Insuring Townhouse with HO-6 with Redundant Master Policy

[town27]

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!

 

[VolAgent]

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.

 

[adjusterjack]

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

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

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.

Then you need another broker.

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:

However, the association has a master policy of insurance that makes it sound like a condo (master policy covers "walls in excluding betterments").

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?

 

[VolAgent]

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

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.

 

[adjusterjack]

Although I stand by my ultimate answer. The loan isn't getting funded until the lender is happy.

That, I would whole heartedly agree with.

 

[FL P&C Broker]

What if it is a condo that looks like a town house? There is probably 100k of them in Florida.

 

[adjusterjack]

What if it is a condo that looks like a town house? There is probably 100k of them in Florida.

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.

----------

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.

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.

 

[town27]

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?

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

The master policy reads:

"Special form (wind included), 100% replacement cost basis on an agreed amount, no co-insurance. 50 units. Policy is walls in excluding betterments and improvements. Other Deductibles: ...
Building ordinance coverage A is included up to the policy limits. Coverage B ...
Equipment breakdown (boiler machinery) coverage included"

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:

"Each wall which is built as a part of the
original construction of the residences in the Development and placed on the dividing line
between the Lots shall constitute a party wall. To the extent not inconsistent with the provisions
of the Section, the general rules of law regarding party walls and liability for properfy damage
due to negligence or willful acts or omissions shall apply thereto. Notwithstanding any other
provision of the Section, an Owner who by his negligent or willful act causes the party wall to be
exposed to the element shall bear the whole cost of furnishing the necessary protection against
such elements. The right of any Owner to contribution from any othor Owner under this Section
shall be appurtenant to the land and shall pass to such Owner's successors in title."

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:

[3.10] Insurance.
(a) The Association shall obtain and maintain the following insurance policies
if and to the extent such insurance, with the coverages described below, is available at a
reasonable prernium cost:
(Ð Fi¡e and Casualty Insurance. The Association shall obtain and
maintain a master or blanket policy of fire and casualty insurance, for the full insurable value of
all the Improvements within the Development and on any Common Facilities. The insurance
shall be kept in full force and effect at all times and the full replacement value of the insured
property shall be redetermined on an an¡ual basis.
Depending on the nature of the insured property and the requirements, if any, imposed by
institutional Mortgagees having an interest in such property, the policies maintained by the
Association pursuant to this section shall contain an agreed amount endo¡sement or its
equivalent, an increased cost of construction endorsement or a contingent liability from operation
of building laws endorsement or the equivalent, an extended coverage endorsement, vandalism,
malicious mischief coverage, a special form endorsement and a clause to permit cash settlements
for full insurable value in case of partial destruction. The policies required hereunder shall
provide amounts of coverage as shall be determined by the Board and shall name as insured the
Association, all Owners and all Mortgagees as their respective interests may appear. The policies
may contain a loss payable endorsement in favor of the trustee described in Section 3.10.d.
below.
(iÐ Public Liability and Property Damage Insurance. To the extent such
