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Condo | HOA Lawyers

Insufficient Insurance Costs Association LOTS!!!

Facts

A 50-unit association with multiple buildings had a fire in Building Five in December of 2018.  The interior and exterior repairs were estimated at about $1.4 million. Insurance proceeds were only $933,000, meaning there were insufficient proceeds of about $500,000 to make the needed repairs.  The board voted not to obtain a loan to cover the short fall.  As a result, one of the unit owners filed suit alleging, among other things, breach of fiduciary duty and violation of the applicable statute and governing documents by “failing to maintain the requisite insurance coverage.”  The unit owner ought summary judgment and argued the association was required to promptly repair his unit and the building.  The association argued it only had to insure the building exterior and that the condominium documents were ambiguous.   

Trial Court

The trial court partially granted the unit owner’s motion for summary judgment finding that the association’s failure to purchase insurance sufficient to cover at least 80% of the replacement value of the building was a violation of the governing documents and the statute.

Appellate Court Decision

The court of appeals affirmed the trial court and found that the documents are not ambiguous, and that the Declaration clearly provides “that the insurance will cover both the Condominium Units and Common Property.”  The court then held “that by the express terms of the Declaration, [the association] was required to procure insurance sufficient to cover 80 percent of the ‘building,’ including the interior … units…” 

Lessons Learned:

  1. If your association has not obtained the insurance it is legally required to obtain, it needs to do so.
  2. Insurance policy language generally insures only what the condominium documents provide (regardless of what the statute may require), so if your association documents don’t require the association to purchase insurance sufficient to comply with the law, AMEND YOUR DOCUMENTS.   
  3. Paying your lawyer to amend your documents now and then purchasing the insurance you are legally obligated to purchase (in Wisconsin that is 100% of the replacement cost of the common element and units) is far less expensive than any lawsuit that your association and Board Members will be involved in if you didn’t purchase or can’t purchase the insurance you are legally obligated to purchase.

Grooms Property Management, Inc. v. Muirfield Condominium Association, No. COA22-49 (N.C. Ct. App. July 19, 2022)  

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