October 2, 2006
CONDOMINIUMS-ASSOCIATION'S DUTY TO PROVIDE INSURANCE
By: George Coppolo, Chief Attorney
You asked what responsibility a condominium association has regarding insuring condominium units in residential condominiums.
Condominium associations must maintain property insurance to protect against loss to the property's common elements. "Common elements" means all portions of the condominium other than the units. The insurance must include coverage for the units if the building has units with horizontal boundaries (units upstairs and downstairs). But this mandated coverage applies to the building and to the common elements only and is meant to replace the building as it was originally built. It does not apply to any improvements made by the unit owners or to unit owners' personal belongings.
A unit owner can buy insurance for his own unit but the law does not require him to do so. The association's policy must provide primary coverage if, at the time of loss, there is other insurance in the unit owner's name covering the same risk.
Associations must also maintain liability insurance, including medical payments insurance, to protect against death, bodily injury, and property damage arising out of or in connection with the use, ownership, or maintenance of the common elements.
The law allows these requirements to be varied or waived in the case of a totally nonresidential condominium.
ASSOCIATION'S DUTY AND AUTHORITY TO MAINTAIN INSURANCE
The law requires a condominium association to maintain, to the extent reasonably available, property insurance on the common elements, insuring against all risks of direct physical loss commonly insured against. In the case of a building converted into a condominium, coverage must only insure against fire and extended coverage perils. The total amount of insurance after any deductibles are applied must be at least 80% of the insured property's actual cash value when the insurance is purchased and at each renewal date. This 80% requirement does not include the value of the land, excavations, foundations, and other items normally excluded from property policies (CGS § 47-255(a)).
The law also requires the association to maintain liability insurance, including medical payments insurance, in an amount the executive board determines but not less than any amount the declaration specifies, covering all occurrences commonly insured against for death, bodily injury, and property damage arising out of, or connected with the use, ownership, or maintenance of the common elements (CGS § 47-255(a)).
In the case of a building that contains units having horizontal boundaries described in the declaration, the law requires that insurance the association maintains, to the extent reasonably available, must include the units, but does not have to cover improvements and betterments the unit owners install (CGS § 47-255(b)).
The law allows the declaration to require the association to carry other insurance, and the association may carry any other insurance it considers appropriate to protect the association or the unit owners (CGS § 47-255(c)). If the insurance the law requires the association to provide is not reasonably available, the law requires the association to promptly notify all unit owners by hand-delivery or prepaid United States mail (CGS § 47-255(c)).
INSURANCE POLICY REQUIREMENTS
The law requires that insurance policies the law mandates that associations maintain must provide that:
1. each unit owner is an insured person under the policy with respect to liability arising out of his interest in the common elements or membership in the association;
2. the insurer waives its right to subrogation under the policy against any unit owner or member of his household;
3. no act or omission by any unit owner, unless acting within the scope of his authority on behalf of the association, will void the policy or be a condition to recovery under the policy; and
4. if, at the time of a loss under the policy, there is other insurance in the name of a unit owner covering the same risk covered by the policy, the association's policy provides primary insurance (CGS § 47-255(d))
Any loss covered by the property policy the law requires the association to maintain must be settled with the association. But the insurance proceeds for that loss are payable to any insurance trustee designated for that purpose, or otherwise to the association, and not to any holder of a security interest. The insurance trustee or the association must hold any insurance proceeds in trust for the association, unit owners, and lien holders. The proceeds must be disbursed first for the repair or restoration of the damaged property. The association, unit owners, and lien holders are not entitled to receive payment of any portion of the proceeds unless there is a surplus of proceeds after the property has been completely repaired or restored, or the common interest community is terminated (CGS § 47-255(f)).
CERTIFICATE OF INSURANCE
An insurer that has issued an insurance policy to the association must issue certificates or memoranda of insurance to the association and, on written request, to any unit owner or holder of a security interest. The insurer issuing the policy may not cancel or refuse to renew it until 60 days after notice of the proposed cancellation or nonrenewal has been mailed to the association, each unit owner, and each holder of a security interest to whom a certificate or memorandum of insurance has been issued at their respective last known addresses (CGS § 47-255(g)).
DUTY TO REPAIR OR REPLACE DAMAGED PROPERTY
Any portion of the common interest community for which the law requires the association to maintain insurance, which is damaged or destroyed, must be repaired or replaced promptly by the association unless:
1. the common interest community is terminated;
2. repair or replacement would be illegal under any state or local statute or ordinance governing health or safety; or
3. 80% of the unit owners, including every owner of a unit or assigned limited common element that will not be rebuilt, vote not to rebuild.
The cost of repair or replacement in excess of insurance proceeds and reserves is a common expense (CGS § 47-255(h)). If the entire condominium development is not repaired or replaced, the insurance proceeds that apply to the damaged common elements must be used to restore them to a condition compatible with the remainder of the common interest community.
Also, except to the extent that other persons will be distributees, the insurance proceeds attributable to units and limited common elements that are not rebuilt must be distributed to the owners of those units and the owners of the units to which those limited common elements were allocated, or to lien holders. The remainder of the proceeds must be distributed to all the unit owners or lien holders in proportion to the common expense liabilities of all the units (CGS § 47-255(h)).
If the unit owners vote not to rebuild any unit, that unit's allocated interests are automatically reallocated as if the unit had been condemned, and the association must promptly prepare, execute, and record an amendment to the declaration reflecting the reallocations (CGS §47-255(h)).
The law allows these requirements to be varied or waived in the case of a totally nonresidential condominium (CGS § 47-255(i)).