CONDOMINIUM INSURANCE – WHO COVERS WHAT?


Most condominium association‘s “Declaration of the Condominium” (hereinafter referred to as declaration) follow the wording of Chapter 47C of the North Carolina Condominium Act with regard to the definitions of “common elements” and “units”.  The Declaration specifies what insurance is to be provided by the association and what insurance is to be provided by the unit owners.In the statute, 47C-2-102, Unit boundaries it says: “Except as provided by the declaration:

(1)   If walls, floors or ceilings are designated as boundaries of a unit, then all lath, furring, wallboard, plasterboard, plaster, paneling, tiles, wallpaper, paint, finishes flooring and any other materials constituting any part of the finished surfaces thereof are a part of the unit; and all other portions of such walls, floors, or ceilings are a part of the common elements.

(2)   If any chute, flue, duct, wire, conduit, bearing wall, bearing column, or any other fixture lies partially within and partially outside the designated boundaries of a unit, any portion thereof serving only that unit is a limited common element allocated exclusively to that unit, and any portion thereof serving more than one unit or any portion of the common elements in a part of the common elements.

(3)   Subject to the provisions of paragraph (2), all spaces, interior partitions, and other fixtures and improvements within the boundaries of a unit are a part of the unit.

(4)   Any shutters, awnings, window boxes, doorsteps, stoops, decks, porches, balconies, patios, and all exterior doors and windows or other fixtures designed to serve a single unit but located outside the unit’s boundaries are limited common elements allocated exclusively to that unit (1985 (Reg. Sess., 1986), c.877, s.1.)”

The Declaration of most associations specify that the association shall provide coverage for “common elements” and each unit owner must insure his “unit”.  This would suggest that a unit owner would need to include Coverage A Building under the standard condominium unit owners HO6 to cover the elements of the unit that are actually part of the building (contrasted to “contents” such as clothing, TV‘s, etc.).  The parts of the “unit” which cause concern are building type items such as floor covering, wall covering, built in cabinets and appliances, and interior non-load bearing walls and partitions.

Under 47C-3-113, Insurance (a), “Commencing not later than the time of the first conveyance of a unit to a person other than a declarant, the association shall maintain, to the extent available:

(1)   Property insurance on the common elements insuring against all risks of direct physical loss commonly insured against including fire and extended coverage perils.

47C-3-113 (b) “In the case of a building containing units having horizontal boundaries (multi-story buildings) described in the declaration, the insurance maintained under subdivision (a)(1), to the extent reasonably available, shall include the units, but need not include improvements and betterments installed by unit owners.  This seems to imply that the master policy should include all that comes with the unit at the time of purchase (with standard) allowances.  The unit owner would need to insure the value of any upgrades under the Coverage A Building part of his HO6.

An attorney who has much experience in preparing Declarations has responded to an inquiry as follows: “In response to your memo, please note that, per section 47C-1-104(a) of the Condominium Act “Except as specifically provided in specific section of this chapter, the provisions of this chapter may not be varied by the declaration or the by-laws.”  Section 47C-3-113 (the insurance provision to which your memo refers) states that it may be varied or waived “in the case of a condominium all of whose units are restricted to nonresidential use.”  Accordingly, regardless of what the declaration or by-laws say, unless the insurance is not “reasonably available”, if the condominium contains residential units with horizontal boundaries, the insurance must include the units (but need not include improvements or betterments installed by the unit owners.)

Therefore, we conclude that the Association master policy must cover these described items and the amount of insurance selected should reflect these values.

Another issue is the association policy deductible which can be as much as $10,000.  Perhaps the individual unit owner is uncomfortable with such a large deductible.  A solution would be to purchase an amount of Coverage A Building under the HO6 equal to the cost of his upgrades plus $10,000.  The association policy is primary but it does not cover “upgrades” nor anything under $10,000, so the solution suggested will work.  Also, the HO6 building coverage is not subject to a coinsurance clause.

In order for this solution to work, the association Declaration must follow 47-C-113 (b) of the statute.  The alternative method is to say in the Declaration that the associations will provide coverage on the “common elements” only and each unit owner will have to cover all parts of the unit (including walls, floor coverings, built-ins, etc.)  This method calls for the developer/builder to inform each unit owner as to what the replacement cost of such items is so that the proper amount of Coverage A Building coverage can be obtained by each owner.  Not only is this a cumbersome method, but it appears to be contrary to what is dictated by the statute.

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