Presented by: Christopher F. Hawthorne, CPCU, CIC

When a property loss such as a fire or a water leak or a general liability loss such as a slip and fall occurs in a commercial condominium unit, the loss can trigger multiple policies into action. This is due to the multiple ownership interests and the legal structure of the association. After a loss, a unit owner may be caught off guard by what is and is not covered.

To properly insure a Unit Owner for both property and liability exposures, the Unit Owner will need to coordinate their Unit Owner’s coverage with that of the association, and possibly a tenant of the Unit Owner, if the unit is rented to others.

This often is overlooked and can lead to unexpected financial loss and frustration for the Unit Owner. To begin the process to avoid the unneeded loss and frustration, it is important to establish each entity should have its own insurance.

Association: The association’s master policy covers the common areas of the association as well as other property as allocated by the by-laws and the association’s liability.

Unit Owner: The Unit Owner’s policy covers the portion of the unit as allocated by the by-laws as well as the Unit Owner’s liability.

Tenant: The Tenant’s policy covers the tenant’s property and liability arising from the tenant’s actions. In addition to the tenant’s property and liability, a lease may require the tenant to insure for Tenant Improvements and Betterments and the Unit Owner’s liability per a hold harmless and indemnification clause.

Unit Owner Property Interests

The process of insuring a Unit Owner’s Property interest begins with an examination of the association’s by-laws. The association’s by-laws state what property the association’s master policy will cover and for what property the Unit Owner is responsible. After a loss, insurance carriers will look to the by-laws to see who is responsible for replacing what. Condominium property losses differ from other property loss in that the carrier looks to who is responsible for rebuilding as opposed to who is responsible for the loss. Each association has its own set of by-laws and the insurance clauses vary greatly. The following are examples insurance clauses from three different condominium association’s by-laws:

Example One: The master policy of insurance is to cover “the buildings and all units, but excluding all Unit Owners’ personal property.”

Example Two: The master policy of insurance is to cover “Casualty or physical damage insurance on the buildings and all improvements and betterments forming part of the condominium (including all of the units but not including furniture, furnishings, fixtures and other personal property of the unit owners therein)”

Example Three: The master policy of insurance is to cover “The buildings forming part of the Common Areas and Facilities, including all service machinery, apparatus, equipment, and installations in the Common Areas and Facilities, and including also all such portions and elements of the Units for which Unit Owners are responsible, but not including furniture, furnishings, fixtures, improvement and betterments or other personal property of the Unit Owners

All three examples state the master will cover the common area but then begin to differ on other important aspects of the property coverage such as improvements made after the condo is created or if the master policy is to cover fixtures (EX: lighting, paint, floor covering, non-load bearing walls, bath and kitchen items)

The three examples above eliminate different coverages for the unit owner. Examples 1, 2 & 3 eliminates coverage for the unit owner’s business personal property. Examples 2 & 3 also eliminate coverage for fixtures. Example 3 also eliminates coverage for improvements and betterments. Therefore, to insure a unit under the three different by-laws would require three different amounts of insurance for the Unit Owner.

Once the amount of property insurance required by the by-laws has been determined, it is time to consider the master policy deductibles. While the master policy covers property, the coverage does not begin until the Master Policy deductible/s have been exceeded.

Many master policies will have multiple deductibles that are based on the type of loss experienced such as “All Loss Other than Earthquake & Flood,” “Wind,” and “Ice Dams.” To the degree the damage is within the unit of the owner, the Unit Owner will be responsible for the deductible. An example being a fire that damages two units and the deductible is $10,000 per loss, each unit owner would be responsible for $5,000 before the master policy kicks in.

Unit Owner Liability Protection

The master policy of insurance will provide General Liability (Bodily Injury & Property Damage to Others) for the commercial condominium association but it does not cover the protection needs of the Unit Owners. Coverage must be procured by each Unit Owner.

If the unit is rented to others, Unit Owner’s should consider having a lease that requires the tenant to purchase General Liability insurance and name the Unit Owner as an Additional Insured on the tenant’s policy. Both an attorney and the insurance agent should be involved to review the lease for other important aspects such as hold harmless and indemnification clauses to protect the Unit Owner.

Unit Owner Coverage

To obtain insurance coverage for the above, the Unit Owner should purchase a Unit Owners policy also known as a Package Policy or a Business Owners Policy (BOP). The policy provides the following basic coverages.

Building– Coverage for the Unit Owner’s responsibility for the master policy deductible/s as well as other items not provided by the by-laws such as fixtures or improvements and betterments.

Other Structures– Coverage for other structures such as a detached garage. Other Structures is not normally included and must be requested.

Business Personal Property– The by-laws never direct the master policy to cover the Unit Owner’s business personal property. Each Unit Owner must decide what it would take to replace their business personal property.

Loss of Use/Rents/Extra Expense– Coverage to pay for loss of use of the unit or rents while the unit is being repaired or rebuilt. This coverage receives very little attention but is important. Consider the cost of renting similar space or loss of rents for 6 to 18 months while the building is being rebuilt. (Of note, if the unit is rented to others, a lease is helpful in proving the loss of rental income to a carrier.)

Liability– Coverage provides the Unit Owner liability coverage for bodily injury and property damage to others subject to certain exclusions such as auto use, workers compensation, etc.

Medical Payments-Coverage will provide a small amount of money, usually $5,000 to $10,000, to pay for medical costs due to bodily injury sustained by a guest on the property. It allows the injured guest to be compensated for medical expenses and avoid filing suit against the Unit Owner to recover the medical costs sustained due to the injury.

When a Unit Owner is using the unit for their own business operations and a Package policy is already in place, it is important to remember make sure the legal name of the unit ownership is added to the Package policy and that rents paid to that name are recognized and insured.

Along with the coverages above, policies can provide many other coverages (by request) in addition to those listed above such as Loss Assessment demands from the association.


When insuring a unit, the following should be coordinated between the Unit Owner, the insurance agent and an attorney, if there is a tenant:

  1. Review the by-laws to understand what the Unit Owner is responsible for covering.
  2. Review the master policy of insurance to know what the deductible/s are.
  3. Record when the master policy renews as the deductibles can change from year to year. This will allow the Unit Owner’s policy to stay in sync with the master policy.
  4. Review the Unit Owner’s Building, Personal Property, Loss of Use & Liability protection needs.
  5. Review what perils from which the Unit Owner wishes to be protected such as fire, theft, earthquake, flood, loss assessment, etc.
  6. Consult with an attorney if there is a tenant to make sure the lease provides proper protection to the Unit Owner.
  7. Review the coverage program periodically to be sure the coverage and policy terms are adequate.

A commercial condominium Unit Owner will be well served by taking the time to understand the by-laws, the master policy deductibles and coordinate their property and liability coverage needs accordingly and to use a lease when appropriate.

By taking the time to investigate, understand and structure the Unit Owner’s insurance and legal needs, unexpected financial loss and frustration can be greatly reduced or even eliminated after a loss.