We have a client that is a condo association. The condo association, by contract with all of the condo unit owners, is responsible for the building, and the condo unit owners are responsible for their individual units.
A bank for one of the condo unit owners wants to be listed as loss payee on the condo association's policy. Along with that, they are requesting that the declaration pages show the unit owners name, specific unit purchased, loan number, mortgagee clause, and the value of the unit she is purchasing.
We are of the opinion that they do not have an insurable interest in the building itself or the common areas. The unit owner of each condo unit is responsible for his own unit that is contained inside the walls of the condo. If a claim occurs, and damage is to the building and the units or just the units, the insurance would apply as follows: the condo association's insurance company would take care of the building and the common areas, and the unit owners' insurance would take care of each individual unit.
Can you shed some light on this practice? Our insurance carriers are saying the banks do not have an interest in the building and common areas, but the bank in insistent that they need to be the loss payee and additional insured and their client, the condo unit owner, added to the condo association's policy.
Ohio Subscriber
It has been our experience that banks being added as loss payees on association policies has become a common occurrence. Banks generally have an insurable interest in a building to the extent of the mortgage. Since commercial condo unit owners purchase only business personal property insurance, the coverage is usually not enough to cover the mortgage. So, the bank being added as a loss payee to the association form is a means for protecting its interest. We have not heard of the unit owner being added as additional insureds to association policies, though, and that does not seem necessary in this situation.
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