Avoiding the Improper Denial of Association Insurance Claims

One of the primary functions of a condominium’s governing documents is to establish the respective responsibilities of the association and the co-owners for maintaining, repairing and replacing all property located within the condominium project. Often times, these responsibilities will be assigned differently by the same set of governing documents, depending on whether the property suffers damage as a result of a “casualty” that is covered under the association’s insurance policy.

Many governing documents require the association to insure not only the limited and general common elements of the condominium, but the individual “units,” as well. For purposes of describing these insurance responsibilities, the term “unit” is often defined as including the original equipment, fixtures and trim that were offered as “standard features” by the developer, thereby making the association responsible for insuring these additional items, as well. 

Under most governing documents, however, the association’s insurance responsibilities are much broader than its repair responsibilities. In other words, even though the association is responsible for insuring such things as equipment, fixtures and trim against damage caused by a covered “casualty,” in all non-casualty situations, the co-owners will be responsible for the day-to-day maintenance and repair of these items.

When insurance responsibilities are assigned in this fashion, associations will obtain coverage under what is commonly referred to as a “single-entity” insurance policy. In simple terms, a single-entity policy will cover all of the property that the association is responsible for insuring, and it will designate both the association and the co-owners as the “insured” for purposes of interpreting any contractual rights and obligations described in the policy.

In this article, we will examine how single-entity insurance policies appear to impose obligations on the association that can only be performed by the co-owners, and how a co-owner’s failure to satisfy these obligations can sometimes call into question the right to coverage for damage to property that the association is responsible for maintaining on a day-to-day basis. In light of the significant damage that can be caused by a “casualty” event, the exclusions contained in single-entity insurance policies should be carefully scrutinized in light of the facts and circumstances of each incident to avoid a wrongful denial of the association’s claims.

When Co-owner Property is Insured by the Association

Single-entity policies often contain the same “standard” exclusions that are found in most other insurance policies; however, since single-entity policies provide coverage to two different “insureds,” something more is needed to address the differences between the association’s responsibility to insure these items, and the co-owners’ responsibility for the day-to-day maintenance of these items. Instead, by simply referring to both parties as the “insured,” single-entity policies appear to require both “insureds” to comply will all contractual obligations imposed by these “standard” exclusions – which, in many instances, is simply not possible.

While it is certainly appropriate for the association to fulfill its insurance responsibilities using a single-entity policy, and for a single-entity policy to treat the association and the co-owners as the “insured,” additional language is needed in the policy to describe how coverage is afforded or excluded in situations where, realistically, these “standard” exclusions only apply to the co-owners.

For example, in Michigan, it is not unusual for pipes to freeze and burst, causing damage to the common elements; however, nearly all single-entity policies excludecoverage in this situation unless, at the time of the incident, appropriate measures had been taken to “protect” the “covered property.” Most single-entity policies define these protective measures as (1) providing adequate heat to the covered property, and/or (2) “winterizing” the covered property by draining all equipment and shutting off the water supply. When this exclusion is contained in a single-entity policy, however, it begs the question: which “insured” is responsible for protecting which “covered property”?

In general, this exclusion is an appropriate way of stating that the policy will not cover this type of water damage if it is caused, in whole or in part, by the party receiving the benefits of coverage: the insured. Under most governing documents, however, the co-owners are ordinarily responsible for heating or winterizing their own individual units. In fact, in this situation, heating or winterizing the individual units is typically the only way to keep pipes from freezing and bursting.

Moreover, in most instances, the water loss incident, itself, is the association’s first notice that a co-owner did not properly heat or winterize an individual unit; but by then, it’s too late for the association to protect the common elements from the resulting water damage. In short, for all practical purposes, it is impossible for the association to protect the common elements from water damage caused by pipes that freeze and burst. Even so, the co-owner’s failure to comply with this policy exclusion may lead to the wrongful denial of the association’s claim for damage to common elements that are the association’s responsibility on a day-to-day basis.

While this failure on the part of the co-owner will likely lead to an appropriate denial of any claim for damage to property that is ordinarily the co-owner’s responsibility, this denial should not be “imputed” to the association’s claim for damage to the common elements. This approach is consistent with the intent of these types of exclusions; namely, to establish a duty on the part of the insured to protect the insured’s covered property, since the insured is primarily responsible for maintaining the property and is otherwise in the best position to protect it.

How Policy Exclusions do not Apply to the Association

In a condominium setting, this policy language is, at best, ambiguous, because it could be interpreted both for and against excluding coverage with respect to the association’s claim for damage to the common elements. As a general rule, to the extent a provision in an insurance policy can be reasonably interpreted both for and against affording coverage, the ambiguity will be interpreted in favor of coverage.

The more reasonable application is to take into consideration the extent to which the association has the ability to comply with these contractual obligations. This way, coverage will not be excluded because the association failed to properly heat or winterize a unit – a responsibility that lies exclusively with the co-owners. In other words, an association’s claim for damage to the common elements should not be denied if the association had no ability to control the circumstances under which the casualty arose.

This same analysis can be applied to other “standard” contractual obligations that are imposed by most single-entity policies. For instance, most insurance policies require the insured to (1) give “prompt notice” to the carrier of any loss or damage that could potentially result in a claim under the policy, (2) provide the carrier with the date, time and cause of the damage, and (3) take reasonable measures, up to and including the performance of necessary repairs, to protect the covered property from further damage. As was the case with the above water damage exclusion, however, there may be situations where the association lacks the ability to comply these types of contractual obligations.

If, for example, the problem can only be observed from inside the unit, the association may not know of a potential claim until the resulting damage is eventually seen from the outside. This delay in discovering the problem could prevent the association from (1) providing the carrier with “prompt notice” of a potential claim, (2) determining when or how the damage occurred, or (3) taking action to protect the common elements from being damaged.

In the case of damage to the common elements, whether the association has complied with these types of contractual obligations must be determined from the standpoint of the association, since it is quite possible that a co-owner will have the ability to discover a problem long before the association does. Here again, in terms of any damage to property that is the association’s responsibility on a day-to-day basis, the co-owner’s failure to comply with the contractual obligations created by a single-entity policy should not affect the association’s ability to pursue a claim for damage to the common elements.


Condominium associations are highly encouraged to submit insurance claims notwithstanding any concerns over whether there has been a failure to comply with any obligations that are imposed under a single-entity policy. Similarly, associations should carefully scrutinize the denial of any claim that purports to be based on any such failure. This is particularly true with respect to damage that is caused by the actions of a co-owner or some other third party – even if the co-owner or third party fits within the policy’s definition of an “insured.” Simply because these actions may violate any requirements imposed under the governing documents or by the association’s single-entity insurance policy, this does not mean that any resulting damage to the common elements will not be covered.