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Condo | HOA Lawyers

Free Money from your Association Insurer

In Wisconsin condominium associations are required to insure all of the property (other than the personal property) of the unit owners. (See, Sections 703.17(1) and 703.02(14) Wis. Stat).  Many unit owners worry (needlessly I would contend) that their neighbors have improved their unit more than they have and then argue that they don’t want to pay the insurance for those improvements.  Ignoring for the moment that those improvements also likely increase the value of their neighbors unit and therefore increase the value of their unit, which they are more than happy to accept, this argument simply misses how insurance companies actually insure condominiums in Wisconsin.  The law requires all of the property to be insured.  The law requires that the insurance be paid as a common expense.  (Section 703.17(1) Wis. Stat).  Accordingly, arguing over who has to insure what, considering the clear language of the statute, wastes both the time and resources of an association.  However, there is something a board of directors can do to increase the insurance it provides unit owners without any material cost to the association.  To adequately explain where these savings can be obtained, I first need to explain how insurance companies currently charge premiums and pay condominium claims in Wisconsin.

Associations purchase insurance from a local agent who generally recommends “all in” or “guaranteed replacement cost” or “guaranteed replacement cost with code upgrades.” As expected the better the coverage, the greater the premium and presumably the greater the commission to the insurance agent.  I may sound like I am against insurance agents recommending the best coverage, but that would be inaccurate.  I honestly believe it to be the best recommendation the vast majority of the time.  What I do have an issue with is that most directors don’t understand exactly what is and what is not covered.  Directors will generally ask is the association completely covered and insurance companies and agents will state something like: “everything is covered that your condominium documents require to be covered.”  This is a truthful answer, but it does not really answer the question of whether ALL of the CONDOMINIUM PROPERTY is covered, because the truthful answer is that it likely is not.  Here is why.

When a loss occurs, the insurance company will review the condominium documents to see what it can argue could be provisions within the condominium documents to reduce the amount of available coverage. Notice, this review normally takes place after the loss and therefore after the premium for whatever is covered has already been paid.  What insurance companies generally find (I would guess 98% of the time) is some provision in the Declaration or Bylaws stating that the association will insure the common elements and the unit owners are responsible for any insurance of the units.  Technically, these provisions may not comply with the law, but that is not the insurance company’s problem.  The insurance company will then argue (truthfully) that the insurance policy only provides insurance for what the association is obligated to insure under its condominium documents.  Therefore, the insurance company can limit its payout to only common element, even though the premium charge is literally identical to the premium that would have been charged had the condominium documents required the association to cover everything on the condominium property except for personal property.

The difference in the payout by the insurance company between all of the condominium property and the common element can be substantial. The solution for the association is easy. Amend your condominium documents so that they clearly provide that all of the condominium property, including common element, limited common element and units are covered by the policy, with the exception of unit owner, resident and guest personal property.  Personal property being defined as that stuff that would fall if you turned the unit literally upside down.

Once the amendment is adopted, at least in Wisconsin, your association will have far more coverage for the exact same cost. Essentially, Free Money if there is a loss.  You don’t need to believe me though, just ask your insurance agent:  “If our association suffered a water loss, would you cover all of the unit and common element or just the common element?”   If they say “all condominium property is covered” ask them to put that in writing.  I doubt they will.  Odds are they will simply say that they cover what is in the policy.  If you push them, they may put in writing something like “we cover everything but for any exceptions or exclusions” – I bet you can guess what is excepted for excluded!!!  When that is the answer, amend your documents and take the free money.


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