How to Read an Insurance Policy: Knowing Where to Start

Understanding an insurance policy can be challenging, especially for those unfamiliar with policy language. While working with a community association insurance expert is always recommended, it is equally important for insured parties to review their policy to identify potential coverage gaps and understand policy conditions. Without this knowledge, an association may face significant financial risk from uninsured claims. The four main components of an insurance policy are the declarations, exclusions, policy conditions and limitations, and endorsements. The declarations pages outline key information such as property and liability coverage limits, details of insured buildings, deductibles, and premiums. The exclusions section is one of the most critical parts of the policy and serves as an excellent starting point for review. Although the language can be complex, the section titles often provide guidance on what is not covered. A common exclusion found in many policies relates to water, which can include flooding, surface water, seepage, and leakage. Understanding these exclusions helps associations proactively manage and prevent potential losses. Policy conditions may appear in their own section or be embedded throughout the document and outline specific requirements that must be met for coverage to apply. For example, many policies require maintaining a minimum indoor temperature of approximately 55 degrees to prevent freezing damage. Another common condition involves sprinkler systems, which may require notifying the carrier if the system becomes temporarily inoperable, even for maintenance. Failure to comply with these conditions can result in denied coverage. Policy endorsements are modifications that either reinstate previously excluded coverage or add new protections and are typically located toward the end of the policy. If any section of the policy is unclear, Board members should consult their insurance agent for clarification and request specific references within the policy. Making policy review an annual action item can help Boards protect their communities and reduce the risk of unexpected coverage gaps.

Coverage Corner: What Is a Waiver of Subrogation?

A waiver of subrogation is an agreement in which an insurance carrier relinquishes its right to pursue another party for compensation, even if negligence has occurred. In community associations, governing documents often require the association’s insurance carrier to waive subrogation rights against unit owners. However, when a unit owner rents out their unit, this waiver may not extend to the tenant, allowing the insurance carrier to seek recovery from a negligent renter if necessary. Waivers of subrogation are also commonly found in contracts with service providers such as contractors, maintenance vendors, or cleaning companies. When such a waiver prevents the carrier from pursuing a negligent party, the resulting claim is recorded against the association’s loss history, which can negatively impact future insurance premiums and eligibility. Another important contractual provision to review is the indemnification clause, as it determines which party assumes liability for damages. To protect the association’s interests, it is essential to consult with the association’s attorney and insurance agent during contract negotiations before signing any agreements. This proactive step can prevent costly financial consequences.

Owners’ Curious Question: My Association Does Not Insure for Earthquake. Can I Purchase It Myself as an Owner?

Yes, individual unit owners can obtain earthquake insurance even if their association does not carry this coverage. Earthquake protection can often be added as an endorsement to an existing homeowners policy if the carrier offers it. Alternatively, owners may purchase a standalone earthquake policy specifically designed for condominium or attached unit owners. Earthquake insurance can provide coverage for damage to the unit, personal property, and earthquake loss assessments, which are costs that may be passed on to owners if common areas or other units are damaged. Even if the association does not maintain earthquake coverage, owners who secure their own policies can access financial protection to help recover from a catastrophic event. Additionally, if many owners lack coverage, rebuilding efforts following a major earthquake may become more difficult for the community as a whole. Owners are encouraged to work with their insurance agent or an independent broker to explore available coverage options and pricing.

Update of the Month: Aluminum Wiring

Aluminum wiring presents significant fire risks due to its tendency to overheat, oxidize, and develop loose connections, posing a danger to both property and residents. As a result, many insurance carriers, including those operating in high-risk markets, will not insure buildings that contain aluminum wiring within the structure. It is important to note that this concern applies to internal building wiring and not to the wiring that runs from the street to the property. Responsibility for this wiring often falls to individual unit owners, which can complicate remediation efforts. If aluminum wiring is present within a community, replacement is essential to maintain insurance eligibility and enhance life safety. Boards are encouraged to work collaboratively with owners and engage qualified contractors, legal counsel, and insurance professionals to plan and execute a coordinated replacement strategy. With proper planning and communication, many communities have successfully completed these upgrades and significantly reduced their risk exposure.