When there is damage to the interior of a condominium, who should pay for the damage?
To answer this question, the following must be reviewed:

1. The Cause of the Property Loss
2. The Association’s Master Policy
3. The CC&R’s, By Laws, and Association Rules
4. The Unit Owners Condo (HO-6) Policy

Under the Nevada revised statutes the Association’s Master Policy is primary on all property losses. However, that is subject to the terms and conditions of the insurance contract (cause of loss, deductible and property covered). The condominium owners (HO-6) policy is secondary only if coverage exists under the association policy. If there is no coverage under the Master Policy, then the HO-6 is primary. And if the unit owner has no insurance then he is self- insured. The property section of the Master Policy is a simple contract that states first if this (covered loss) happens we will pay this amount subject to the terms (deductible/property covered) of the contract. Or if this (exclusion) occurs, we will not pay. Who is at fault is not important.

What is important is if the occurrence is a covered loss or is it exclusion? This is what determines coverage. Property insurance is for unexpected occurrences, and is not a maintenance contract or a building warranty.

 All commercial property policies excludes damage caused by lack of or improper maintenance, normal wear out, improper design, defective installation, or known defects. With a roof leak that caused damages to the interior of the building, the damage is a covered loss if the damage was caused by rain, driven by the wind which entered under a tile or through an eve. The damage is not a covered loss (exclusion) if there was no wind and the rain entered through the roof as a result of poor maintenance or improper installation. If your claim is from a construction defect suit, then failure of that roof would not be a covered loss until the defects were corrected. A loss caused by a known defect is not unexpected.

The Master Policy will pay only damage above the deductible. Most associations have a policy that the individual owner is responsible for the deductible. What property is covered? The Master Policy covers the association-owned property and the actual building. Master Policies only cover the cost of replacing damages with materials of the same quality as the original specifications. If you upgraded your unit, you are responsible for the difference in the cost between the standard items and your upgrade.

More importantly, what does a Master Policy not cover?

1. Personal Property
2. Appliances that are not built into the building
3. Wall and Window Coverings
4. Improvements and Upgrades to the unit
5. Loss of Use-extra expense for re-location, rent & food
6. Personal Liability

Assume that there is $12,000 damage to a unit caused by a covered loss, $10,000 damage to the building, and $2000 to the owner’s personal property. What will the Association’s insurance pay? The Association’s insurance company would pay the $10,000 damage less the $5000 deductible for a total of $5000. What about the other damages?

The owner took deed to the unit subject to a publicly filed contract (CC&R’s). Again, forget whether the unit owner or the Association may be at fault. If the CC&R’s state that the unit owner is responsible for the interior maintenance and damage then in fact the owner has accepted that responsibility by contract. He executed the deed. If the Association has a deductible policy of assessing the loss to the unit owner, the unit owner must bear that loss. In the above example, the unit owner is now responsible for the $5000 deductible plus the $2000 loss of personal property, not covered by the Association’s Master Policy. In addition, there may be living costs if the unit is in need of severe repairs making the unit inhabitable.

Now, if the owner has a HO-6, then their insurance company could be responsible for the amounts not covered by the Master Policy but again subject to the terms and conditions of that condominium owner’s policy. Same rules apply. First, is it a covered loss, what property was covered and at what deductible? Many personal lines adjusters will get caught up in the “It is the Associations fault, and the Association’s Insurance should pay.” Those adjusters are wrong. Be sure to point out to the adjuster that they should worry about the contract you purchased from their company and not the association’s policy. Demand a claim be filed and that the insurance company determine if this event is a covered loss or not, and explain that you are responsible for repairs in accordance with the CC&R’s.