insurance is reasonably obtainable, the Association shall obtain and maintain a policy of
comprehensive public liability and property damage insurance naming as parties insu¡ed the
Association, each member of the Association Board of Directors, any manager, the Owners and
occupants of Lots, and such other persons as the Board may determine. The policy will insure
each named party against any liability incident to the ownership and use of the Common Area
and any other real or personal property owned or maintained by the Association and include, if
obtainable, a cross-liability or severability of interest endorsement insuring each insured against
liability to each other insured. The limits of such insurance shall not be less than $3,000,000
covering all claims fo¡ death, personal injury and property damage arising out of a single
occuÍence. Such insurance shall include coverage against water damage liability, liability for
non-owned and hired automobiles, liability for property of othe¡s and any other liability or risk
customarily covered with respect to developments similar in construction, location and use.
(iii) Directors and Officers' Liability Insurance. To the extent it is
available, the Association Shall maintain a policy of insurance in the minimum amount of One
l3
OF THE BIRCH GREEN PARK TOWNHOUSES ASSOCIATION
Million Dollars ($1,000,000) on any director, officer or member of a committee of the
Association (collectively "Agents") against any liability asserted against or incurred against the
agent in such capacity or arising out of the Agent's status as such regardless of whether the
Association would have the power to indemnify the Agent against such liability under applicable
law: said insurance shall contain prior acts coverage.
(iv) Additional Insurance and Bonds. To the extent such insurance is
reasonably obtainable, the Association may also purchase with Common Funds such additional
insurance and bonds as it may, from time to time, determine to be necessary or desirable,
including, without limiting the generality of this section, demolition insurance, flood insurance,
and workers' compensation insurance. The Board shall also purchase and maintain fidelity
bonds or insurance in an amount not less than one hundred percent (100Vo) of each year's
estimated annual operating expenses and reserves and such bonds shall contain an endorsement
covering any peßon who may serve without compensation. The Board shall purchase and
maintain such insurance on personal property owned by the Association and any other insurance
that it deems necessary or desirable.
(b) Coverage Not Available. In the event any insurance policy, or any
endorsement thereof, required by this Section 3.10 is for any reason not available, then the
Association shall obtain such other or substitute policy or endorsement as may be available
which provides, as nearly as possible, the coverage described above. The Board shall notify the
Owners of any material adverse changes in the Associationb insurance coverage.
(c) Copies of Policies. Copies of all insurance policies (or certificates thereof
showing the premiums thereon have been paid) shall be retained by the Association and shall be
available for inspection by Owners at any reasonable time.
(d) Trustee. AII insurance proceeds payable under this Section 3.10 may, in the
discretion of the Board of Directors, be paid to a trustee to be held and expended for the benefit
of the Owners, Mortgagees and others, as their respective interests shall appear. Said tmstee shall
be a commercial bank or other institution with trust powers within the County that agrees in
writing to accept such trust. If repair or reconstruction is authorized pusuant to Article VII
below, the Association and any duly appointed trustee shall have the duty to contract for such
work as provided in Article VII.
(e) Adjustment of Losses. The Board is appointed attorney-in-fact by each
Owner to negotiate and agree on the value and extent of any loss under any policy canied
pursuant to this Section 3.10: The Boa¡d is granted fuIl right and authority to compromise and
settle any claims or enforce any claim by legal action or otherwise and to execute releases in
favor of any insured.
(Ð Distribution to Mortgagees. Subject to the provisions of Article VII, any
Mortgagee has the option to apply insurance proceeds payable on account of a Lot in reduction
of the obligation secured by the Mortgage of such Mortgagee.

