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Over the years, we have studied the insurance and legal issues concerning condominiums to provide our clients with sound advice and proper coverage.  Most of the insurance requirements for condominium associations are specified in the condominium documents.  As a result, we like to review these documents in order to be sure we fully understand the requirements. 


The Condominium Concept


The term “condominium” refers to a form of ownership.  Property which is owned as a condominium contains two (2) distinct types of property- units and common area.  Units are portions of a condominium which are set aside for individual ownership.  In a residential condominium, the units are the separate living quarters which may be used only by the unit owner.  Common area is all portions of the condominium which are not included within the units. Each unit owner owns an “undivided interest” in the common area.  An undivided interest is a fractional percentage share of ownership of all common area. The ownership of an undivided interest  gives the unit owner the right to participate in the control and management of all common area but such ownership carries with it the obligation of each owner to pay his share of the normal expenses of operating and maintaining all of the common area.


Master Insurance Policy


In accordance with Massachusetts general law Chapter 183A, the declaration of Trust includes By-laws and establishes a membership organization of which all unit owners have a beneficial interest.  The trustees should decide what the mailing address for the trust will be. 


In order to meet the varied requirements of the condo documents, associations and lenders, we utilize a commercial policy form known as a “businessowners” policy.  This type of policy allows us the flexibility to provide the coverage typically needed.  The master policy’s cost is a common expense divided among the unit owners based on the percentage of ownership.  


Building Insurance

Typically, the condo documents specify that the building insurance is required to include the units themselves.  This means that fixtures and partitions within the units are insured under the master policy.  The unit owners’ personal property must be insured separately by the owner under a condominium homeowners policy.  Coverage for improvements or additions subsequently made depends on the provisions of the documents.   The amount of insurance on the buildings should be equal to 100% of their current replacement cost excluding land.   Outbuildings such as a garage or shed must be included with a separate limit of coverage.  We can estimate the replacement cost, but recommend an appraisal by an experienced builder.


Liability Insurance

The condominium documents will specify the amount and type of liability insurance to be obtained, and the coverage is included with the building coverage under the master policy.  This coverage protects the condominium entity and unit owners while acting within the scope of their duties on behalf of the association of unit owners.  Coverage is provided for Bodily Injury and Property Damage. 


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