I recently received an email from a reader asking about the difference in insurance policies available for associations and tenants. In sum, the question asked for an explanation of an HO-06 insurance policy and whether that policy is available only for unit owners or for the association as well.
Understanding the differences in available coverages is very important for unit owners and associations alike. There are a variety of policies, covering everything from property damage to “slip and fall” injuries, which should be discussed with your individual agent or broker.
Generally, an HO-06 policy is known as a “unit owners” policy. It is similar to a typical homeowners policy in many ways. Aside from liability claims against the owner, the policy usually provides coverage for property damage. Like most homeowner policies, HO-06 policies are “all risk” policies and provide coverage for damages caused by any event not specifically excluded.
The difference in a unit owner policy is the extent of the property which is covered. While homeowner policies cover the entirety of the home, HO-06 policies typically only cover what the unit owner is responsible for repairing or replacing in the event of damage. Jurisdictions may differ in their requirements, however, the standard unit owner policy will cover such things as drywall, cabinetry, contents, and loss of use.
While an association could purchase this type of insurance on an individual unit if it has an insurable interest, it would be very uncommon. Associations typically purchase different, much larger, policies that cover damage to property that the association is responsible for maintaining and repairing in the event of a loss. Also, these policies usually cover liability claims arising against the association and not the individual unit owners. The specific requirements are often outlined by the condominium documents or local law.
In theory, the overlay between the association’s master policies and the coverage obtained by unit owners should encompass the entirety of the property and, in the event of a covered loss, act to repair and/or replace the property as it was before. They should act similarly to provide liability coverage for both the association and unit owner in the event of a claim. Gaps do occur, however, often because unit owners incorrectly assume that the association policy will cover their individual unit as well.