The requirements for owners and tenants residing within a condominium association to purchase and maintain insurance for their respective units depends primarily on the scope of insurance which the association is required to carry. If there are gaps in coverage (i.e., if the association has a “bare-walls” policy), the association’s CC&Rs typically contain provisions requiring owners to purchase and maintain insurance necessary to fill the gap.
Both the Civil Code and the association’s CC&Rs require the association to purchase and maintain insurance on the common areas/elements existing throughout the project. Some sets of CC&Rs require the association to purchase and maintain what is commonly known as “Walls-In” insurance coverage that not only covers the common areas/elements that bound the separate interests (the units), but also covers any damage or loss to the improvements existing within the units. This type of broad coverage is more expensive for the association as compared to “bare-walls” coverage, and thus results in a higher level of regular assessments.
“Bare-Walls” coverage is a less expensive form of insurance coverage because it does not cover any damage or loss sustained to the improvements and property located within the interior of an owner’s unit. In situations where an association is only required to purchase a Bare-Walls policy, the association’s CC&Rs almost always contain a provision requiring each owner to purchase and maintain insurance covering the improvements and property located within the interior of the owner’s unit. This separate coverage that an owner would purchase would extend to everything existing within the airspace of the unit (i.e., cabinets, flooring finishes, appliances, etc. existing within the block of space bounded by the unit’s perimeter walls, floors and ceilings).
Owner Insurance: HO-6 Policy
The insurance policy that an owner purchases is known as a HO-6 policy (aka “Condominium Unit Owner Policy” or “Homeowners 6 Policy”). It covers all of the personal property and improvements located within the interior of the owner’s unit, personal injury or property damage sustained inside of an owner’s unit, any expenses (i.e., hotel expenses) relating to an owner’s loss of use of his/her unit while repairs are being performed, and loss assessment coverage.
Tenant Insurance: HO-4 Policy
Some CC&Rs require tenants residing within the association’s development to purchase and maintain a HO-4 policy that protects the tenant’s personal property against loss and limits the tenant’s exposure to personal liability.