INSURANCE

The United States property insurance market has hardened significantly over the past decade.

A "hardening" market means two things: 1) insuring property is more expensive and 2) generally fewer carriers available to insure property.

COLORADO: Toolkit for Homeowners and HOAs on Insurance

FOUR PRIMARY drivers of increased property insurance premiums:

1️⃣Catastrophic and other losses due to climate change | 2️⃣Construction costs | 3️⃣ Excessive litigation | 4️⃣ Reinsurance rates

< Click to Expand for Articles 👆 ⏬ >

First Street Foundation - The 9th National Risk Assessment Insurance Issue

NOAA Sea Level Rise Viewer

ClaimGuide: Disaster Preparedness: Riskiest Places for Severe Weather

RiskFactor.com

What Insurance Coverage Does my Association Carry?

Your association's insurance varies based on your declaration of covenants, conditions and restrictions (CC&Rs) and yourstate statutes. Washington and many other states require specific scope for property insurance that serves as primary in the event of a loss and for other types of insurance such as director and officer's (D&O) coverage. Notably, regardless of your state, individual units / homes are often responsible for paying in-unit claim deductibles.

The Damage / Loss Flow Chart below is one example applicable condominium communities. Yourgoverning documents may have different requirements.

MULTI-FAMILY PROPERTY INSURANCE REMINDERS

1) unit owners/homeowners are almost always responsible for in-unit/home losses up to the association's primary insurance deductible

> IF something in Unit X causes a loss, Unit X is probably responsible for costs up to the association's primary insurance deductible

2) except for #1, responsible parties for losses within a deductible limit are generally in proportion to the areas damaged

3) governing documents typically require owners to carry insurance that covers any potential deductibles and loss assessments for ANY insurance coverage held by the Association including optional coverage such as earthquake and earth movement

4) While a Board often has discretion to file claim, the responsibility to restore a loss is governed by statute and your declaration.

Unit owners / homeowners are generally NOT required to wait for their association to "manage" losses within their unit.

>>> Does your association MONITOR and ENFORCE owners' insurance requirements? This is a commonly overlooked risk. <<<

>>> DOES your Declaration + Master Policy: INCLUDE or EXCLUDE equipment, improvements, and betterments within units? <<<

___________________

Does Your Association's Insurance Match the Requirements of your Declaration / CC&Rs?!

An association's violation of its own governing documents to procure specific insurance coverage does not bind an insurance company to cover losses outside of the policy actually purchased / in force.

Metropolitan Property and Casualty Insurance Company v. West Bend Mutual Insurance Company (2023) — Indiana Court of Appeal
Farmers' App. Vol. II p. 116 (emphasis added). Though it appears that the condominium association may have failed to fulfill its obligations under the Declaration, we conclude that it is of no moment. The trial court did not err in granting summary judgment to West Bend.
Pike & Va. No. 8, LLC v. Pike &Virginia Condo. Association — Washington Court of Appeal

MULTI-FAMILY RESIDENTIAL PROPERTY WATER LOSS & PREVENTION

PLUMBING

Learn more about preventing water losses on our Plumbing Page

Risk Management (CAU)

How to Avoid Insurance Gaps

Slip, Trip & Fall Prevention

H06 "WALLS-IN" COVERAGE BREAKDOWN

Want to know more? View our INSURANCE EXPLAINER and What is an HO-6 Condo Insurance Policy? A Complete Guide

DWELLING
- Covers permanent improvements within the unit boundaries generally delineated by outside wall studs, the sub-floor and the ceiling
DRAIN / SEWER / WATER BACKUP
- Damage resulting from drain / sewer / water backups is almost always excluded from standard dwelling coverage
- Owners can add a specific rider for these types of losses
EARTH MOVEMENT & EARTHQUAKE
- This is always an additional type of coverage rider that can add significant additional expense
- If major earth movement and/or earthquake damage occurs, units/homes are typically assessed a portion of of the association's primary EM and/or EQ deductible which is often a percentage of the building value (e.g. 2%, etc.)
PERSONAL PROPERTY
- Covers items that are not permanently attached to your Unit ceiling, floor and/or walls
- Certain types of personal property (e.g. fine art, jewelry, etc.) require a rider
LOSS OF USE
- Covers expenses such as hotel rooms and moving costs during a period of time when your Unit is uninhabitable
LOSS ASSESSMENT
- Covers amounts specially assessed to individual Units based on a loss covered by a property's master insurance policy.
- Searchloss assessment coverageto understand more. This coverage DOES NOT pay for dwelling and other aforementioned coverage types.
- EXPLAINER:
  - ONE: The common roof is in disrepair. The cost to repair it is beyond the available reserve funds. The association issues a special assessment to pay for the repairs. There is no insurance for "we failed to contribute adequately to our reserve fund" except selling your property before the assessment.
  - TWO: The common roof gets blown off (this is called a loss). Your association's insurance pays for part, but not all of the roof repair and replacement. The association issues a special assessment. Your H06 policy loss assessment coverage pays up to your loss assessment limit.
LIABILITY
- Covers losses incurred by others resulting from your Unit

EXAMPLE DAMAGE / LOSS FLOW CHART

Understand the difference between gross negligence / willful misconduct and ordinary negligence.

Statutory provisions in some states extend owners' liability beyond insurance deductible limits.

