In some cities developers are maximizing the use of property bybuilding multi-family housing, often high-rise condominiums as wellas low-rise, garden-style buildings.

In suburban areas real estate development is taking shape in theform of townhouses with condominium ownership.

Every residential condominium project has three distinctfeatures:

• Dwelling units: There is a single housing unitwith each one exclusively owned by the persons purchasing it.
• Common elements: There are hallways, stairsand elevators, for example, jointly owned by all the unit owners astenants in common, with each unit owner’s interest measured by theproportionate value the unit bears to the total value of allunits.
• An association or administrative framework:There is an association, usually headed by a board of managers madeup of unit owners, established to manage the common areas and theassets of the association, as well as set out the rights andobligations of the unit owners.

The key to understanding insurance coverage for the condoassociation — not the individual unit owners — is to be able toclearly draw lines around ownership as well as around who iscovered, what is covered, where coverage applies, when it appliesand how it applies. It’s all complicated by state regulation ofcondominium development and insurance law.

When putting together an insurance program for condominiumassociations, one of the first things to establish is who owns whatand who is responsible for insuring it. Some items are theassociation's responsibility while other items fall within the unitowner’s insurance.

Another concern that arises with condo associations is the waythe members of the association's management will be protected fromlawsuits and whether additional insurance is needed beyond theassociation coverage form to address personal liability.

Here are five significant issues agents and brokers need to beaware of when advising condominium association clients.

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1. Association responsibilities

The condo association is responsible for insuring the commonareas of the condo complex but not the interior—from the wallsin—of the individual units.

Most states’ condominium acts require the association to carryinsurance on the common elements and the bare walls, floors, andceilings of the unit.

The ISO Condominium Association Coverage Form, CP 00 17 10 12,meets the requirements of most condominium property acts byincluding fixtures outside of individual units and personalproperty not contained within individual units.

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2. Necessary documents

In putting together coverage for the condominium association,three sets of documents provide the basis for the scope and extentof coverage.

• The condominium property act of the association's state, whichdefines the boundaries of coverage responsibility,
• The condominium declaration, which is subject to thecondominium act, and
• Bylaws and other instruments, which could further clarify thescope, extent and type of coverage as permitted under the act.

Armed with these documents, it becomes easy to identify anditemize the coverage areas and to add limits to each area and itemsubject to coverage.

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3. Coverage for personal property

The condo association may insure some personal property. Forexample, fire-extinguishing equipment, outdoor furniture, floorcoverings and appliances used for refrigerating, ventilating,cooking, dishwashing, or laundering are covered by the ISOCondominium Association Coverage Form, CP 00 17 10 12.

This type of property must be owned by the association itself,be used to maintain or service the building and not be containedwithin individual units.

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4. Errors and omissions coverage

Directors, officers, volunteers, committee members, and otherswho manage the condo association are not covered for errors andomissions in the performance of their duties under a standardassociation policy.

State condominium acts, the condo association bylaws, or othergoverning documents of most associations often require the purchaseof directors and officers (D&O) liability insurance. Even whennot required to do so, most associations voluntarily choose topurchase the coverage.

Although some states limit the personal financial liability ofvolunteer directors and officers, many states do not. As aconsequence, it’s sometimes difficult in the absence of D&Oinsurance for nonprofit organizations such as homeownerassociations to get qualified volunteers to serve as directors,officers or committee members because they are afraid of being suedas the result of performing their duties.

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5. Protecting volunteers

The Volunteer Protection Act of 1997 is not sufficient toprotect volunteers who manage condo associations from D&Olawsuits because it doesn’t prohibit lawsuits against volunteers.The act is designed to protect volunteers from tort liability,usually meaning liability for acts that result in bodily injury orproperty damage to others. (Most, if not all, homeownerassociations already protect themselves and their directors andofficers from such liability by purchasing general liabilityinsurance.)

The act does not protect a volunteer director or officer fromliability for gross negligence, willful or criminal misconduct,reckless misconduct or a flagrant indifference to the rights orsafety of others—frequent allegations in lawsuits filed againstdirectors and officers.

States can opt out of the Volunteer Protection Act and areallowed to override its provisions with their own legislation. Manystates have, in fact, enacted their own laws that limit both thepersonal liability of volunteer directors and officers and theorganization’s ability to indemnify directors and officers in theevent they are sued.

Related: 6 things you need to know about insuring a condo —before buying one

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