Life in a co-op or condominium is shaped by shared spaces, collective decision-making, and a complex web of responsibilities, including having appropriate insurance coverage. This guide explains the essentials of understanding your obligations and ensuring you have adequate insurance coverage to protect both your building and yourself.

Understanding Responsibility Within the Unit

When it comes to insurance coverage, co-op and condominium bylaws typically divide responsibility within a unit into two classes: maintenance and damage/destruction. Owners are responsible for maintaining the fixtures within their units—like plumbing, light fixtures, appliances, etc.—because only they have use of these elements; they’re not shared with anyone else in the building. If a fixture is damaged by a ‘covered peril’ (like fire), the association or cooperative corporation may be responsible for replacement. The key issue is not always what caused the damage, but rather what was damaged. 

The Exceptions 

Though not always easy to prove, negligence is defined as something a prudent person wouldn’t do—it’s a critical exception in questions of what an insurance carrier will and won’t cover in the event of a claim. If an owner’s actions or inactions—such as leaving a tub running, for example—cause damage to other units, that owner is financially responsible for the repairs to those other units. Conversely, incidents, like burst washing machine hoses, are generally not considered negligence.

Bylaw amendments can shift responsibility further. If a leak starts and damages only one unit, the owner of that unit may be responsible for the building’s resulting deductible and repairs. 

Defining Insurance Responsibility

A building’s bylaws clarify the responsibilities of both the association/corporation and the owner in matters of coverage and claims. There are three main insurance structures: Bare Walls (the condo association or co-op corporation covers only the building structure itself, while owners are responsible for everything else; All-In (the association/co-op covers the entire unit, including improvements; Single Entity/ Original Specifications (the association or co-op restores the unit to its original condition; owners cover any improvements made since they purchased it).

Most co-ops and condominiums use the Single Entity approach, with owners responsible for finishes like carpet and paint. 

Why Homeowner’s Insurance is Mandatory

Confusion abounds regarding the division of responsibility for repairing and reimbursing for damages. Banks and mortgage companies often don’t require homeowners insurance for shareholders and unit owners, leaving them unaware of their obligations. When uninsured owners are sued, boards and management firms are frequently drawn into legal disputes. Inadequate coverage can lead to well-meaning but administratively unwise ‘charity’ decisions causing financial strain for the association. 

Monitoring to Ensure Compliance

Associations should establish minimum coverage requirements for residents, as well as penalties for non-compliance with those requirements. Owners must provide proof of coverage at inception and renewal, with the association or co-op ideally listed as Additional Interest to ensure the board and/or management company receive cancellation notices. Because policy expiration dates vary, monitoring coverage is a complicated, ongoing process; a professional monitoring agency can often manage this process more effectively than boards or property managers. 

Homeowners HO6 Policies 

The association’s policy covers its responsibilities within the unit. The HO6 (Unit Owners Policy) covers the owner’s responsibilities. HO6 policies may also cover losses under master policy deductibles. Coverage includes Dwelling/Improvements: for owner-responsible improvements damaged by covered causes; Contents: for personal property; Additional Living Expense: for costs incurred if the unit is uninhabitable; Personal Liability: for suits arising from negligence, both inside and outside the unit; Loss Assessment: for association assessments due to insufficient coverage.

Owners must ensure that their policy matches their responsibilities, as having the wrong type of insurance can leave costly gaps in coverage. 

Waiver of Subrogation

Most bylaws include a Waiver of Subrogation, which prevents the association or its insurer from seeking reimbursement from owners for damages covered by insurance, and vice versa. That said, owners are generally not restricted from subrogating against other owners. 

Wear & Tear Exclusions

Insurance policies typically exclude normal wear-and-tear from the list of potential grounds for a claim. For example, if a pipe bursts because it’s old and has reached the end of its useful life, the repair/replacement cost is not covered. However, damage resulting from a covered cause is covered, regardless of the pipe’s condition. 

Protecting Your Investment

Navigating the coverage requirements and  responsibilities involved in co-op and condominium living can be complex. Understanding your bylaws, maintaining proper coverage, and monitoring compliance are essential steps to protect your investment and preserve a harmonious community.

Eric Eggert, CIC, CIRMS is an Insurance Specialist at Mackoul Risk Solutions. He may be reached at eeggert@mackoul.com.