Insurance: So Why Does the Association Have to File a Claim?
There are few things trickier and more complicated in the operation of a community association than that of insurance. What types of policies must the association have? What is the scope of coverage? How does the “master policy” work with the individual homeowner’s policy (“HO6”)? There are many components and questions. Perhaps the most seldom understood, and sometimes hotly debated, topic on insurance is when and why the association must file a claim on the master policy. In scenarios of massive losses like a hail storm, tornado or fire – or in cases where damage is limited to common areas such as a condo building hallway or a party room – it is pretty clear that the master policy should kick in and cover damages. But what about when a townhome wasn’t properly winterized and pipes freeze? Or what about the resident on the top floor of the condo building that let the bathtub overflow, flooding the units below, and causing tens of thousands of dollars of damage? Many Boards don’t understand why the association’s master policy would cover such losses where there is perceived negligence and/or the damage is inside of a unit, and therefore “not the associations responsibility.” It’s a natural reaction. While the scope of coverage from association to association will vary, it is pretty common that the governing documents are going to require the master policy covers “the replacement costs of the building AND units.” In fact, if the association falls under the Minnesota Common Interest Ownership Act (“MCIOA” or 515B), state statute requires that the master policy covers the “total amount of not less than full insurable replacement cost of the insured property.” It goes on to say “in the case of a common interest community that contains units, or structures within units, sharing or having continuous walls, siding or roofs, the insurance maintained under subsections (a) (1) shall include those units, or structures within those units, and the common elements.” What does this language mean? It means coverage is extended far beyond what many might expect the master policy to cover. Unless the association’s documents say otherwise, the policy might not cover finishing items such as carpeting, wall paper, or paint; but the subflooring, sheetrock, ceiling, framing, insulation is, in fact, insured by the master policy. Should there be a loss (such as those frozen pipes that burst in a townhome or the units affected in that condo building bathtub overflow) AND THAT LOSS EXCEEDS THE MASTER POLICY DEDUCTIBLE, there IS coverage for that loss. You may be asking; “Why should the association’s policy cover it?” There is a very simple answer. By state statute, the master insurance policy is PRIMARY. 515B states “(4) if at the time of loss under the policy there is other insurance in the name of a unit owner covering the same property covered by the policy, the association’s policy is primary insurance.” You can read the entire statute on insurance here – https://www.revisor.mn.gov/statutes/cite/515B.3-113 The association does not get to decide what is and isn’t “coverable.” Additionally, the association doesn’t get to decide and assign “negligence.” If there is a loss and damages exceed the master policy’s deductible, a claim should be filed and coverage should be awarded per the governing documents. Insurance agents know the game. If there is a loss, the homeowner’s HO6 agent/policy is going to ask the question – how much damage? If more than the deductible, they know the master policy has to kick in and the HO6 will cover the owner’s personal property, non-covered items such as finish work like carpet, wallpaper and structural coverage up to the deductible. What the association does get to decide is how the deductible should be handled. It can be absorbed as a common expense, or, more advisably, can be assessed against the owner(s) responsible or those that are benefiting. However, that’s an entirely different newsletter article. At the end of the day, the role of a master policy to the association, and the fiduciary duty of the Board to the members of the association, is to protect property values. Master insurance policies, state statutes and governing documents put in place comprehensive insurance requirements to ensure that property losses are handled and property conditions restored – thereby maintaining property values.
Sharper Holiday Greetings
All of us at Sharper Management would like to take a moment to thank you for a wonderful 2018. We experienced another incredible year of growth, adding a number of new clients from all over the metro area. We find it a tremendous honor to be entrusted to work with Boards to help manage homeowner associations and make them the best they can be. To help us provide the services necessary to do so, we continue to add more staff; continuously look for, and implement new ways, to improve our tools and technology; we strive to stay on top of industry trends; and find ways to stay connect to our Minnesota community. All of these things make up our core values and we feel we dove in to each in 2018. From company growth, staff development, wining industry awards, leadership involvement in industry organizations, community outreach initiatives, and more, you can read all about our fantastic 2018 on our website’s News section here – https://sharpermanagement.com/blog/ Again, we want to sincerely thank you for making 2018 a remarkable year and we look forward to all that 2019 has to offer. All of us a Sharper wish you and your family a wonderful Holiday Season!
Miguel Pariona Takes Home Financial Impact Industry Award
Eden Prairie, MN, (December 10, 2018) – Sharper Management community manager, Miguel Pariona, is the proud recipient of the Financial Impact Award from the 2018 Vision Awards, held December 6, 2018. The Community Association Institute’s (CAI-MN) annual Vision Awards and Holiday Gala is an opportunity for community association managers, business partners, homeowner leaders and other various industry professionals to come together and celebrate with one another for a very special night. There were eight award categories and 51 total nominees. Pariona was a finalist with two other qualified managers for the award category of Financial Impact. The award is given to an individual who has positively impacted a community in a significant manner from a financial standpoint. Budget management, capital improvement navigation and insurance claim management, being some of the examples. “We are so proud Miguel for taking home this illustrious award,” said owner Dan Cunningham. “In a relatively short period of time, Miguel has taken his portfolio of community associations to a much better financial place than he inherited them in. From getting reserves studies done, to making a significant impact in collections, to special assessing for large capital projects, he has done amazing things the past two years. To be recognized in front of over 200 industry professionals – and with all 20 of the assistant and community managers we had in attendance from Sharper – it was a very special night for all of us.” Founded in 2010, Sharper Management is a locally-owned, mid-sized property management company offering a full suite of premiere services to homeowner’s associations of all sizes. Sharper Management currently provides services to the Minneapolis-St. Paul seven-county area. For more information on Sharper Management services and employment opportunities, call 952-224-4777 or email to info@sharpermanagement.com.
Resale Disclosures
Even as we enter the winter months in Minnesota, the housing market is still good. If you’re selling your home within an Association, it’s important to provide a resale disclosure package for prospective buyers. A resale package is a packet of vital information provided to those purchasing a condominium or a home in an association. The package includes a complete set of recorded documents that govern your association. Typically, the documents included are: Annual Financials, Articles of Incorporation, Budget, Bylaws, CC&Rs, Insurance Declaration Page, Regular Meeting Minutes, Resale Certificate/Demand, Reserve Report, Rules and Regulations. If you’re in the process of selling your townhome or condo, you may find resale disclosure documents via the Sharper Management website. Visit us at sharpermanagement.com. Look for the Resale Disclosures link in the menu bar. Or, click here.