Condo Conundrum: Covering the Mortgagee’s Interest

Condominium coverage can be confusing—and the FC&S staff receives myriad questions regarding condominiums and how to insure them. We recently received this inquiry regarding how a condo owner might cover the mortgagee’s interest in the condo.

I am struggling with how to properly cover the mortgagee’s interest under a Condominium Unit-Owners’ policy.

 

When a Homeowners’ policy is issued to a homeowner or either a BOP or Commercial Property policy is issued to a commercial-building owner, the Coverage A or the building limit reflects the cost to rebuild the structure—which in most cases would also be sufficient to cover the mortgagee’s interest in the property, less the cost of the land and subject to co-insurance and other policy provisions.

 

Is it appropriate to draw a similar parallel to Condominium Unit-Owners’ policies?

 

Under either a Personal or Commercial Condominium Unit-Owners’ policy, would the limit shown for Coverage A in the HO-6 or Business Personal Property under commercial policies include the property covered as described in each policy and the amount of the mortgage? 

 

For example, if I obtain a $250,000 mortgage for a $300,000 condo, it would seem that the value of the items described in the policy would not approach this value—yet my financial interest is $50,000 plus I am responsible for the entire amount of the mortgage. As such, it would seem that the coverage amount shown in the Declarations should be at least $300,000.

 

Am I looking at this wrong, or is there another/better way to cover the mortgagee’s interest when a Condo Unit-Owners’ policy is issued?”

 

The first place to check in figuring out this dilemma is the condominium bylaws, which explain what insurance is the responsibility of the association. Generally, the association covers the realty under a master policy, and the financial institution will be issued a certificate reflecting coverage for its financial interest as the mortgagee on the association’s master policy.

Read More FC&S Blog Posts at the Coverage Cafe!

The HO-6 is used to cover the unit owner’s insurable interest, which is personal property and improvement and betterments. (Much will depend on what the association picks up under its bylaws.)

If the association, for some reason, does not obtain a master policy, then the entire amount dealing with the realty and personal property is added to the HO-6 and a mortgagee clause should be issued by the insurer.

Likewise, the condo forms under the commercial-property program work in a similar manner. The Unit-Owners’ Coverage form, CP 00 18, applies to business personal property, while the Condominium Association Coverage form, CP 00 17, covers the building and the association’s business personal property.

If the bylaws require the unit owner to insure the building as well as the business personal property, then the unit owner may utilize something like the Condominium Commercial Unit-Owners’ Optional Coverages form, CP 04 18, which allows miscellaneous real property to be covered.

About the Author
Susan Massmann

Susan Massmann

Susan Massmann, CPCU, is Managing Editor of electronic publications for the reference division of Summit Business Media, the parent company of PropertyCasualty360-National Underwriter. She may be reached at smassmann@sbmedia.com.

Comments

Resource Center

View All »

Complimentary White Paper: The Compression of Workplace Time

How brokers and carriers respond to the compression of workplace time will create significant competitive...

The Changing Insurance Consumer: 6 Ways to Create Profitable Relationships

Today’s mobile and web-savvy consumers have new expectations when it comes to interacting with your...

Contractors General Liability Coverage 102

What is a prior work exclusion? Which option is right for my client? Why do...

Sign up today to get a 50% matching credit -...

Insurance marketing sometimes seems like it's a game of swings and misses, but we're here...

Guide: 5 Steps to Selling Cyber

Cyber risk and data security is on the agenda of every business owner and executive....

Citation Correlation

Do rigger and signalperson qualifications correlate with the cause of crane and rigging accidents? ...

Complete Guide to Electronic Signatures in Property & Casualty Insurance...

In property and casualty insurance, closing new business quickly is key. Learn how to leverage...

INSTANT ACCESS: Complimentary Sales Closer Questionnaires

Help property owners or managers compare your commercial residential property insurance coverage vs. the competition....

Determining Vacant Property Perils and Valuations

Are your clients fully covered for Vacant Properties? In this economic climate, your insureds may...

Risk Management for Law Firms

This package of 3 concise risk management articles offers straightforward content and practical suggestions law...

Personal Lines Pro eNewsletter

Critical insights into the personal auto, homeowners, and other consumer insurance markets to help P&C professionals stay informed – FREE! Sign Up Now!

Advertisement. Closing in 15 seconds.