Bare Coverage in New Orleans

The first session that I’m attending today is entitled “Bare Walls, Bare Coverage? — The Great Coverage Debate. The subject matter is insurance, not Bourbon Street.

The most interesting new knowledge to me is that Fannie Mae is essentially requiring HO-6 coverage in connection with mortgages. Additionally, FNMA regulations which have long required reserves for deductibles, are beginning to be enforced; that is impracticable for many associations which are carrying larger deductibles as a means of having adequate insurance.

Another main focus of the session is the fallout from a recent Maryland case, Anderson vs. Gables on Tuckerman, which led to insurance legislation. In that case, in an opinion which reached a similarly absurd result as the Flores v. Earnshaw case, the Maryland Court of Appeals ruled, as explained by Robin Manougian, CIRMS:

“the Maryland Condominium Act does not require the council of unit owners to repair or replace property of an owner in an individual condominium unit after a casualty loss.” The basis of the Court ruling [was] its conclusion that the Condominium Act requires the unit owner to make all repairs to the unit regardless of the cause of the damage.”

Ms. Manougian further explained:

The vast majority of the Condominiums that our Agency insures (and by and large associations insured throughout Maryland) want to maintain traditional Single Entity coverage – master policy property insurance that covers the units, minus improvements and betterments made or acquired by the unit owners. This continues to be the best way to insure condominium associations because of:
— The interdependency of the units to the common elements
— The difficulty of adjusting losses between two or more adjusters – one for the association to the extent common elements are damaged, and one or more for the unit owners depending on the number of units affected at time of loss.
— The insurable interest that the Association effectively has in the units. If the units are not properly insured, uninsured or underinsured losses affecting the units can impact value, adversely affecting the entire property.
— Certificates of Insurance: The lenders have not reacted en mass as of this writing. Some have contacted us to verify that either Single Entity of Bare Walls coverage is in place. We suspect these calls will increase with time, and this means that they will look for affirmation of master policy unit coverage, or will begin requiring two certificates: One from the Condominium Association, and one from the unit owner.
— Overall Costs. Single Entity coverage allows the unit owners to buy unit coverage in bulk. The overall replacement value, even if bare walls coverage is rendered, will not change much if at all, which means the premium for the Master Policy will not change, while the premiums for HO-6 based on increased dwelling coverage will increase.
— The Maryland Condominium Act does not require that owners carry HO-6.* (see Fannie Mae requirement effective March 01, 2009)
— Even if HO-6 coverage is carried, the possibility exists that unit owners will fail to have or maintain unit/dwelling coverage at full replacement value at time of
loss.

The insurance industry and Maryland’s CAI Legislative Action Committee sponsored and managed to get legislation passed that will fix the result, by allowing associations, through their master policy, to insure the units and the betterments therein.

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