Gaps Between Condo Association and Unit Owners Insurance
When it comes to condominium insurance, one of the most misunderstood and potentially costly issues is the coverage gap between the master insurance policy and individual unit owner policies. Condo associations and unit owners often assume they’re fully protected, only to discover—after a disaster—that important areas were left uninsured.
Understanding how these policies interact is crucial for both the association and the homeowners. Let’s break down what these gaps are, why they exist, and how to address them.
What Is a Master Insurance Policy?
The condo association’s master policy (sometimes called the HOA policy) typically covers:
- The building structure (roof, exterior walls, foundation)
- Common areas (hallways, lobbies, elevators, amenities)
- Shared mechanical systems (plumbing, HVAC, electrical)
- Liability for accidents occurring in shared spaces
The master policy is paid for by the condo association, usually through owners’ dues.
What Does a Unit Owner’s HO-6 Policy Cover?
A unit owner’s HO-6 policy typically covers:
- Personal property (furniture, clothing, electronics)
- Interior finishes (cabinets, flooring, appliances)
- Improvements/upgrades made by the owner
- Liability within the unit
- Loss of use (temporary housing if the unit is uninhabitable)
- Loss assessment coverage (when the HOA passes costs to owners)
Where the Gaps Arise
The biggest confusion lies in where the master policy ends and the HO-6 policy begins. The specifics vary depending on the condo association’s governing documents and insurance policy type. The two most common types are:
1. Bare Walls Coverage
- Covers: Just the structural elements and common areas.
- Gap: Everything inside the unit—walls, flooring, countertops—must be covered by the unit owner’s policy.
2. All-In (Single Entity) Coverage
- Covers: The structure plus original interior fixtures (as built by the developer).
- Gap: Upgrades and renovations done by the owner are not covered.
In both cases, if the owner installs high-end granite countertops or hardwood floors, those improvements likely aren’t covered under the master policy.
Real-World Example
A pipe bursts in a wall shared by two units, flooding the interiors. The master policy covers the wall and pipe, but not the damaged flooring and cabinetry inside the units. If one unit owner installed upgraded finishes, their cost to repair or replace could far exceed what their HO-6 policy covers—especially if they never adjusted the policy limits to reflect those upgrades.
Why It Matters to Condo Associations
While the coverage gap may seem like a unit owner’s problem, gaps can lead to conflict, legal disputes, and strained relationships between the board and residents. Associations may also face pressure to pay for damages not technically covered under the master policy, leading to budget overruns or lawsuits.
How to Prevent Coverage Gaps
For Condo Associations:
- Clarify your master policy type and communicate it clearly to unit owners.
- Provide a summary of coverage with examples of what’s included and excluded.
- Require or strongly encourage owners to carry HO-6 insurance with adequate dwelling and loss assessment coverage.
- Work with your insurance agent to review your governing documents and ensure your policy complies.
- Educate new board members and residents annually.
For Unit Owners:
- Read your HOA’s insurance documents carefully.
- Talk to your insurance agent about what your policy needs to cover based on the master policy.
- Update your HO-6 policy if you make improvements.
- Ask about loss assessment coverage limits and what happens in case of high deductibles on the master policy.
Final Thoughts
Insurance isn’t just about having a policy—it’s about having the right policy. Condo associations and unit owners must work together to close the coverage gap and ensure all parties are properly protected. Proactive communication and regular insurance reviews can go a long way in preventing unpleasant surprises after a claim.
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