Can You Insure a Condo Association with an HO-3?

An agent has a risk that consists of two single-family dwellings, located side by side. A parent owns one dwelling and their adult child owns the other. The owners formed a condominium association that consists of just these two single-family dwellings.

Because the properties are located on the coast, the only coverage solution the agent can find is the surplus lines market. On the other hand, the agent has a couple of standard carriers that write coastline HO-3 policies.

Q: I’m tempted to write an HO-3 for each of these two single-family dwellings in each unit owner’s name, then add the condo association as an additional insured. Yes, the bylaws require a master condo policy, but that strikes me as irrelevant to the HO-3. Directors & officers coverage is not of great concern since the association has only two owners. What are your thoughts on this approach?

A: My first question: Why in the world would these people form a condo association for two homes? Does this type of ownership or structure even qualify as a condo association under state laws? Where is the common ownership? Are the homes owned on a fee simple basis? Who suggested they do this and what attorney drew up the condo papers?

I’m not an attorney, but it sounds like the best thing to do is dissolve the condo association and just insure each home on an HO-3. Otherwise, it appears that the owners are bound by the condo documents to obtain a master policy. You can’t ignore the bylaws and perhaps state law just because you have a better market for one approach than another. This is truly a “square peg in a round hole” approach.

Check out “Homeowners’ Associations,” a Big “I” Virtual University (VU) article by condo expert David Thompson, for additional information about some of these issues. This seems to be one of those bizarre situations where a non-insurance problem is being addressed with an insurance solution.

Bill Wilson is former director of the VU.

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