In traditional single family residential communities, each homeowner is responsible for selecting an insurance agent and obtaining their own property insurance.  In the event that a homeowner’s residence suffers a casualty, the homeowner will look to its property insurance provider for reconstruction proceeds and other residences within the community are unlikely to be impacted.  However, in attached residential communities, if one homeowner’s residence suffers a casualty, other residences within the community are likely to be impacted. 

Due to shared components (such as roofs, foundations or party walls) in attached communities, a loss suffered to one home is much more likely to also cause a loss to a neighboring home.  As a practical matter, if an owner fails to maintain full replacement value insurance on his or her residence and suffers a casualty, the uninsured owner is more likely not to have the resources to rebuild his or her home which can affect adjacent owners and their residences.

For a condominium, Chapter 82 of the Texas Property Code (the Texas Uniform Condominium Act) includes specific requirements for insurance obtained by the condominium association.  If there are horizontal boundaries (residential units above other units), the condominium association is required to obtain property insurance on individual units.  If there are no horizontal boundaries, e.g., a townhome or detached condominium, an individual unit owner may obtain property insurance for his or her unit.

Instead of requiring each homeowner within an attached community to obtain separate insurance for their attached dwelling, the developer should consider requiring that the association (condominium or non-condominium) maintain 100% full replacement value insurance of the individual dwellings. Single source association insurance can ease the claim process since a casualty will be adjusted and determined by a single insurer, reconstruction will be less complicated as proceeds for reconstruction will be from a single source, and there is certainty regarding endorsements, exclusions and deductibles.  It may also be the case that a single sourced policy will be less costly as compared to separate policies for each dwelling in the building.

If a decision is made to require that each owner obtain property insurance for their dwelling, the community covenants should include minimum standards for insurance such as utilizing an insurance company with an appropriate AM Best Rating, a requirement that the insurance cover 100% full replacement value with an agreed-value endorsement, and that the owner provide evidence that the insurance has been obtained and in place each year.  The covenants should also allow the association to obtain insurance on behalf of the owner if the owner fails to do so (with a corresponding right to recover any premiums paid). 

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