An owner today of a condominium or townhouse is much more likely to have major insurance gaps in their property and liability insurance coverage than the purchaser of any other personal insurance policy. Several reasons account for this concern.
The basic structural coverage of the Insurance Services Office, Inc., Homeowners Policy Unit Owners Form 6 (HO 6) is generally inadequate. For starters, the perils covered are the equivalent of a Homeowners Policy Broad Form 2 (HO 2)—named perils on building and contents—and the structural coverage limits are usually grossly inadequate. Typically, the basic Coverage A Structural Coverage under the HO 6 policy is just $5,000, and most unit owners are legally responsible for insuring much more than that. Additionally, coverage for loss assessments is inadequate. This can include loss assessments that are association-wide, such as those that arise when a lawsuit for serious injuries ends up in a judgment that exceeds the association's general liability coverage limit and the excess is assessed to the unit owner.
This also can include loss assessments made against specific unit owners when a loss is caused by the unit owner's negligence, such as a kitchen fire, and the entire association master policy property insurance deductible is assessed against that unit owner. An HO 6 policy usually comes with only $2,000 of loss assessment coverage. However, this limit may be increased via the Supplemental Loss Assessment Coverage (HO 04 35) endorsement.
Broadening the Perils Covered
The unendorsed HO 6 policy provides only named-perils coverage for both Coverage A structural claims and for Coverage C personal property claims. (This is the unit owner equivalent of a Homeowners Policy Broad Form 2 (HO 2)—a policy rarely sold today because of its limited coverage.) An agent for a townhouse or condo unit owner needs to expand the covered perils to special perils at least for structural claims (i.e., Homeowners Policy Special Form 3 (HO 3)) and probably for personal property claims as well (i.e., Homeowners Policy Comprehensive Form 5 (HO 5)). This expansion is especially important in an association because the unit owner cannot directly control the exterior maintenance. So, for example, if the older roof in need of replacing leaks muddy water onto a unit and damages the carpeting, hardwood floors, cabinets, furniture, piano, and clothing, the unit owner will not be covered unless their agent had upgraded the perils covered. ("Water damage from roof leaks" is not one of the "named perils," nor is it an excluded peril under the "special perils" form.)
Measuring the Loss Assessment Exposure
Another shortcoming of the basic HO 6 policy is the minimal amount of coverage—usually $2,000—for assessments made against all unit owners for uninsured or underinsured property or liability claims. Three examples, assuming 100 units in the association, follow.
The complex, insured for $10 million, is destroyed by a tornado and costs $13 million to rebuild. The $3 million shortfall would lead to each of the 100 unit owners being assessed $30,000.
There is a drowning at the swimming pool. A lawsuit ensues, resulting in a $7 million judgment. The association carries $5 million of liability coverage, resulting in each unit owner being assessed $20,000.
Heavy rains lead to a sewer backup in the complex; cleanup costs and repair costs total $120,000. The association board did not purchase sewer backup coverage, leading to an assessment of $1,200 to each of the unit owners.
Under the basic HO 6 policy, with $2,000 loss assessment and named-perils coverage, our hypothetical unit owner will be personally out-of-pocket $28,000 from the tornado assessment, $18,000 from the lawsuit assessment, and $1,200 from the sewer backup assessment (not a covered "named peril").
Because additional loss assessment coverage is so inexpensive, a solid recommendation is to add $50,000 to $100,000 additional limits with each HO 6.
A fringe benefit of expanding the perils covered is broadening coverage for loss assessment; loss assessment coverage applies to those loss assessments arising from perils covered by the particular unit owner's HO 6 policy. When the coverage is expanded to special perils, the perils covered under the loss assessment optional coverage are also expanded. In addition, coverage for sewer and water backup losses should be added, not only because the exposure otherwise is not covered, but also because by adding that endorsement, sewer and water backup coverage is added to the loss assessment perils.
