This form of insurance is less expensive for associations to carry because coverage is limited, i.e., the association has no duty to insure inside an owner's unit beyond the unfinished surfaces of perimeter walls, ceilings and floors, i.e., "bare" walls. If there is a flood or fire in one or more units, the association's insurance does not pay for improvements to the unit such as fixtures, appliances, interior partitions, wall coverings, floor coverings, cabinetry, etc. Instead, the owner is responsible for carrying his own insurance to cover these items.
Before switching from full coverage to bare walls, associations must first review their CC&Rs to see if they are obligated to carry "All-In" insurance which requires replacement of a unit to the condition it was in at the time of the loss, including all improvements made to the unit from the date of its original construction. If so, the association will need to amend its CC&Rs to allow for bare walls coverage.
Another consideration before an association switches to bare walls coverage is whether FHA guidelines
require more comprehensive insurance before it will certify the association for loans.
: Associations needing legal assistance can contact us
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