Condo Webinar. Presented by: Judy Durst, Director of Education, NHAIA

Transcription

1 Presented by: Judy Durst, Director of Education, NHAIA

2 Introduction Condominiums have unique exposures that you won t find in your standard homeowners or commercial property risks. This course will review condominiums in depth from a personal lines as well as commercial lines standpoint.

3 Definitions

4 What is a condominium or condo? It is a collection of individual home units or non-residential (like an office) units with common area available for the unit owners to use.

5 How is a unit defined? You would look in the condo documents (by-laws and/or agreements) to find the definition. The definition will usually be one of three different types. What are the different types?

6 All inclusive or all in condos The condo association s master policy covers all real property in a residential condo structure, including fixtures in individual units and any structural improvements, betterments, or additions that the individual unit owner made.

7 All in condos provides coverage to replace a unit to the condition it was in at the time of the loss. The unit owner is only responsible for covering his/her personal property.

8 Single entity condos Very similar to the all in EXCEPT it does not include any structural improvements, betterments, or additions that the individual unit owner has made.

9 In the single entity condo, the unit owner not only has to cover their personal property but also any improvements and betterments that they have made to the condo. The association will not include those items at the time of a loss.

10 Bare walls condos With bare walls, the condo association insures only the bare structure of the individual condo building; the structure, fixtures, & furnishings of collectively owned areas; and collectively owned personal property of the association.

11 Under the bare walls concept, individual unit owners are responsible for insuring building property they own and use exclusively, such as sinks, cabinets, appliances, flooring along with any improvements or betterments they have made. They would include the value under their HO-6 building coverage.

12 So the first thing you need to do is determine the type of condominium you are working with. This is important whether you are in personal lines or commercial lines.

13 Check those state laws! Depending on the state that the condo is located in there may be state laws that supersede the by-laws and agreement. This could have a big effect on the determination of values for each condo assoc and unit owner.

14 Let s begin first by concentrating on Personal Lines.

15 Personal Lines Exposures Type of condo Is insured responsible for building items? Value? Unit owner s personal property. Value? Is the unit rented out? Loss Assessment possibility? Responsibility for Master policy deductible?

16 Personal lines exposures continued Do they have a mortgage? What are the requirements for closing? Perils named versus open What about sewer back up, earthquake, flood exposures? Liability exposures Limitations on the HO-6 jewelry etc.

17 Coverages to consider with your client HO 6 with Coverage A & C Endorsements sewer back up, earthquake, additional loss assessment, floater, rented to others, Flood Floater (if not added by endorsement to HO-6

18 Common problems with insuring personal lines condos The mortgagee wants to be added to the master policy of the condo association.

19 This is a common problem. First of all, the condo unit owner is borrowing money to buy a box of air! Unless the unit owner is responsible for some of the building items, the mortgagee has no rights to the unit owners contents or to the master policy. The association didn t borrow the money.

20 The only way to fix this is to issue a certificate of property insurance and don t indicate that they are a mortgagee. The COI would come from the Master policy not the HO-6. Mortgagee wants to be added as an additional insured to the Master policy? They can t because they don t have an insurable interest!

21 Another problem The mortgagee wants the binder (issue a certificate of property insurance instead) to show walls in coverage.

22 Problem is that the policy doesn t use that language. The master policy will respond to pay losses per the by-laws. Although Fannie Mae uses that language, it would be putting the agent in an E & O situation to include it on the certificate of property insurance since the policy does not respond to that language.

23 If the unit owner is responsible for interior walls and such and there is Coverage A on the HO-6, you can show that on a separate certificate of insurance that you would issue as the unit owners insurance agent.

24 Another problem determining limits for Coverage A and for Loss Assessment. With the Coverage A limit, you need the unit owner to determine how much it would cost to replace the unit items they are responsible for. Remember that the HO-6 only gives $1000 Coverage A without you indicating more.

25 Here are some of the typical items they might be responsible for: Flooring (carpeting, hardwood floors) Wall coverings Lighting fixtures Plumbing fixtures Kitchen cabinets & built in appliances Unit owner installed improvements

26 Limit for Loss Assessment is different. What if the Master policy doesn t have an adequate amount of coverage? Would your insured even know that? What if a loss isn t covered by the Master policy? Is $1000 enough? I would have to say NO! Think about selling at least $50,000 in loss assessment or more if you can get it.

