Hurricanes Highlight Insurance Problems for Apartments and Townhouses

This year’s devastating hurricanes spotlight a major insurance issue for local apartment, condo and townhouse owners. Unless the properties share a single insurance policy, there may be problems with claims.

Townhouses share walls and sometimes roofs. Apartments and condominiums may also share floors and ceilings. If adjoining properties have different policies, the insurers share the cost of repairing the common property after a loss. However, if the damaged unit is not properly insured or repaired, if may affect the repair – and value – of other units.

Some of the problems that can occur include:

  • A unit has no insurance and the owner does not have the funds for repairs.
  • A unit is insured for less than the replacement value and the owner does not have the additional funds for repair
  • There is no requirement that an owner uses the insurance claim money to repair the unit.
  • An owner is delinquent in mortgage payments and the mortgagee decides to keep the insurance payment.
  • The repairs undertaken to a unit are not to the required standard.
  • Common areas, perimeter walls, pools are not insured and owners cannot pay for repairs.
  • If units are insured for different perils and an adjoining unit is not covered for the peril causing the damage, your unit may only receive a proportion of the cost of repairs to the shared property.

Banks that included insurance premiums as part of the mortgage loans have presented challenges for management committees trying to institute a “blanket” insurance policy covering all units. One local bank recently identified the problem and now requires new mortgages to be covered under a blanket insurance policy, with periodic reviews of sums insured and claim payments applied to the building repair. But many owners of strata properties (properties that adjoin each other) will only fully realise the complications of having individual policies at the time of a loss.

The Condominiums Act of 1981 which partially addressed these issues, was never proclaimed and needs substantial revision. Following their own catastrophes, territories from Australia/New Zealand to Cayman Islands reviewed the legislation governing strata properties. The Cayman Law Reform Commission completed a comprehensive review of strata legislation late last year.  Our legislators and financial institutions would be well advised to follow their lead.