§ 3-113. Insurance
(a) After no later than the date of the first conveyance of a unit to a person other than
a declarant, to the extent reasonably available and subject to reasonable deductibles,
the association shall maintain the following insurance coverage:
(1) Property insurance on the common elements and, in a planned community, also on property
that will become common elements, to insure against risks of direct physical loss
commonly insured against, which insurance, after application of any deductibles, shall
be not less than 80 percent of the actual cash value of the insured property at the
time the insurance is purchased and at each renewal date, exclusive of items normally
excluded from property policies.
(2) Commercial general liability insurance, including medical payments insurance, in an
amount determined by the executive board but not less than any amount specified in
the declaration, covering all occurrences commonly insured against for bodily injury
or property damage arising out of or in connection with the use, ownership, or maintenance
of the common elements.
(3) Fidelity insurance.
(b) In the case of a building that contains units divided by horizontal boundaries described
in the declaration, or vertical boundaries that comprise common walls between units,
to the extent reasonably available, the insurance maintained under subdivision (a)(1)
of this section shall include the units but need not include improvements and betterments
installed by unit owners.
(c) If insurance described in subsections (a) and (b) of this section is not reasonably
available, the association shall promptly so notify all unit owners by U.S. mail or
hand delivery. The declaration may require the association to carry any other insurance,
and the association may carry any other insurance it deems appropriate to protect
the association or the unit owners.
(d) Insurance policies carried pursuant to subsections (a) and (b) of this section shall
provide all the following:
(1) Liability coverage for each unit owner arising out of his or her interest in the common
elements or membership in the association.
(2) Waiver by the insurer of its right to subrogation under the policy against any unit
owner or member of the owner’s household.
(3) That no act or omission by any unit owner, unless acting within the scope of his or
her authority on behalf of the association, will void the policy or be a condition
to recovery under the policy.
(4) Primary coverage by the association policy in the event other insurance in the name
of the unit owner is in effect to cover the same risk.
(e) Any loss covered by the property policy under subdivision (a)(1) and subsection (b)
of this section shall be adjusted with the association, but the insurance proceeds
for that loss are payable to any insurance trustee designated for that purpose, or
otherwise to the association, and not to a holder of a security interest. The insurance
trustee or the association shall hold insurance proceeds in trust for the association,
unit owners and lien holders as their interests may appear. Subject to the provisions
of subsection (g) of this section, the proceeds shall be spent first for the repair
or restoration of the damaged property. The association, unit owners, and lienholders
are not entitled to payment of any portion of the proceeds unless there is a surplus
after the property has been completely repaired or restored or the common interest
community is terminated.
(f) An insurance policy issued to the association does not prevent a unit owner from insuring
for his or her own benefit.
(g) An insurer that has issued an insurance policy under this section shall issue certificates
or memoranda of insurance to the association and, upon written request, to any unit
owner or holder of a security interest. All insurance notices shall be mailed to the
association, each unit owner, and each holder of a security interest to whom a certificate
or memorandum of insurance has been issued at their respective last known addresses.
(h)(1) Any portion of the common interest community for which insurance is required under
this section that is damaged or destroyed shall be repaired or replaced promptly by
the association unless:
(A) the common interest community is terminated, in which case section 2-118 of this title shall apply;
(B) the repair or replacement is illegal under State or municipal law; or
(C) 80 percent or more of the unit owners, including the affected owners of units or units
allocated limited common elements vote not to rebuild. The cost of repair or replacement
in excess of insurance proceeds and reserves is a common expense.
(2) If the entire common interest community is not repaired or replaced:
(A) the insurance proceeds attributable to the damaged common elements shall be used to
restore the damaged area to a condition compatible with the remainder of the common
interest community; and
(B) except to the extent that other persons will be distributees:
(i) the insurance proceeds attributable to units and limited common elements that are
not rebuilt must be distributed to the owners of those units and the owners of the
units to which those limited common elements were allocated, or to lienholders, as
their interests may appear in proportion to the common expense liabilities of all
the units; and
(ii) the remainder of the proceeds shall be distributed to all the unit owners or lienholders,
as their interests may appear, in proportion to the common expense liabilities of
those units.
(3) If the unit owners vote not to rebuild any unit, that unit’s allocated interests are
automatically reallocated upon the vote, and the association promptly shall prepare,
execute, and record an amendment to the declaration reflecting the reallocations.
(i) The provisions of this section may be varied or waived in the case of a common interest
community in which all units are restricted to nonresidential use. (Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 32, eff. Jan. 1, 2012.)