The question arrives at the worst possible time. A supply line fails on the third floor, water goes through two units below, and three owners want to know whose insurance pays. The answer depends on documents nobody has read since closing.
Here is the structure, and what boards should tell owners well before there is water on the floor.
General information, not insurance or legal advice. Your declaration and your specific policies control. Review the details with your association’s insurance professional and attorney.
Two policies, one building
In a condominium, two policies operate together. The association’s master policy covers common elements and, depending on the declaration, some portion of the units themselves. The owner’s HO-6 covers what the master policy does not — typically interior finishes, personal property, loss of use, and personal liability.
The boundary between them is set by your governing documents, which is why generic answers are unreliable.
The three common allocations
Bare walls. The association covers the structure to the unfinished surfaces — studs, subfloor, unfinished ceiling. Everything inward is the owner’s: drywall, paint, flooring, cabinets, fixtures, appliances. Owners need the most HO-6 coverage under this arrangement.
Single entity (or original specifications). The association covers the unit as originally built, including standard finishes, but not owner upgrades. If the developer installed vinyl and the owner put in hardwood, the association’s policy addresses the vinyl and the owner’s covers the difference.
All-in (or all-inclusive). The association covers the unit including fixtures and finishes, with the owner responsible mainly for personal property, upgrades, and liability.
Read your declaration to find which applies. Then tell owners plainly, in writing, and repeat it annually — because the correct HO-6 limits depend entirely on this answer, and most owners bought their policy from an agent who never saw the declaration.
The deductible gap
This is where owners get hurt most often, and it is almost entirely preventable through communication.
Master policy deductibles have risen sharply. Deductibles of $10,000, $25,000, or higher are now common, and wind/hail deductibles are frequently a percentage of insured value rather than a flat sum — which on a large building can be a very large number.
When a covered loss occurs, the association’s policy pays above the deductible. The deductible itself has to come from somewhere: association reserves, or the owner, if the declaration or state law assigns it to the owner in whose unit the loss originated.
Many HO-6 policies include loss assessment coverage, which can respond when an owner is charged their share of a master policy deductible — but typical default limits are modest, often $1,000 or $5,000, against a deductible many times that.
What boards should do: tell owners the master policy deductible amount, in writing, every year at renewal, and tell them to ask their agent whether their loss assessment limit is adequate against it. Raising that limit usually costs very little. Discovering it was inadequate costs a great deal.
Water losses, which are most of them
Water is the leading cause of association claims, and the allocation depends on where the failure occurred and what the declaration says.
Generally: a failure in a pipe within a common element tends toward the association; a failure in a fixture or supply line inside a unit — the ice maker line, the water heater, the toilet supply — tends toward the owner, at least as to liability for resulting damage to other units, depending on the documents and applicable negligence rules.
The complication is that damage from a single failure rarely respects the boundary. One supply line can produce damage to the originating unit’s finishes, two units below, and common-area drywall in a corridor — potentially implicating three owners’ HO-6 policies and the master policy simultaneously.
This is why prompt, documented reporting matters so much. Photograph everything before remediation begins, note times, and get the association’s adjuster and the owners’ carriers talking early.
What the association should carry beyond property
- General liability for injuries in common areas.
- Directors and officers (D&O) covering the board’s decision-making. Confirm it covers volunteer directors and, importantly, includes defence costs — many claims against boards are about process rather than money, and defence is the real exposure. Check whether it covers non-monetary claims and discrimination allegations.
- Fidelity bond / crime coverage against theft of association funds. It should cover anyone handling funds, including the management company, and the limit should reasonably relate to the funds on hand plus reserves.
- Umbrella above the primary limits.
- Workers’ compensation where the association has employees, and sometimes prudent even where it does not.
- Equipment breakdown, and flood or earthquake where exposure warrants — noting that standard property policies exclude flood and earthquake.
What boards should do annually
Review coverage with your broker before renewal, not at it. Confirm the replacement cost valuation is current — construction costs have moved, and an outdated valuation can trigger a coinsurance penalty that reduces payment on a partial loss.
Then send owners a short annual notice covering four things: which allocation your declaration uses, the master policy deductible, a recommendation to confirm HO-6 limits and loss assessment coverage with their own agent, and who to call immediately when water appears.
That one notice, sent every year, prevents more disputes than any other insurance step a board can take.
Written by the management team at Premier Property Management. General information for Utah community associations — not legal, tax, or insurance advice for your association.