A Couple of Condominium Endorsements One for the Personal Condo Unit-owner and One for the Commercial Unit-owner

Transcription

1 TECH TALK A Couple of Condominium Endorsements One for the Personal Condo Unit-owner and One for the Commercial Unit-owner By Irene Morrill, CPCU, CIC, ARM, CRM, CRIS, LIA, CPIW Vice President of Technical Affairs February 2010 A personal condo endorsement that I always have felt is mandatory is the Unit-owners Coverage A Special Coverage HO Recently someone asked for the reasoning in adding this coverage to the HO-6 so here it is. Unit-owners Coverage A Special Coverage HO Should be on EVERY HO-6 you sell..regardless of the amount of Coverage A purchased. Some people might feel if it is the master policy that must cover the individual unit per the association bylaws and if that commercial master condominium policy is a Special Form Cause of Loss why bother! I fear that someone is not considering the WHOLE policy with this opinion. The range of perils is important in MORE than paying a loss to the unit. Coverage A losses Certainly more perils for Coverage A dwelling losses can be helpful. The unendorsed HO-6 has only 16 named perils. The HO changes Coverage A perils to special or open or covered unless excluded. You say who cares...i ve read the bylaws and the master policy covers the unit and it is a Special Form Cause of Loss. Ok, let s consider 1. Master policy deductible. What if there is a $5,000, $10,000 or higher deductible under the master policy? The insured will have to utilize their own coverage for a loss less than the master policy deductible. Don t you want them to have special perils? 2. Special Form commercial lines v. Special Form Personal lines NOT THE SAME THING! A special form personal lines policy is BETTER (has fewer exclusions and restrictions) than the commercial counterpart. Under the commercial policy if windows are left open and a storm spews rain into the windows damaging walls and flooring too bad not covered. Limitations The following limitations apply to all policy forms and endorsements, unless otherwise stated. 1. We will not pay for loss of or damage to property, as described and limited in this section. In addition, we will not pay for any loss that is a consequence of loss or damage as described and limited in this section. c. The interior of any building or structure, or to personal property in the building or structure, caused by or resulting from rain, snow, sleet, ice, sand or dust, whether driven by wind or not, unless: Massachusetts Association of Insurance Agents 91 Cedar Street Milford, MA TECH HOTLINE (Fax)

2 TECH TALK Page 2 February 2010 (1) The building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain, snow, sleet, ice, sand or dust enters; or (2) The loss or damage is caused by or results from thawing of snow, sleet or ice on the building or structure. Using my cute little fingers to open the window where the rain comes in does NOT meet the requirement of this limitation. While under the HO-6 modified by the HO there WOULD be coverage as there is no exclusion or limitation! The HO makes the HO-6 coverage for building losses similar to the HO-3 coverage for building losses. 3. Consider Coverage D. Loss of Use Under the HO-6 - the ability to access the coverage is dependent upon covered property or the building containing covered property being damaged by a covered peril. C. Coverage D Loss Of Use 1. Additional Living Expense If a loss by a Peril Insured Against under this policy to covered property or the building containing the property makes the "residence premises" not fit to live in, we cover any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living. The more perils one has the more opportunity to activate Coverage D Loss of Use! 4. Section I Loss Assessment Coverage Similar to Coverage D Loss of Use, loss assessment coverage is activated by covered perils. The more perils the more ability to activate loss assessment. Sounds important to ME! 7. Loss Assessment a. We will pay up to $1,000 for your share of loss assessment charged during the policy period against you, as owner or tenant of the residence premises, by a corporation or association of property owners. The assessment must be made as a result of direct loss to property, owned by all members collectively, of the type that would be covered by this policy if owned by you, caused by a Peril Insured Against under Coverage A, other than: (1) Earthquake; or (2) Land shock waves or tremors before, during or after a volcanic eruption. Bottom line If your insured doesn t need much Coverage A then why not make it open peril? It doesn t cost that much to go from named perils to open perils. If they NEED a lot of coverage A then DEFINITELY a reason to have open perils. After all would you sell an HO-2 on a house??? Commercial Unit-owners and insuring building value Whether you insure the commercial client owning a business condo unit under the CP Condominium Commercial Unit-owners Form or with the ISO BOP modified with the BP Condominium Commercial Unit-Owners Form, one needs to know how the policy will apply to any commercial unit-owners improvements to the realty.