Note that if the unit is in an area exposed to earthquakes and earthquake coverage is purchased, most increased loss assessment endorsements will not automatically include earthquake coverage. The best strategy to avoid this risk is for the unit owner to strongly lobby the association board to purchase earthquake coverage for all of the structures and buy earthquake loss assessment coverage.
Determining the Interior Structural Risk
Another reason for the difficulty in setting up an HO 6 policy with adequate coverage is the challenge of identifying and measuring the amount of structural insurance for which the unit owner is responsible. The majority of the building structure of each of the units is insured by the homeowners association. The unit owner is responsible for insuring just the part of the structural interior not covered by the master policy, as spelled out in association documents (typically the "declaration" rather than the "bylaws") and any pertinent state laws. The most common language in a declaration document is that the unit owner is responsible for everything inside the bare walls and the bare floor of the unit. This means that the unit owner is responsible for insuring all of the items shown in the "Unit Owner's Responsibilities for Structural Items Replacement and Costs" table.
Table 1. Unit Owner's Responsibilities for Structural Items Replacement and Costs
Unit Owner's Structural Responsibility Items
Sample: Replacement Cost Installed
Carpeting, hardwood floors, ceramic tile, or any other flooring
$50,000
Wall coverings
$10,000
Lighting fixtures
$4,000
Plumbing fixtures (e.g., toilets or tubs)
$16,000
Built-in appliances
$6,000
Kitchen cabinets
$30,000
Unit owner installed improvements (e.g., screened-in or four-season porch)
$40,000
Any other improvements made to the unit by all previous owners (usually very difficult to determine, especially for an older unit with several previous owners)
$40,000
Total Replacement Cost Installed
$196,000
The installed replacement cost of the items in this particular example is approximately $200,000. Clearly, the HO 6 basic coverage of $5,000 is grossly inadequate.
Discover All Pertinent State Laws
Some states have passed laws limiting how much of a condominium unit interior that a unit owner can be held responsible for insuring. For example, under the Minnesota Common Interest Ownership Act (Statute #515B.3-113), Minnesota permits an association to hold a unit owner responsible for no more than "(i) ceiling or wall finishing materials, (ii) finished flooring, (iii) cabinetry, (iv) finished millwork, (v) electrical, heating, ventilating, and air conditioning equipment, and plumbing fixtures serving a single unit, (vi) built-in appliances, or other improvements and betterments , regardless of when installed." In the "Unit Owner's Responsibilities for Structural Items Replacement and Costs" table, each responsibility is within the law. But if there were other requirements, such as responsibility for interior non-load-bearing walls, wiring within the walls, and related items, the law would supersede the added bylaw requirements and the unit owner could ignore the value of those items when estimating their Coverage A exposure.
Some older townhouse associations are exempt from the law, so make sure the association is covered by the law before relying on its requirements.
Covering a Unit Owner's Responsibility for the Master Policy Deductible
Yet another reason why the HO 6 policy is difficult to set up correctly is that more associations have changed their rules so that all uninsured or underinsured losses are no longer always assessed association-wide against all unit owners. Instead, they are assessed against an affected individual unit or units. With significantly rising insurance costs for association master policies in the last few years, more associations have gone to higher deductibles of typically $5,000 or $10,000, but in some cases, even $50,000.
The problem with those higher deductibles for a specific unit owner is that if the loss is caused by the negligence of a unit owner, such as a bathtub that overflows or a kitchen grease fire, the association deductible can be the sole responsibility of the negligent unit owner. Some insurers have developed a specific endorsement that the unit owner can purchase to cover the full amount of the deductible assessment, but many insurers have not done so. However, many of those remaining insurers in the claims department are covering the unit owner's responsibility for the full association deductible under Coverage A Structural Coverage, providing that such deductible responsibility is clearly spelled out in the official association documents (i.e., in the declaration) and that the Coverage A limit is high enough to cover both the deductible and the other structural responsibilities of the unit owner.
