Association and Homeowner Insurance: Who Pays?
When there is a fire, flood or other sudden loss suffered by a community association, insurance is supposed to help solve the problem. Unfortunately, for many associations the focus quickly shifts from dealing with the damage to a dispute between the association and one or more unit owners over whose insurance company should pay for the claim. Disputes like that only delay the repairs and make a bad situation worse. All associations should know what their insurance obligations are and whether the association’s policy provides primary coverage.
What Insurance Is Required?
Each association should refer to state law and the association’s governing documents to determine what insurance it must obtain and then consult with its insurance agent for recommendations on optional coverages. For condominiums in Washington created after July 1, 1990, the association’s obligation to obtain insurance is clearly set out at RCW 64.34.352. We encourage all condominium board members and managers to read that statute, which requires condominium associations to maintain, to the extent reasonably available, property insurance and liability insurance.
For old-act condominiums in Washington, RCW 64.32.220 states that the association shall obtain insurance “if required to by the declaration, bylaws, by a majority of apartment owners, or at the request of a mortgagee having a mortgage of record covering an apartment”, but it is less specific than its condominium act counterpart in that it does not specify the types of coverage required.
The statute for homeowners associations (RCW 64.38) is silent on what insurance those associations must obtain. Your association should look to its governing documents and its insurance broker for guidance on what insurance to obtain.
Whose Insurance is Primary?
The question of whose insurance is primary is the most common dispute between associations and owners because usually neither party wants to submit the claim to their insurance due to concerns of premiums going up. Too often this dispute drags on because the parties do not clearly understand their respective obligations. Knowing which policy is primary and quickly tendering the claim to the proper insurer speeds along the repair process, minimizes disruption, and can avoid a heated dispute in the midst of an already stressful event.
For Washington condominiums created after July 1, 1990, this dispute should never arise. If both the association and the unit owners have insurance that might cover the claim, the Washington Condominium Act specifies that association’s policy provides primary coverage. RCW 64.34.352(3)(d). That means that a claim for property damage to common elements or arising out of common elements must be submitted or tendered to the association’s policy first.
For non-condominium owners’ associations, the answer to whose policy is primary will likely be dictated by your governing documents. Owners associations should always consult with their insurance agent when obtaining insurance to better understand which policy is primary and to ensure that the insurance coverage being obtained satisfies the requirements of the governing documents.
Coverage is Not the Same as Fault
Too often, associations fail to or delay in tendering claims to their insurance policies because they believe the unit owner is at fault or should be responsible for the repairs or deductibles based on whether the damage is units, common or limited common elements. But coverage for damage under an insurance policy is not the same as liability for the damage. Liability can and should be determined separately from insurance coverage.
Understanding whose policy is primary may seem insignificant now, but armed with that information, board members and managers can help bring a sense of leadership and calm to a situation that is almost always chaotic and stressful.