Maryland Condominium Law

Condominiums are a form of ownership, NOT a type of residence. All unit owners own some property in common (the common elements) and own some property in full (the unit). The insurance program needs to be coordinated properly.
Since 2008, the Maryland Condominium Act has undergone several changes. The most significant ones came as a result of a 2008 Special Court of Appeals decision in Tuckerman (Access a refresher on the decision and consequential action).
In 2009, a bill restored the overarching principles of the MD Condo law which had been upended by the Tuckerman decision, namely, that a condo association is responsible to purchase property insurance on the common elements and the units, exclusive of improvements and betterments. The unit owner is responsible for insurance for the improvements and betterments (and for personal property) in the unit. At least, that is the “default setting” under the law. A condo association can also choose to organize differently under other scenarios “All in” or “Bare walls” (see below). This should be defined in the organizing documents, a.k.a. the Declarations or Bylaws. If the organizing documents are silent, the Condo Act will apply.
The amended law:
  • allows the condo association to recoup the amount of the master policy deductible up to $5,000, for all claims where the cause of damage originated from a unit. In other words, the owner of the unit where the cause of damage originated can be assessed individually (regardless of negligence). Effective Oct. 1, 2020, this amount was increased to $10,000 (through enactment of HB108/SB175).
  • requires annual notification to unit owners of their responsibility to the condo association and of the amount of the master policy deductible.
In 2010, the Maryland legislature enacted other changes affecting condominium and homeowners’ associations, as well as cooperative housing corporations. The law now requires fidelity insurance against fraud, dishonesty or criminal acts by its directors, officers, agents or employees. A bond can be used to satisfy the requirement. Read more about the Fidelity requirement

Bottom line, what should you expect?

Condo Association side

The master policy will insure the condominium buildings, as described in the declarations or bylaws, under one of three scenarios:
  • “All in”: the association covers the entire building (common elements + units + improvements made in the units over the years)
  • “Original Specifications” or “Single Entity”: the association covers the building’s common elements + units, but does not cover the improvements made in the units. Improvements must be covered by the unit owner [that’s the “default setting” in the Condo Act as explained above]
  • “Bare walls”: the association covers the common elements. The unit and its improvements are the unit owner’s responsibility.
The condo association must notify its unit owners annually and in writing:
  • Of their responsibility for the master policy deductible up to limit set in the law if the cause of damage originates from their unit, and
  • Of the amount of the master policy deductible.
The condo association must address the fidelity bond required by law, unless exempted.

Unit owner side

In addition to what they normally have to insure under the condo association’s organizing documents, unit owners need to take into account their potential responsibility for the master policy deductible, up to the maximum amount set by law.
From an insurance standpoint, not all carriers are treating this exposure the same way.
  • Some may treat it as Coverage A and will expect you to add the amount of the master policy deductible to the coverage A limit.
  • Others may treat it as an increased loss assessment coverage. However, the wording of the Supplemental Loss Assessment Coverage endorsement (ISO HO 04 35) may need to be scrutinized:
    • to make sure it applies to an individual assessment (and not only to a collective assessment of all unit owners).
    • to verify that the increased loss assessment endorsement does not include a sub-limit for assessments in connection with the recoupment of the association deductible (the 10 00 version has the sub-limit, the 05 11 version does not). Read more

Applicability to commercial v. residential condos

Under section 11-114 – Mandatory Insurance Coverage, the provisions governing insurance “do not apply to a condominium all of whose units are intended for nonresidential use.”
Therefore, to the best of our understanding, the insurance requirements above apply to residential condo associations as well as to condo associations with mixed use (both residential and commercial). They should not apply to condominiums that are 100% commercial.

Have customers struggling to understand how the coverages interact?

If you’d like to make sure there is consistency in how this complex topic is explained to your policyholders, access the different consumer flyers available on the topic.
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