(June 2019)
Condominium agreements or
bylaws are not uniform. Each condominium association board works with its
attorney and follows state law to write the bylaws and agreement that its unit-owner
members accept. Unfortunately, condominium unit-owners do not always read these
documents. As a result, they are occasionally surprised by certain parts of
them, especially the ones that deal with insurance and loss assessments. CP 00
18–Condominium Commercial Unit-owners Coverage Form handles normal situations
that arise because of the condominium bylaws and/or agreement. However, it does
not deal with assessments or address any unusual insurance requirements.
CP 04 18 addresses both of these areas.
The 10 12 edition added the option to increase the assessment for repayment of the condominium association deductible from $1,000. The resulting changes are in bold print.
Up to three buildings and unit numbers may be listed. A separate schedule is required when a named insured needs to schedule more than three units.
Two coverages are available:
This coverage pays for assessments a condominium association makes against all unit-owners for covered losses to covered jointly-owned association property.
Related Court Case: Condominium Assessment for “Collapse of Common Elements Held Covered by Unit-owners Policy”
The insurance company pays the named insured’s share of any assessment the condominium association charges against all unit-owners when there is a limit of insurance for this coverage on the declarations or the endorsement schedule. This wording is designed to cover collective assessments instead of cases where the condominium association seeks damages against a specific unit-owner.
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Example: Geri and her two children frequently use the Highfalutin Condominiums swimming pool. The children often invite their friends. On one occasion, the children (16 and 17-year old teens) and several of their friends crowd onto the pool's diving board to test its strength. It breaks because of the extreme weight. Fortunately, none of the children are hurt. The very next day, Geri gets a bill from Highfalutin for $790 to replace the board. She forwards the bill as an assessment claim to her insurance company, Cheapskate Casualty. Cheapskate cites this provision when it denies the claim because it is not an assessment against all unit owners. |
The assessment is subject to two other conditions:
Commercial Property Condition H. Policy Period, Coverage Territory does not apply to this coverage. This means the actual loss could have occurred prior to the policy period. As a result, the date that matters is the date the assessment is made.
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Example: A tornado devastates Landowner Condominiums on 05/01/19 and causes $3,000,000 in damage. Repairs start immediately but the loss settlement is hampered when Sharp Pencil Property Insurance Company determines that the buildings are underinsured. After months of negotiations, Sharp Pencil pays only $2,500,000 and Landowner accepts a $500,000 coinsurance penalty. On 11/01/19, Landowner’s Board votes to assess its members in order to cover the $500,000. The 100 members are each assessed $5,000. Kristin did not have loss assessment coverage on 05/01/19. However, she asked for it when her policy renewed on 07/01/19. Kristen was covered because the coverage was in effect on the date of the assessment. |
Note: Eliminating the policy period/coverage territory condition is very significant because some assessments are made years after the event that causes the loss in cases that go to court.
The most the insurance
company pays for each individual assessment is the limit of insurance for this
coverage on the endorsement schedule. Individual unit-owners should be aware of
a possible gap in coverage if the condominium association purchases coverage
with a high deductible because this coverage pays only up to $1,000 per unit when
the assessment is due to a deductible the condominium association purchases. The assessment due to the condominium
association’s deductible can be increased by entering a different amount on the
endorsement schedule. However, the increased amount remains a sub-limit of the
limit of insurance. As a result, it is important for it to remain at or below
the limit of insurance. (10 12 change)
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Example: Pilkins Condominiums is a ten-unit office condominium. Jiviny Limited is a unit-owner. Pilkins Condominium Association decides to insure its common property subject to a $20,000 deductible. Highflyer Casualty pays $30,000 of a $50,000 windstorm loss that damages common condominium property. Pilkins pays the deductible of $20,000 and then assesses each unit-owner $2,000 to cover it. Jiviny Limited has CP 04 18 attached with a $5,000 limit of insurance. However, the most this coverage pays is $1,000 because the assessment is to pay for an insurance deductible and Jiviny had not increased the deductible sublimit above $1,000. |
The insurance company does not pay for loss assessments for any listed unit until the assessment from a specific occurrence exceeds the deductible amount on the endorsement schedule. Coverage then applies up to the stated limit of insurance. The stated loss assessment deductible is the only deductible that applies to this coverage.
The following property is added to Covered Property when there is a limit of insurance on the endorsement schedule for Miscellaneous Real Property Coverage. This is property that Your Business Personal property does not include. It applies in either of the following two situations:
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Example: Foxfire Condominiums are converted, historical townhouse units that doctors, dentists, and other professionals own. Because of the unique features of each unit, Foxfire’s board decides to require each unit-owner to insure its unit's fireplace hearths, mantels, woodwork, beveled glass, and other permanently installed custom items. Dr. Oh So Sophisticated was surprised when his insurance agent pointed out this provision in the bylaws. The agent suggested adding CP 04 18 and including a $50,000 limit on miscellaneous real property. |
This insurance is excess of any other insurance the condominium association may have on the same property. It pays only the excess over what the other insurance should pay, regardless of whether it actually does pay.
The deductible that applies to other property that CP 00 18 covers also applies to Miscellaneous Property.
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Example: A fire occurs in Dr. Oh So Sophisticated’s unit. The
woodwork and glass is badly damaged and must be replaced. In addition, his
office furniture must be replaced. The total amount of loss is $10,000
Miscellaneous Property and $25,000 office furniture. The deductible is
$1,000. The company pays $34,000 ($35,000 - $1,000) because it applies only
one deductible. |
This endorsement’s coverages apply to only the units listed and described on the declarations or this endorsement’s schedule.
Rating the two coverages provided in this endorsement is fairly simple. The loss costs are found in the multistate loss cost section of the Insurance Services Office (ISO) Commercial Lines Manual (CLM).
The primary Loss Assessment premium is based on the cause of loss that applies to the CP 00 18 and the selected limit option. The selected loss cost is multiplied by the company loss cost multiplier to develop a final premium. If the deductible sub-limit increase option is selected the loss cost is based on the cause of loss that applies to the CP 00 18 and the selected limit option. The loss cost multiplied by the company loss cost multiplier to develop a final premium.
The total premium for loss assessment coverage is the sum of the primary plus the option premiums.
The Miscellaneous Real Property premium is developed by multiplying the miscellaneous real property loss cost by the company loss cost multiplier. This rate is than multiplied by the selected limit of insurance to develop the premium.