Understanding the difference between a maintenance obligation and an insurance obligation is a crucial part of community living. Maintenance and insurance obligations differ between associations depending on how the governing documents are drafted whether the association is classified as a condominium, townhome, or single family community. It is important that an association understand the difference before allocating any maintenance or insurance responsibilities and/or costs.
What is Maintenance?
Maintenance is the process of maintaining or preserving something. It includes keeping the component (i.e. roof, elevator, or pool) in proper condition, care, and upkeep. It also includes taking steps to avoid the component breaking down (preventative maintenance), bringing something back to working order (corrective maintenance), and replacement, if necessary. Maintenance obligations will be set forth in the association’s declaration. Sometimes maintenance obligations are straightforward; for example, the association’s common element pool has a crack and is leaking water. This is clearly an association maintenance obligation. However, many times the maintenance obligation are not so clear. For example, a limited common element pipe has sprung a leak. Who is responsible? Many would say the association because it is a common element. This is not always true. The association’s declaration may specify that any pipe which serves an individual unit, regardless of ownership, is an owner maintenance responsibility. Therefore, the association must determine what pipe was leaking, whether the pipe serves a single unit or multiple units, and how such pipe is classified in the declaration. Consequently, it is important that the declaration be reviewed prior to any allocation of maintenance obligations.
Once the association determines who is responsible for the maintenance of a damaged component the association must determine who insures the damaged component and whether such damage is covered by insurance.
What is Insurance and What Does it Cover?
Insurance is a way to manage risk. When an association or owner purchases insurance its purpose is to protect against unexpected financial losses. For losses covered under an insurance policy, minus any deductible, the insurance company pays for the damage. If an association or owner is uninsured, or under insured, the financial consequences could be exorbitant. The association’s declaration will dictate what individual owners and what the association are responsible for insuring. It is possible, and typical in many condominium and townhome communities, that an owner has a maintenance obligation for a specific component while the association has the insurance obligation. Therefore, again, it is important to review the declaration before making any affirmative statements as to who is responsible for what.
How to Know When to Submit a Claim.
In the event of damage, as stated above, the first step is to examine the association’s declaration and determine whether the association or an owner is responsible for the maintenance and/or repair. Once the association determines who is responsible, it must determine who insures the component. Once the maintenance and insurance responsibilities have been confirmed, the association must determine whether or not the damage is deemed to be a “covered loss” under the policy. A covered loss refers to those damages or losses an insurance policy covers and may provide reimbursement for. The damages must be related to the common elements, the unit, personal property, or other insured structures or items. Finally, the damage must occur by a covered peril. A covered peril is typically a natural disaster (i.e. fire, wind, hail), a water leak, theft, vandalism, or the like. The association’s insurance broker and policy language will detail all covered perils. Something like deterioration of a roof due to age (even if the roof is insured) is not typically a covered loss. Old age or end of useful life concerns are not typically covered losses. It is best to talk to an insurance broker to determine if the damage is covered.
How to Apportion Costs
If the Association has the insurance obligation, and if the loss is covered, the association’s insurance will cover the damage regardless of who has the maintenance obligation. The only concern will be the deductible. The declaration may speak to apportioning deductibles. If the declaration is silent, the deductible will be a common expense. If the declaration allows the association to apportion the deductible to individual owners benefitting from the repair, the association may do so. A claim submission and insurance deductible policy is highly recommended in both of these situations as it will clarify obligations as to when and how the deductible may be apportioned.
If the loss is not covered by insurance, the individual or entity with the maintenance obligation for the damaged component will be responsible for the maintenance and repair. If the maintenance and repair is an association obligation, a review of the declaration should be undertaken to determine if any cost shifting mechanisms exist. There are two ways to shift the cost of association maintained components to an owner: (1) the declaration contains supplement assessment or individual purpose assessment language; or (2) negligence by the owner. If the component needing repair is a limited common element appurtenant to an individual unit or units and the declaration contains supplement assessment or individual purpose assessment language, the association has the ability to shift all such maintenance and repair costs to the individual owner(s) who benefits from the association repair. For example, if the association is responsible for the limited common element deck maintenance, any costs spent for the repair of a single deck may be allocated to the individual owner benefitting from the repair. In the case of negligence, if an owner is negligent and such negligence causes damage to an association maintained component, the association also has the ability to push all such repair costs stemming from the negligence back to the owner. For example, if an owner ran his or her car through an association parking gate and caused damage, the association has the ability to assess all such repair costs to the owner responsible for the damage due to the owner’s negligence. Therefore, again, it is important that the Association examine all aspect of the damage and cause of the damage before making any affirmative statements as to responsibility.
If you have questions or would like additional information concerning maintenance and insurance obligations, would like an insurance deductible policy drafted, or would like assistance in deciphering maintenance and insurance obligations, please contact an Altitude Community Law attorney at 303.432.9999.