Insurance Academy

Burst Sewer Pipes, Condos, and Coverage

By Patrick Wraight | April 3, 2019

We had an interesting question come in this week so I thought I would address it publicly. I’ve edited the question for space and to avoid disclosing any identifiable details.

“I live in a condo building. A sewage pipe burst, causing damage to my unit and a few other units. An adjuster came out representing the association’s policy and said that the association’s policy would likely not respond to the damage to the individual units. Is that right?”

This question represents one of the reasons that condominium insurance is a complicated matter. When multiple entities own a piece of property, who ultimately is responsible for that property? Let’s step back a half step and look at what a condominium is.

A condominium is a form of property ownership. According to Black’s Law Dictionary Online, a condominium is: real property consisting of several individual units and where an owner has title to an individual unit with shared ownership of common areas (lobby, roof, parking, elevator). Typically the common areas are managed by a homeowners’ association and makes sure that maintenance is collected and that the covenants, conditions and restrictions are adhered to by owners.

You should be able to see that there are some potential issues that can arise in this form of ownership. A unit owner owns their portion of the building and becomes a member of an association of owners who (as an association) share ownership of the buildings, grounds, and other common elements (like a pool, gym, or office). If we go back to our original question, who is responsible when multiple units are damaged?

That’s still not an easy question to answer because we may have to examine four different documents to figure it out. It would be easier if these documents all lined up, but we know better don’t we?

  1. How does the state condominium statute read? If you’re lucky, it is detailed, setting aside certain responsibilities for the association and the unit owners and it has been tested by your state’s courts and stood up to different challenges.
  2. How do the association documents read? If you’re really lucky, they are in complete compliance with the state statutes and they give the responsibilities of both parties in painstaking detail and are enforced by a competent board of directors.
  3. How does the association’s policy read? If you’re really extra lucky, the association has an admitted property policy, hopefully drafted in compliance with the state condominium statute and based on the ISO CP 00 17.
  4. How do the unit owners’ policies read? If you live a truly blessed life, all of the unit owners have property policies in place and they are also with admitted carriers (hoping beyond hope that maybe the unit owners’ policies were issued by the same company that issued the association policy) and are based on the ISO HO 06.

With all of that behind us, let’s look for an answer to our question. Is the unit owner responsible for this damage?

If the Condo Association is covered on an ISO Condominium Association Coverage Form with Special Causes of Loss (CP 00 17 & CP 10 30), here’s some controlling policy language:

F. Additional Coverage Extensions

Water Damage, Other Liquids, Powder Or Molten Material Damage

If loss or damage caused by or resulting from covered water or other liquid, powder or molten material damage loss occurs, we will also pay the cost to tear out and replace any part of the building or structure to repair damage to the system or appliance from which the water or other substance escapes. This Coverage Extension does not increase the Limit of Insurance.

If the insured has an ISO HO-6, here’s some controlling policy language:

Coverage A – Dwelling

We cover:

  1. The alterations, appliances, fixtures and improvements which are part of the building contained within the “residence premises”;
  2. Items of real property which pertain exclusively to the “residence premises”;
  3. Property which is your insurance responsibility under a corporation or association of property owners agreement; or
  4. Structures owned solely by you, other than the “residence premises”, at the location of the “residence premises”.

Still looking at the HO-6, we have to find one more spot.

SECTION I – PERILS INSURED AGAINST

Accidental Discharge Or Overflow Of Water Or Steam

12. This peril means accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance. We also pay to tear out and replace any part of a building or other structure owned solely by you which is covered under Coverage A and at the “residence premises,” but only when necessary to repair the system or appliance from which the water or steam escaped. However, such tear out and replacement coverage only applies to other structures if the water or steam causes actual damage to a building owned solely by you at the location of the “residence premises.”

We see that this is probably a covered cause of loss for both the unit owner and the association. The question about the flooring and damage to the walls within the units is handled in both of these policies and here’s where coverage can be found. You will also have to look for any exclusions that might apply so don’t forget that.

If these are the policies that the association and unit owners have AND if the condo association bylaws require that the unit owner cover wall coverings (specifically the sheetrock, think about everything down to the wall studs) and flooring OR if the bylaws comply with the state condo statute AND the state requires that the unit owner cover these items, coverage can be found on the HO-6.

If the condo association bylaws and/or state statute requires the association to cover these items, coverage could be found on the CP 00 17.

If the unit owner did anything to change wall coverings or flooring, or they request a custom build out when buying the unit, coverage could be found on the HO-6.

So what’s the answer to the question? Of course you know that the answer is my favorite insurance word.

About Patrick Wraight

Patrick Wraight, CIC, CRM, AU, is director of Insurance Journal's Academy of Insurance. He can be reached at pwraight@ijacademy.com.

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