Recently, we received a question from a board member that we thought was worthy of sharing.

Q: Why would a carrier even consider a claim for inside plumbing when our CC&R clearly indicates that inside plumbing issues and damages is the responsibility of the owner? Don’t they read the CC&R when writing the policy? Are we paying extra premium for this inside coverage?

That is a great question. For many associations, the governing documents (CC&R, or sometimes Bylaws) state that the association shall purchase property insurance for the “full insurable replacement value of all Residences and other structures and improvements located within the development.” That translates to “walls -in” coverage, meaning that the property insurance for the association needs to cover the unit interiors.

Your association may have a maintenance matrix, or something similar that outlines the maintenance responsibilities of the association and the unit owners. There is no argument that certain aspects of each unit are the responsibility of the unit owner to maintain – maybe including the plumbing. The responsibility to maintain and responsibility to insure, however, are two very different things. While it is the unit owner’s responsibility to maintain, repair and replace many of the interior items of the unit, where they get the money to make those repairs and replacements may very well be from the master insurance policy for the association. Hopefully your association has a policy/protocol that is clear on who is responsible for paying the deductible when it comes to these types of property claims.

Interestingly, when there is a plumbing issue, insurance does not pay to repair the plumbing item that failed (replacing the broken pipe, as an example). So, if there is damage to the drywall and flooring caused by water escaping from a broken pipe, and 1) the drywall and flooring are insured property under the policy and 2) water damage from a sudden and accidental escape of water from a pipe is a covered cause of loss under the policy, then insurance will issue a payment in the amount of repairs to those covered items over the deductible amount. The damage to the pipe is often from wear and tear, which is not a covered cause of loss, so the cost to fix the pipe is not usually included in that check, only the resultant damage from the escaping water. It is up to the adjustor to investigate what happened and determine if there is coverage under the insurance policy. When investigating, they take into account the governing documents and any rules or procedures that the association has in place in addition to the facts of the particular incident. It is up to the adjustor – not the manager nor the board of directors – to decide if there is coverage under the policy.

Another thing to consider is that insurance carriers use a “standard fire policy” as a basis for their individual policies. These must be submitted for approval to the Department of Insurance once the carriers have made their carrier-specific changes. Because of this, policies cannot be changed on a case-by-case basis to reflect specific building attributes or restrictions in each set of governing documents for each association they insure. This is why you will find elevator collision coverage in a policy even if the building is only one story. While you can’t remove the coverage from the policy, the carrier does take the information into account when determining the premium charged. So that one-story condo is not paying for the elevator collision coverage, even though it is included in the policy. Likewise, an association with a “bare walls” policy will not be paying for interior coverage.

Terri Guest, CIRMS, CMCA, EBP, is the Senior Sales & Marketing Representative in Northern California for Berg Insurance Agency and can be reached at Terri@berginsurance.com.