 

[town27]

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?

Thanks for the reply AdjusterJack and VolAgent, very helpful.

The master policy reads:

"Special form (wind included), 100% replacement cost basis on an agreed amount, no co-insurance. 50 units. Policy is walls in excluding betterments and improvements. Other Deductibles: ...
Building ordinance coverage A is included up to the policy limits. Coverage B ...
Equipment breakdown (boiler machinery) coverage included"

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:

"Each wall which is built as a part of the
original construction of the residences in the Development and placed on the dividing line
between the Lots shall constitute a party wall. To the extent not inconsistent with the provisions
of the Section, the general rules of law regarding party walls and liability for properfy damage
due to negligence or willful acts or omissions shall apply thereto. Notwithstanding any other
provision of the Section, an Owner who by his negligent or willful act causes the party wall to be
exposed to the element shall bear the whole cost of furnishing the necessary protection against
such elements. The right of any Owner to contribution from any othor Owner under this Section
shall be appurtenant to the land and shall pass to such Owner's successors in title."

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:

[3.10] Insurance.
(a) The Association shall obtain and maintain the following insurance policies
if and to the extent such insurance, with the coverages described below, is available at a
reasonable prernium cost:
(Ð Fi¡e and Casualty Insurance. The Association shall obtain and
maintain a master or blanket policy of fire and casualty insurance, for the full insurable value of
all the Improvements within the Development and on any Common Facilities. The insurance
shall be kept in full force and effect at all times and the full replacement value of the insured
property shall be redetermined on an an¡ual basis.
Depending on the nature of the insured property and the requirements, if any, imposed by
institutional Mortgagees having an interest in such property, the policies maintained by the
Association pursuant to this section shall contain an agreed amount endo¡sement or its
equivalent, an increased cost of construction endorsement or a contingent liability from operation
of building laws endorsement or the equivalent, an extended coverage endorsement, vandalism,
malicious mischief coverage, a special form endorsement and a clause to permit cash settlements
for full insurable value in case of partial destruction. The policies required hereunder shall
provide amounts of coverage as shall be determined by the Board and shall name as insured the
Association, all Owners and all Mortgagees as their respective interests may appear. The policies
may contain a loss payable endorsement in favor of the trustee described in Section 3.10.d.
below.
(iÐ Public Liability and Property Damage Insurance. To the extent such
insurance is reasonably obtainable, the Association shall obtain and maintain a policy of
comprehensive public liability and property damage insurance naming as parties insu¡ed the
Association, each member of the Association Board of Directors, any manager, the Owners and
occupants of Lots, and such other persons as the Board may determine. The policy will insure
each named party against any liability incident to the ownership and use of the Common Area
and any other real or personal property owned or maintained by the Association and include, if
obtainable, a cross-liability or severability of interest endorsement insuring each insured against
liability to each other insured. The limits of such insurance shall not be less than $3,000,000
covering all claims fo¡ death, personal injury and property damage arising out of a single
occuÍence. Such insurance shall include coverage against water damage liability, liability for
non-owned and hired automobiles, liability for property of othe¡s and any other liability or risk
customarily covered with respect to developments similar in construction, location and use.
(iii) Directors and Officers' Liability Insurance. To the extent it is
available, the Association Shall maintain a policy of insurance in the minimum amount of One
l3
OF THE BIRCH GREEN PARK TOWNHOUSES ASSOCIATION
Million Dollars ($1,000,000) on any director, officer or member of a committee of the
Association (collectively "Agents") against any liability asserted against or incurred against the
agent in such capacity or arising out of the Agent's status as such regardless of whether the
Association would have the power to indemnify the Agent against such liability under applicable
law: said insurance shall contain prior acts coverage.
(iv) Additional Insurance and Bonds. To the extent such insurance is
reasonably obtainable, the Association may also purchase with Common Funds such additional
insurance and bonds as it may, from time to time, determine to be necessary or desirable,
including, without limiting the generality of this section, demolition insurance, flood insurance,
and workers' compensation insurance. The Board shall also purchase and maintain fidelity
bonds or insurance in an amount not less than one hundred percent (100Vo) of each year's
estimated annual operating expenses and reserves and such bonds shall contain an endorsement
covering any peßon who may serve without compensation. The Board shall purchase and
maintain such insurance on personal property owned by the Association and any other insurance
that it deems necessary or desirable.
(b) Coverage Not Available. In the event any insurance policy, or any
endorsement thereof, required by this Section 3.10 is for any reason not available, then the
Association shall obtain such other or substitute policy or endorsement as may be available
which provides, as nearly as possible, the coverage described above. The Board shall notify the
Owners of any material adverse changes in the Associationb insurance coverage.
(c) Copies of Policies. Copies of all insurance policies (or certificates thereof
showing the premiums thereon have been paid) shall be retained by the Association and shall be
available for inspection by Owners at any reasonable time.
(d) Trustee. AII insurance proceeds payable under this Section 3.10 may, in the
discretion of the Board of Directors, be paid to a trustee to be held and expended for the benefit
of the Owners, Mortgagees and others, as their respective interests shall appear. Said tmstee shall
be a commercial bank or other institution with trust powers within the County that agrees in
writing to accept such trust. If repair or reconstruction is authorized pusuant to Article VII
below, the Association and any duly appointed trustee shall have the duty to contract for such
work as provided in Article VII.
(e) Adjustment of Losses. The Board is appointed attorney-in-fact by each
Owner to negotiate and agree on the value and extent of any loss under any policy canied
pursuant to this Section 3.10: The Boa¡d is granted fuIl right and authority to compromise and
settle any claims or enforce any claim by legal action or otherwise and to execute releases in
favor of any insured.
(Ð Distribution to Mortgagees. Subject to the provisions of Article VII, any
Mortgagee has the option to apply insurance proceeds payable on account of a Lot in reduction
of the obligation secured by the Mortgage of such Mortgagee.

 

[adjusterjack]

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.