Communicating with Claims Managers
To set up a unit owner homeowners policy correctly, if an agent represents an insurer that does not offer an optional endorsement to cover that deductible responsibility, the agent must contact each claims department—ideally the claims manager—and get a clear understanding of how the claims department has elected to cover this deductible responsibility until the underwriting department develops a specifically tailored endorsement.
Many insurers cover this deductible responsibility under Coverage A. Since the deductible involves responsibility for structural rather than personal property damage, that risk to the insurer is similar to the risk of damage to the building interior structure and, therefore, the Coverage A structural rates for covering the master policy deductible are fair to the insurer. However, coverage or claims handling practices may be more restrictive with other insurers.
11 Steps to a Well-Designed HO 6 Policy
For each HO 6 policy, agents should obtain a copy of all association documents pertaining to the unit owner's responsibility for structural damage as well as the unit owner's responsibility for the deductible. Agents must work with the unit owners to help them determine the cost to replace everything structurally for which they are responsible and must change the perils coverage to special perils on building and contents, not only so there is essentially "all risk" coverage for both, but also so the perils coverage for loss assessment is broadened.
The following 11 steps are recommended to help agents establish the proper coverage for their clients, using the HO 6 policy for those insurers that have agreed to cover the specifically assessed master policy deductible under Coverage A Structural Coverage.
Request a copy of the association's "declaration" document. Make a list of building items not covered by the master policy (e.g., carpet, hardwood floors, tile floors, kitchen cabinets, plumbing and electrical fixtures, built-in appliances, and unit owner improvements). (Be sure that your state law permits these requirements.)
Have your client estimate the replacement cost of each of the structural items that are their responsibility. It may be easier and more accurate to write out a list of each type of item and have the client estimate the replacement cost for each category. (See the "Unit Owner's Responsibilities for Structural Items Replacement and Costs" table.) Total the values. (Remember to include labor costs in your estimate.) To be safe, an additional 20 percent may be added to the total to allow for estimating errors.
Find out the current master policy deductible as well as the maximum deductible authorized in the declaration. Choose the higher (so that your client is protected when the association decides to raise the deductible to the next level).
Add up the totals in Steps 2 and 3. Round up to allow for errors. That total will be the coverage limit for Coverage A.
Add "special perils" coverage to Coverage A, changing perils covered from "named perils" to "all risk" unless excluded. This is important for three reasons: It covers more losses (e.g., water damage to walls and ceiling from roof leaks); it improves coverage for losses subject to the master policy deductible; and it changes the perils covered by loss assessment coverage from named perils to special.
Add special perils contents coverage (e.g., roof leaks and paint spills).
Increase the loss assessment limits to $50,000 or $100,000.
Add sewer backup coverage to provide coverage for the direct damage to the unit or contents from sewer backup and to broaden loss assessment coverage to include assessments for sewer backup.
Assess the need for flood or earthquake coverage.
Buy adequate and consistent liability coverage (e.g., $500,000) in limits equal to your client's other personal liability coverages or in limits high enough to satisfy the umbrella underlying insurance requirements.
Buy an umbrella policy, and be sure that it includes coverage for association volunteer activities that include nonprofit directors and officers (D&O) liability coverage in case your client ever serves on the board of the homeowners association. Nonprofit boards should defend and pay judgment against any unit owner insured by that umbrella policy.
Because an umbrella policy only covers claims arising out of bodily injury, property damage, and personal injury, this umbrella coverage clearly does not replace the need for the board to carry D&O liability coverage.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
This article was revised in June 2026. See also "10 Steps to a Well-Designed HO 6 Policy."
An owner today of a condominium or townhouse is much more likely to have major insurance gaps in their property and liability insurance coverage than the purchaser of any other personal insurance policy. Several reasons account for this concern.
