It’s not often that the law expects people to insure property they neither own nor control, but the 2010 amendments to the Common Interest Ownership Act (CIOA) do exactly that by requiring most associations to insure “betterments and improvements” installed by individual unit owners. This legislation continues to confound association boards, unit owners, and insurers trying to figure out who is responsible to pay for what kinds of losses.
Section 47-255 of CIOA now requires all associations, other than those where each unit is a free-standing building, to obtain property insurance which covers “all improvements and betterments installed by unit owners.” This means anything that is permanently attached such that the unit owners wouldn’t be expected to remove them when they move out. Carpeting, granite countertops, wallpaper, finished basements, replacement mechanicals, and built-in shelving installed at any time after the original sale from the developer to the unit’s first owner would be examples. Furniture and personal effects would not be included, and unit owners should insure those types of items themselves.
The association’s insurance on betterments and improvements has come to be known as “all-in coverage.” It effectively socializes losses caused by damage to unit upgrades, such that everyone in the community must share the cost to repair even those fixtures installed by their neighbors (or their neighbor’s predecessors) which they knew nothing about and derived no benefit from. That’s right: if your dinner guest spills wine on your new carpet, the association’s insurance might have to respond.
CIOA does give associations the power to “opt out” of “all-in coverage,” providing the board the right to purchase property insurance which excludes unit betterments and improvements. But the process is cumbersome. First, the association must either amend the declaration or hold a board vote to “opt out,” both of which require a meeting of the unit owners. Then, unless the association has twelve or fewer units, the board must create a detailed list of all of the original fixtures, improvements, and betterments in the units, including any standard wall, floor, and ceiling coverings covered by the association’s policy. Finally, to enable the unit owners to coordinate their personal insurance coverage with the coverage afforded by the association’s insurance policy, the board must distribute this list to every unit owner at least annually and also include it with every resale certificate provided to incoming owners.
Not only is the “opt out” process a burden, but the list of standard fixtures can be very difficult to compile. Since “all in coverage” is not much more expensive than insurance policies which exclude betterments and improvements, most associations have chosen to simply live with CIOA’s expanded insurance obligations. The result is that all of the unit owners must pay a bit more to insure each other’s unit upgrades.
This article appears in the Connecticut Chapter of the Community Association Institute's publication and is a monthly feature. For more information on the CIAC please click here.