3 TECH TALK Page 3 February 2010 The BP modifies the BPP definition of the BOP with: A. Paragraph A.1.b. Business Personal Property is replaced by the following: b. Business Personal Property located in or on the buildings at the described premises or in the open (or in a vehicle) within 100 feet of the described premises, including: (1) Property you own that is used in your business; (2) Property of others that is in your care, custody or control except as otherwise provided in Loss Payment Property Loss Condition E.5.d.(3)(b); and (3) Fixtures, improvements and alterations making up part of the building and owned by you. The CP specifically states: 1. Covered Property Covered Property, as used in this Coverage Part, means the type of property described in this section, A.1., and limited in A.2., Property Not Covered, if a Limit of Insurance is shown in the Declarations for that type of property. a. Your Business Personal Property located in or on the building described in the Declarations or in the open (or in a vehicle) within 100 feet of the described premises, consisting of the following unless otherwise specified in the Declarations or on the Your Business Personal Property Separation Of Coverage form: (1) Furniture; (2) Fixtures, improvements and alterations making up part of the building and owned by you; SO if we just look at this we think that commercial improvements and betterments are ALWAYS covered under the BPP limit of the BOP with Commercial Unit-owner endorsement or CP Condominium Commercial Unit-owner form. But this is NOT necessarily true! One STILL must look at the bylaws to see if there is a commercial condo association that has chosen to cover SOME or ALL of the build out or improvements and betterments in that commercially owned condo unit. The MA BP BOP endorsement for Condominium Commercial Unit-owners then says: B. The following is added to Paragraph A.2. Property Not Covered: j. Any of the following types of property contained within a unit, regardless of ownership, if your Condominium Association Agreement requires the Association to insure it: (1) Fixtures, improvements and alterations that are a part of the building; and (2) Appliances, such as those used for refrigerating, ventilating, cooking, dishwashing, laundering, security or housekeeping. Oh Oh if the commercial association bylaws tell it to cover the individual commercial unit-owner values then the BOP condo unit-owner BPP will NOT. And the CP states the SAME thing! 2. Property Not Covered l. Any of the following types of property contained within a unit, regardless of ownership, if your Condominium Association Agreement requires the Association to insure it: (1) Fixtures, improvements and alterations that are a part of the building; and (2) Appliances, such as those used for refrigerating, ventilating, cooking, dishwashing, laundering, security or housekeeping.

4 TECH TALK Page 4 February 2010 So whether using the ISO CP form for individual business unit-owners or the BOP modified for business unit-owners if the association covers the individually owned building value then the individual commercial unit-owner policy does not. So what about master policy deductibles. If the bylaws told the commercial condo association to insure the individually owned units but there is a large deductible then what? Well the commercial unit-owner needs an endorsement to the BOP or CP form. BP Condominium Commercial Unit-owners Optional Coverages or CP Condominium Commercial Unit-owners Optional Coverages and covering building value These endorsement attached to the appropriate BOP or CP coverage form allows the unit-owner to cover those items that were excluded above. The BP states: B. Miscellaneous Real Property Coverage When a Limit of Insurance is shown in the Schedule or in the Declarations for Miscellaneous Real Property Coverage: 1. The following is added to Covered Property: Miscellaneous Real Property, meaning condominium property that: a. Is not included under Business Personal Property; and b. (1) Pertains to your condominium unit only; or (2) You have a duty to insure according to the Condominium Association agreement 2. The Condominium Association may have other insurance covering the same property as this insurance. If it does, we will only pay the excess over what should have been received from that other property insurance. We will pay the excess whether the other insurance can be collected or not. The CP states the same: B. Miscellaneous Real Property Coverage When a Limit of Insurance is shown on the Schedule or in the Declarations for Miscellaneous Real Property Coverage: 1. The following is added to Covered Property: Miscellaneous Real Property, meaning condominium property that is not included under Your Business Personal Property, provided that: a. The condominium property pertains to your condominium unit only; or b. You have a duty to insure the condominium property according to the Condominium Association agreement. 2. The Condominium Association may have other insurance covering the same property as this insurance. If it does, we will only pay the excess over what should have been received from that other property insurance. We will pay the excess whether the other insurance can be collected or not. So whether or not your client needs this coverage depends on whether or not the commercial association chooses to cover the value of the individual commercial units. Someone needs to review the bylaws to determine the need. Which policy is primary association or unit-owner? The Master policy will be PRIMARY and the unit-owners coverage will be EXCESS! Both the CP and BOP commercial unit-owner policies state:

