Running a condo association is very complex, especially when it comes to insurance. Generally, the relevant Massachusetts statutes and your Association’s governing documents outline what insurance coverage you require. Property, liability, fidelity, and directors and officers insurance are often standard coverage choices.
However, there can be a huge gap between the minimum coverages mentioned in your governing documents and what you should have to protect your Association and your members.
Additionally, it can be difficult to interpret Massachusetts law – especially when it changes. This can definitely change your Association’s insurance needs.
Is Flood Insurance Necessary?
The Association is “obligated by the Declaration and the Condominium Act to maintain insurance against all risks of direct physical loss which are commonly insured against, to the extent that such insurance is reasonably available… and flood is a risk of direct physical loss which is commonly insured against.”
If your condo association is in a FEMA-designated flood zone, the answer is “yes” – you need flood insurance.
What If We’re Not In A Flood Zone?
Floods don’t just occur in flood zones. FEMA reports “20 percent of all NFIP claims and one-third of federal disaster assistance” results from flooding outside of high-risk zones. As well, flood risk can and often does change over time.
In 2018, flash floods caused by powerful storms cause substantial damage in Massachusetts. No one can totally predict flooding, but you can minimize risk.
What If Residents Need Flood Insurance For Their Lender?
A condo association may be reluctant to buy flood insurance, because they consider it the homeowner’s responsibility and aren’t willing to take on the added expense.
However, homeowners can no longer buy individual flood policies if their building is in a FEMA flood zone. Under FEMA guidelines, the Association is the correct party for acquiring flood insurance, not individual unit owners.
Additionally, unit owners can’t refinance or obtain a line of credit unless the Association has a master flood policy. Homeowner’s applying for FHA, Fannie Mae or Freddie Mac financing need at least 80% flood coverage through their Association.
What Does This Mean For The Condo Association?
Homeowners living in a flood zone can’t self-insure, so the onus rests on the Association. Additionally, banks will not loan money to an Association in a flood zone unless they have flood insurance. This means they can’t borrow for an emergency fund or for any future maintenance projects unless they insure.
Even though the Association can buy flood insurance without member approval, a Special Meeting can smooth the way. Homeowners need to understand the implications and the costs involved.
No one-size fits-all insurance solution exists, so it is important to review current rulings pertaining to statutes, your governing documents, and your insurance coverage.
Consult with your attorney and insurance professional so you understand the risks and can protect your Association well. Without flood insurance, your Association could find itself in very deep water whether you’re in a flood zone, or not.