Gross negligence is the failure to exercise slight care. It is negligence that is substantially greater than ordinary negligence. Failure to exercise slight care does not mean the total absence of care but care substantially less than ordinary care.
Negligence is the failure to exercise ordinary care. It is the doing of some act that a reasonably careful person would not do under the same or similar circumstances or the failure to do some act that a reasonably careful person would have done under the same or similar circumstances.
Reference RCW 64.90.480(6) and (7):
- (6) To the extent that any expense of the association is caused by willful misconduct or gross negligence of any unit owner or that unit owner's tenant, guest, invitee, or occupant, the association may assess that expense against the unit owner's unit after notice and an opportunity to be heard, even if the association maintains insurance with respect to that damage or common expense.
- (7) If the declaration so provides, to the extent that any expense of the association is caused by the negligence of any unit owner or that unit owner's tenant, guest, invitee, or occupant, the association may assess that expense against the unit owner's unit after notice and an opportunity to be heard, to the extent of the association's deductible and any expenses not covered under an insurance policy issued to the association.
- (8) In the event of a loss or damage to a unit that would be covered by the association's property insurance policy, excluding policies for earthquake, flood, or similar losses that have higher than standard deductibles, but that is within the deductible under that policy and if the declaration so provides, the association may assess the amount of the loss up to the deductible against that unit. This subsection does not prevent a unit owner from asserting a claim against another person for the amount assessed if that other person would be liable for the damages under general legal principles.

WA STATE INSURANCE EXPLAINER

EXAMPLE Insurance Coverage Explainer

EXAMPLE SEISMIC PROBABLE LOSS STUDY

KEY TERMS & COVERAGES

Business insurance is a general term that includes a gamut of different coverages.

General Liability insurance covers certain types of bodily injury and other liabilities. Many General Liability policies include $5,000 of no-fault liability coverage where the insurance carrier pays up to $5,000 without the need for litigation.

Workers' Compensation insurance often excludes volunteers. Five states (North Dakota, Ohio, Washington, West Virginia, and Wyoming) run their own programs for workers' comp coverage. Washington State Department of Labor & Industries (L&I) does not offer coverage for volunteers.

Many CICs do not realize that they possess little to no insurance coverage for bodily injuries incurred by their volunteers.

READ: What Is Not Covered by a D&O Insurance Policy?

READ: Does my Association Really Need D&O Liability Insurance?

Washington State Administrative Code (WAC) clarifies statutes related to workers' compensation and risk classifications.

Condominium and HOA employees are generally included with either Classification 4904 (clerical) OR the much broader (more expensive) Classification 4910 (property management services).

WA State L&I also tracks hourly wage rates for specific risk classifications that may receive alternative forms of non cash-compensation.2022's average wage for class 4910 = $33.50/hour.

Notably, according to WAC 296-17-31018(4), many classifications (incl. 4910) exclude coverage for alterations and new construction.

Alterations are changes made to a building during its remodeling, such as increasing or reducing floor area, making or closing openings, erecting or demolishing walls, etc.

WA Employers' Guide to Workers' Compensation Insurance

Washington State: Workers' Compensation Coverage < Click to Expand 👆 ⏬ >

What type of job is the employee going to perform? [These are examples from Washington State]

If they are performing jobs that are maintaining or repairing the existing property, such as replacing windows, plumbing, flooring, or repainting, you would report them in4905(Motels and Hotels) or4910(Property and Building Management Services). See below.Washington State Risk Class Lookup

If they are performing jobs adding new construction or altering the interior of an existing building from an earlier condition (remodeling), or enlarging an existing structure by building and attaching rooms (new addition), you would report them in the applicable construction classification. See examples below.

EXAMPLES

Windows: Replacing one or all windows in a building for weatherization purposes is considered general maintenance and repair, reportable in 4905 or 4910.
Painting: Repainting the interior or exterior of a building, whether it’s part or all of the building, is considered general maintenance and repair and is reportable in 4905 or 4910.
Flooring covering: Replacing flooring in a building, whether you are replacing the old flooring with the same type or a different type (changing from vinyl to hardwood), is considered general maintenance and repair, reportable in 4905 or 4910.
Roofing: Re-roofing a building, whether you’re replacing a small section of the roof or the entire roof, and regardless of whether you’re replacing with the same type of material, is considered general maintenance and repair, reportable in 4905 or 4910.

___________________

Maintenance and repair: Bringing something back to its original state or functionality. An apartment complex has a set of stairs in need of repairs. Tearing out the old stairs and replacing them with new stairs would be considered maintenance and repair. This would be reportable in risk classification 4910.
Improvements: An apartment complex decides to install a sprinkler system (inside or outside) on the premises. The installation of the sprinkler system would be considered an improvement to the property, and this work would be reportable in the applicable construction classifications. Repairing an existing sprinkler system is considered maintenance and reportable in 4910.

___________________

New Construction: An apartment complex owner wants to build an outbuilding on the property for their landscaping tools. They are building something that does not currently exist. This work would be reportable in the applicable construction classifications.
Alteration: A property management company wants to add some interior walls in an apartment of one of their complexes. The walls did not exist previously and they are changing something that currently exists into something different. This work would be reportable in the applicable construction classifications.

SPECIAL NOTE

Construction contractors who own and manage their own rental properties must report all construction, maintenance and repair activities in the applicable construction classification for workers preparing properties for initial occupancy or to sell. When properties are ready for occupancy, any future maintenance and ordinary repairs performed by the construction contractor’s workers may be reported in 4910, if applicable.

Preoccupancy clean-up may be reported in 6602.
Employees who only perform clerical duties are to be reported separately in classification 4904.
Employees who perform sales duties such as collecting rents, showing and advertising the facility, conducting auctions, or a combination of clerical and sales duties are to be reported separately in classification 6303.