I think Insurance is the center of the universe, but apparently most of the world does not agree with me.  I’m constantly amazed at the ever-changing ways attorneys and tax accountants come up with to title property or transfer risk via a contract.  They either don’t consider the ramifications to the insurance program, or think we can just change our contract to match their latest gimmick.  As you well know, it’s often not that simple.

One of these fads is for a homeowners’ association to agree to provide the outside building coverage for all its members and to tell each homeowner to buy an HO6 for their inside improvements and contents.  Of course they’re not really a condo, and if you check either the property appraiser website or county clerk’s website for the ownership of each home you’ll find it to be Mr. & Mrs. Jones and not the homeowners’ association.

Remember Insurance 101 – that little thing called insurable interest?  Can I buy a homeowners policy (with myself as the named insured) that covers my neighbor’s house?  No, because if the house is damaged, I could collect on the claim even though I didn’t lose anything.   This doesn’t make sense to the insurance world, because we expect you to have some skin in the game.  We want you to have an incentive to maintain the home, and not want to be inconvenienced or suffer a financial loss if the home is damaged.

So, now we have a condo association policy with a named insured that doesn’t own the buildings. What happens at the time of loss?  Does the agreement give the association insurable interest?  It’s debatable. Is the association out anything because this property was damaged?  Not really.  The company could deny the claim and off we go to court to figure it out.  How long does that take?  Meanwhile, what does the homeowner with the HO6 do after he collects the measly Coverage A he purchased and runs out of Additional Living Expense?  What about the homeowner’s mortgagee?  It’s not going to be pretty.

I suppose someone had wonderful reasons for dreaming up this scenario, but it doesn’t work in the world of insurance.  What do you, the agent, do?  Make sure the condo is legally organized as a condo, and run screaming from any other scenario.

Kathleen Davis, CPCU, CIC, ARM, API

About Kathleen Davis, CPCU, CIC, ARM, API

VP, Customer Relations
Tower Hill Insurance Group

Kat is a 1st Degree Insurance Nerd who started her career at Rollins Burdick Hunter (now AON) in Chicago, 1980. Kat spent 19 years in the brokerage/agency business in Chicago, Los Angeles, and Ft. Myers, FL. She was an Account Manager for most of this time handling retail and service businesses, and specializing in construction sub-contractors. Along the way she picked up her ARM, CPCU, API, and CIC designations (they were just lying around). Kat was hired by Tower Hill Insurance Group in 1999 to start their Training Department where she wrote and presented employee training and agency CE classes. In 2006 Kat moved to Underwriting to finally use her CPCU and picked up all kinds of great stories. She says: “Insurance is a laugh a minute, and I can’t understand why some people don’t see it.” In 2013, Kat was reassigned to Administration to assist Tower Hill’s Customer Service Department.