5 TECH TALK Page 5 February 2010 Condominium Association Insurance The Condominium Association may have other insurance covering the same property as this insurance. This insurance is intended to be excess, and not to contribute with that other insurance. Don t forget loss assessment coverage for the commercial condominium unit-owner BP Condominium Commercial Unit-owners Optional Coverages or CP Condominium Commercial Unit-owners Optional Coverages and covering loss assessment You might want to use this endorsement to provide loss assessment coverage for the commercial unit-owner. Neither the CP Condominium Commercial Unit-owners form nor the BOP with the BP MA endorsement for Commercial Unit-owner provides ANY FREE loss assessment coverage! Again, a review of the bylaws and requirements is necessary to determine if the unit-owners can be assessed. The endorsements mentioned above will allow coverage to be added for covered insurance related assessments. The following is the language from CP but the BOP counterpart is the same: A. Loss Assessment Coverage When a Limit of Insurance is shown on the Schedule or in the Declarations for Loss Assessment Coverage: 1. We will pay for your share of an assessment charged to all unit-owners by the Condominium Association, when the assessment is made: a. During the policy period shown in the Declarations; and b. As a result of direct physical loss or damage to property in which each unitowner has an undivided interest, if such loss or damage is caused by a Cause of Loss covered under this policy. Paragraph 1.a. of Commercial Property Condition H., Policy Period, Coverage Territory, does not apply to Loss Assessment Coverage. 2. The most we will pay for each assessment is the Loss Assessment Limit of Insurance for the applicable unit. But we will not pay more than $1,000 per scheduled unit for an assessment that results from a deductible in the insurance purchased by the Condominium Association. 3. We will not pay for a Loss Assessment that arises from any one occurrence until the amount of Loss Assessment exceeds the Deductible shown in the Schedule of this endorsement per scheduled unit. We will then pay the amount of Loss Assessment in excess of that Deductible, up to the applicable Loss Assessment Limit of Insurance. No other deductible in this policy applies to Loss Assessment Coverage. You have to pick the limit of insurance that you want after the first $1,000 it is purchased in $5,000 increments. The company will determine the ultimate limit that can be purchased. Commercial loss assessment coverage is similar to personal lines As in personal lines the loss assessment coverage is activated when COMMONLY OWNED property is damaged by one of YOUR insured s causes of loss (perils). Similar to the ISO personal lines loss assessment additional increase endorsement HO there is an EXCLUSION that states there will be NO loss assessment coverage beyond the initial $1,000 that results SOLELY from a master policy deductible.

6 TECH TALK Page 6 February 2010 If there is a large wind percentage deductible and common areas such as exterior, roof, etc., are damaged and your insured s share of the assessment for repairs is more than $1,000, there will be no additional loss assessment coverage regardless of how much purchased. This is the same restriction in the ISO loss assessment coverage. Whoever said insuring condominium unit-owners was easy? * * * * If I can be of service to you, please call me, Irene Morrill, Vice President of Technical Affairs at or me at imorrill@massagent.com. This article has been developed expressly for the members of MAIA. Reprint by other than members without the express permission of the author is not permitted.