.g., unit decks, garages or car ports). The policies also provide coverage for legal liability, such as bodily injury and medical bills.1

Other

coverage is available by endorsement or separate policy, such as directors and officers (commonly referred to as “D&O” insurance), earthquake, flood, employee dishonesty, ordinance and code upgrades, sewer back-up.

An HO-6 policy is a personal insurance policy that provides coverage for the condominium unit and owner. The physical limits of “the unit” ordinarily are determined under the condominium association’s Declaration. Thus, the precise boundaries of an HO-6’s policy’s property coverage may vary from condominium to condominium—not just from policy to policy. In addition to covering losses involving property damage, HO-6 policies often insure for personal property, legal liability of special assessments.

the owner, loss of use, and 16 Community Associations Journal | October 2014 The Law in Washington

For condominiums created after July 1, 1990, and subject to RCW 64.34 et seq. (the “New Act”), the association’s insurance “may, but need not, include equipment, improvements, and

betterments in a unit installed by the declarant or the unit owners, insuring against all risks of direct physical loss commonly insured against.”

This type of

insurance is referred to as “all in” and is most common for newer condominiums. “Old Act” condos do not have a similar provision, and, in fact, defer to the association’s Declaration, bylaws or a majority of

owners to determine the type and amount of insurance required. Neither the New Act nor the Old Act requires unit owners to obtain insurance for their own benefit.2

Common Misperceptions Regarding Who Pays What

After reading the above description on master and HO-6 policies, one could reasonably believe that, in the event of a loss that involves damage to both common elements and a unit (e.g., water damage to roof, hallway, unit interior walls, cabinets and floors), the association’s policy would cover repairs to the common elements and the unit owner’s policy would cover damage to the unit. But that often is not the case. Under many condominium association Declarations, the association’ maintains an “all in” policy that is primary, meaning it would cover repair costs not only to the common elements, but also to the unit itself. If that is the case, why is HO-6 insurance necessary?

Remember, the association’s master policy may not cover unit upgrades, betterments or improvements made post- construction. It almost never covers loss of use or individual legal liability unrelated to common elements, and certainly does not cover special assessments. In the above scenario, the association’s insurance likely would cover the cost to