The basic structural coverage of the Insurance Services Office, Inc., Homeowners Policy Unit Owners Form 6 (HO 6) is generally inadequate. For starters, the perils covered are the equivalent of a Homeowners Policy Broad Form 2 (HO 2)—named perils on building and contents—and the structural coverage limits are usually grossly inadequate. Typically, the basic Coverage A Structural Coverage under the HO 6 policy is just $5,000, and most unit owners are legally responsible for insuring much more than that. Additionally, coverage for loss assessments is inadequate. This can include loss assessments that are association-wide, such as those that arise when a lawsuit for serious injuries ends up in a judgment that exceeds the association's general liability coverage limit and the excess is assessed to the unit owner.
This also can include loss assessments made against specific unit owners when a loss is caused by the unit owner's negligence, such as a kitchen fire, and the entire association master policy property insurance deductible is assessed against that unit owner. An HO 6 policy usually comes with only $2,000 of loss assessment coverage. However, this limit may be increased via the Supplemental Loss Assessment Coverage (HO 04 35) endorsement.
Broadening the Perils Covered
The unendorsed HO 6 policy provides only named-perils coverage for both Coverage A structural claims and for Coverage C personal property claims. (This is the unit owner equivalent of a Homeowners Policy Broad Form 2 (HO 2)—a policy rarely sold today because of its limited coverage.) An agent for a townhouse or condo unit owner needs to expand the covered perils to special perils at least for structural claims (i.e., Homeowners Policy Special Form 3 (HO 3)) and probably for personal property claims as well (i.e., Homeowners Policy Comprehensive Form 5 (HO 5)). This expansion is especially important in an association because the unit owner cannot directly control the exterior maintenance. So, for example, if the older roof in need of replacing leaks muddy water onto a unit and damages the carpeting, hardwood floors, cabinets, furniture, piano, and clothing, the unit owner will not be covered unless their agent had upgraded the perils covered. ("Water damage from roof leaks" is not one of the "named perils," nor is it an excluded peril under the "special perils" form.)
Measuring the Loss Assessment Exposure
Another shortcoming of the basic HO 6 policy is the minimal amount of coverage—usually $2,000—for assessments made against all unit owners for uninsured or underinsured property or liability claims. Three examples, assuming 100 units in the association, follow.
Under the basic HO 6 policy, with $2,000 loss assessment and named-perils coverage, our hypothetical unit owner will be personally out-of-pocket $28,000 from the tornado assessment, $18,000 from the lawsuit assessment, and $1,200 from the sewer backup assessment (not a covered "named peril").
Because additional loss assessment coverage is so inexpensive, a solid recommendation is to add $50,000 to $100,000 additional limits with each HO 6.
A fringe benefit of expanding the perils covered is broadening coverage for loss assessment; loss assessment coverage applies to those loss assessments arising from perils covered by the particular unit owner's HO 6 policy. When the coverage is expanded to special perils, the perils covered under the loss assessment optional coverage are also expanded. In addition, coverage for sewer and water backup losses should be added, not only because the exposure otherwise is not covered, but also because by adding that endorsement, sewer and water backup coverage is added to the loss assessment perils.
Note that if the unit is in an area exposed to earthquakes and earthquake coverage is purchased, most increased loss assessment endorsements will not automatically include earthquake coverage. The best strategy to avoid this risk is for the unit owner to strongly lobby the association board to purchase earthquake coverage for all of the structures and buy earthquake loss assessment coverage.
Determining the Interior Structural Risk
Another reason for the difficulty in setting up an HO 6 policy with adequate coverage is the challenge of identifying and measuring the amount of structural insurance for which the unit owner is responsible. The majority of the building structure of each of the units is insured by the homeowners association. The unit owner is responsible for insuring just the part of the structural interior not covered by the master policy, as spelled out in association documents (typically the "declaration" rather than the "bylaws") and any pertinent state laws. The most common language in a declaration document is that the unit owner is responsible for everything inside the bare walls and the bare floor of the unit. This means that the unit owner is responsible for insuring all of the items shown in the "Unit Owner's Responsibilities for Structural Items Replacement and Costs" table.