27 What about the age-old problem with the Master policy deductible and the limitations under the HO-6? The new 2011 HO form allows for more than just the $1,000 of loss assessment coverage for the association deductible.

28 What if your carrier isn t using the 2011 HO forms? Check with the carrier to see if they have their own endorsement to fix this. Some carriers like Cincinnati, Chubb, Harleysville and Safeco do. Check it out!

29 Don t forget to change the perils to open versus named perils. Don t forget to increase the liability limit as high as you can on the HO-6. Don t forget that very important umbrella!

30 Personal Lines questions?

31 Now let s take a look at the condominium association and what you need to think about with regards to exposure identification and coverages.

32 I hate to sound like a broken record but you really need to see those by-laws. How are you going to be able to help the insured determine the value of the buildings if you don t know what is a building by their definition!

33 Setting the value of the building is only part of it. What about the following other exposures for the association? Perils? Building ordinances? Unit owner improvements? Crime exposures employee dishonesty! Inland Marine accounts receivable, computers, valuable papers?

34 Premises liability responsible for streets? Snow & ice removal? Parking lots? Slip & fall exposures? Swimming pools? Exercise facilities? Playgrounds? Directors & Officers liability exposure volunteer board may be sued because of actions they take in assessments & enforcing the by-laws.

35 Any auto exposures? Non-owned? Hired? Workers Compensation exposures? Any volunteers who receive something for their work? Reduction in fees or other? Other things like equipment breakdown, forgery, computer fraud, cyber liability, employment related practices.

36 Let s start with the commercial package Commercial Property Always use the Condo Association Coverage form not the Building & Personal Property form. Why? The definition of the building!

37 The definition of a building in the BPP is spelled out. Condos aren t that simple. The building definition is found in the bylaws. Don t forget the personal property owned by the association like office and recreational items!

38 Don forget to review that vacancy condition and other conditions with the insured. Remember coinsurance (can you say agreed value?) and that the valuation is automatically ACV unless you indicate you want RC on the dec.!

39 Unit owners will purchase HO-6 if it is a residential condo or a BOP/CPP if a commercial condo. Most office condos will include coverage under a BOP. Just don t forget about building items the insured unit owner may be responsible for!

40 Commercial Lines questions?

41 E & O Exposures from Condos There are several areas that could cause an increased E&O exposure to your agency. Let s review a couple.

42 Don t act like your insured s lawyer. You are not reviewing the condo documents as an attorney would. You are looking at possible insurance exposures to your insured. Remember to tell your insured to have their lawyer review anything that they plan to sign before they sign it.

43 Valuation problems can cause you heartburn. Remember, it is up to the insured to ultimately determine the amount of coverage they need. They need to contact a contractor to determine what the replacement value is for the building items they are responsible for.

44 Issuing binders with the mortgagee listed. Just issue a certificate of property insurance and list the mortgagee as the certificate holder only. Remember, you can t add the mortgagee to the association policy and don t make it look like you can!

45 Not recommending flood can be a big exposure to you. Will they buy it? You don t know until you offer it. Remember that everyone has an exposure to flood. The only question you need to ask to determine that is Does it rain where you are located?. Don t forget the unit owner too! Most flood losses involve more personal property damages.

46 Not using a checklist Remember that you can t remember everything. Using a good checklist when reviewing the needs of every insured will be a terrific defense in the event you are sued. Documentation and invariable procedures/practices is the best defense!

47 Making coverage choices for your insured. Just don t do it! Recommend everything that you can and let the insured decide what they want to purchase. Then document to them what they chose to buy and what they declined in writing!

48 Forgetting about the limitations on the policy for building code updates, debris removal and others. Remember that most condos were built a while ago (Condos started in the 1980s) and even if they weren t, building codes change constantly!

49 Not using disclaimers. Make sure that your proposal includes disclaimers so the prospective insured doesn t make assumptions about coverage or if coverage is being provided.

50 The moral of the story Use checklists Don t make choices for the insured Recommend everything at the highest limit you have available for them Use disclaimers Don t practice law without a license!

51 Any more questions? Let s take a final poll.

52 Housekeeping items before we end Complete & send roster for CE Fax # judy@nhaia.com

53 Thank you for using NHAIA for your insurance education needs. This webinar has been approved for one continuing education credit hour in NH, VT & ME. Please make sure that you have signed the roster so I can add those credits to your transcript.

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