Insuring Townhouse with HO-6 with Redundant Master Policy

Discussion in 'P&C Insurance Forum' started by town27, Aug 3, 2017.

  1. town27
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    town27 New Member

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    Hi,

    I'm getting mixed messages from my insurance broker and lender, and I don't know who to trust so I'm looking for some expert advise.

    I am trying to insure a property which by the looks of it is a townhouse (attached to neighbors, shares structure with neighboring units, garage per unit etc). The title claims single family residence & it's a PUD. However, the association has a master policy of insurance that makes it sound like a condo (master policy covers "walls in excluding betterments").

    Now, my lender requires the insurance to be HO-3 to match the "property type" (SFR, townhouse), whereas my insurance broker claims HO-6 is sufficient. My insurance broker goes so far to say that an HO-3 policy is likely invalid and won't pass underwriting.

    As far as I understand, HO-6 together with the master policy will cover all aspects of the unit, so I'm not sure what the conflict is about. Has anyone dealt with something similar before?

    Appreciate any advice!
     
  2. VolAgent
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    VolAgent Well-Known Member

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    If lenders knew insurance then they'd be insurance agents and not lenders...

    Based solely upon what you have written, I would say your agent is correct. However, until the lender is happy, the loan isn't getting funded. I suggest you have your agent contact the lender and explain the insurance situation to them.
     
  3. adjusterjack
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    adjusterjack Well-Known Member

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    And if insurance agents knew insurance they'd be claims adjusters. :D No offense, I just had to get that out because in the case of a townhouse (rowhouse) the broker is wrong.

    Then you need another broker. :yes:

    An HO-3 (or HO-5) is correct for a townhouse. But let's get our definitions clear.

    Townhouses are individual dwelling structures, connected by a shared wall, where the homeowner owns the entire structure, including his half of the shared wall.

    With a condo the homeowner basically owns the air space within the structure (which includes fixtures, appliances, built-ins and, in some cases drywall and paint) but does not own the structure itself.

    A condo policy (HO-6) describes Coverage A - Buildings as "items of real property which pertain directly to your unit and are your insurance responsibility under the governing rules of the condominium."

    That means you are covered for whatever your CC&Rs define as "unit" which does not include the structure of the building itself.

    A homeowners policy (HO-3, HO-5) has a broader definition. Coverage A - Dwelling - "The dwelling on the "residence premises" shown in the Declarations, including structures attached to the dwelling" and Coverage B - Other Structures - "on the "residence premises" set apart from the dwelling by clear space."

    To be clear, with a townhouse you own the building structure, you need an HO-3 or HO-5.

    With a condo, you don't own the building structure, you need an HO-6.

    Never mind what the master policy covers because that's only going to cover what the association owns, not what you own.

    That being said, I am bothered by the following:

    Question for Town27: That phrase is certainly taken out of context so do you have a copy of the complete master policy and a copy of the CC&Rs or are you just relying on what somebody told you?
     
  4. VolAgent
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    VolAgent Well-Known Member

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    That is fair. :) So much stuff gets reported on here with missing information I tend to key off certain things, like a condo master policy. So quite possible I am wrong.

    Although I stand by my ultimate answer. The loan isn't getting funded until the lender is happy.
     
  5. adjusterjack
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    adjusterjack Well-Known Member

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    That, I would whole heartedly agree with.
     
  6. FL P&C Broker
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    FL P&C Broker Well-Known Member

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    What if it is a condo that looks like a town house? There is probably 100k of them in Florida.
     
  7. adjusterjack
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    adjusterjack Well-Known Member

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    If it's a condo that looks like a townhouse, an HO-6 would be the right policy.

    Depends on how these properties are being sold and bought and it occurs to me that the buyer ought to know what he or she is buying.

    ----------

    Town27, give me the street address, city, and state of the property and I'll find out real quick if it's a condo or townhouse.

    If you don't want to reveal that publicly, send me a PM.
     
  8. town27
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    town27 New Member

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    AdjusterJack & VolAgent, thanks for your replies, very helpful. I'm still scratching my head a bit though.

    The master policy reads:
    A = Policy
    B = Liability

    The CC&R's do not mention "units", but instead just talk about "lots".

    But from a few different areas, the repair & maintenance of "party walls" fall to the owner. Roofs and underlayment is the association. Exterior walls except for siding is owner.

    I have easements of these "party walls" (shared walls over lot line) for any necessary repairs.

    One quote from the CC&Rs:
    That's the most they say about it. I think the "lot" language is clear enough though - I own everything within the area of the lot.

    There's also this insurance snippet from the CC&R's which make me none the wiser:
     
  9. town27
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    town27 New Member

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    Thanks for the reply AdjusterJack and VolAgent, very helpful.

    The master policy reads:
    A = Policy
    B = Liability

    The CC&R's do not mention "units", but instead just talk about "lots".

    But from a few different areas, the repair & maintenance of "party walls" fall to the owner. Roofs and underlayment is the association. Exterior walls except for siding is owner.

    I have easements of these "party walls" (shared walls over lot line) for any necessary repairs.

    One quote from the CC&Rs:
    That's the most they say about it. I think the "lot" language is clear enough though - I own everything within the area of the lot.

    There's also this insurance snippet from the CC&R's which make me none the wiser:
     
  10. adjusterjack
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    adjusterjack Well-Known Member

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    Additional information has come to light that convinces me that the townhouse structure is being insured on the master policy and an HO-6 is what the owner needs after all.
     
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