The installed replacement cost of the items in this particular example is approximately $200,000. Clearly, the HO 6 basic coverage of $5,000 is grossly inadequate.
Discover All Pertinent State Laws
Some states have passed laws limiting how much of a condominium unit interior that a unit owner can be held responsible for insuring. For example, under the Minnesota Common Interest Ownership Act (Statute #515B.3-113), Minnesota permits an association to hold a unit owner responsible for no more than "(i) ceiling or wall finishing materials, (ii) finished flooring, (iii) cabinetry, (iv) finished millwork, (v) electrical, heating, ventilating, and air conditioning equipment, and plumbing fixtures serving a single unit, (vi) built-in appliances, or other improvements and betterments , regardless of when installed." In the "Unit Owner's Responsibilities for Structural Items Replacement and Costs" table, each responsibility is within the law. But if there were other requirements, such as responsibility for interior non-load-bearing walls, wiring within the walls, and related items, the law would supersede the added bylaw requirements and the unit owner could ignore the value of those items when estimating their Coverage A exposure.
Some older townhouse associations are exempt from the law, so make sure the association is covered by the law before relying on its requirements.
Covering a Unit Owner's Responsibility for the Master Policy Deductible
Yet another reason why the HO 6 policy is difficult to set up correctly is that more associations have changed their rules so that all uninsured or underinsured losses are no longer always assessed association-wide against all unit owners. Instead, they are assessed against an affected individual unit or units. With significantly rising insurance costs for association master policies in the last few years, more associations have gone to higher deductibles of typically $5,000 or $10,000, but in some cases, even $50,000.
The problem with those higher deductibles for a specific unit owner is that if the loss is caused by the negligence of a unit owner, such as a bathtub that overflows or a kitchen grease fire, the association deductible can be the sole responsibility of the negligent unit owner. Some insurers have developed a specific endorsement that the unit owner can purchase to cover the full amount of the deductible assessment, but many insurers have not done so. However, many of those remaining insurers in the claims department are covering the unit owner's responsibility for the full association deductible under Coverage A Structural Coverage, providing that such deductible responsibility is clearly spelled out in the official association documents (i.e., in the declaration) and that the Coverage A limit is high enough to cover both the deductible and the other structural responsibilities of the unit owner.
Communicating with Claims Managers
To set up a unit owner homeowners policy correctly, if an agent represents an insurer that does not offer an optional endorsement to cover that deductible responsibility, the agent must contact each claims department—ideally the claims manager—and get a clear understanding of how the claims department has elected to cover this deductible responsibility until the underwriting department develops a specifically tailored endorsement.
Many insurers cover this deductible responsibility under Coverage A. Since the deductible involves responsibility for structural rather than personal property damage, that risk to the insurer is similar to the risk of damage to the building interior structure and, therefore, the Coverage A structural rates for covering the master policy deductible are fair to the insurer. However, coverage or claims handling practices may be more restrictive with other insurers.
11 Steps to a Well-Designed HO 6 Policy
For each HO 6 policy, agents should obtain a copy of all association documents pertaining to the unit owner's responsibility for structural damage as well as the unit owner's responsibility for the deductible. Agents must work with the unit owners to help them determine the cost to replace everything structurally for which they are responsible and must change the perils coverage to special perils on building and contents, not only so there is essentially "all risk" coverage for both, but also so the perils coverage for loss assessment is broadened.
The following 11 steps are recommended to help agents establish the proper coverage for their clients, using the HO 6 policy for those insurers that have agreed to cover the specifically assessed master policy deductible under Coverage A Structural Coverage.
Because an umbrella policy only covers claims arising out of bodily injury, property damage, and personal injury, this umbrella coverage clearly does not replace the need for the board to carry D&O liability coverage.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.