Some Are Swimming Naked

From the title of this article, some will believe this is a really sexy discussion. It isn’t. Instead, it is intended to sound an alarm to townhouse owners about insurance.

A townhouse is different from a condominium by the fact that if townhouses have common areas at all, they are often outside the structure, normally recreation areas and access roads. Many townhouses do not have common roofs, windows or exterior surfaces. In a condominium by contrast some or all of those parts of the structure are usually owned by an association. Townhouses are often designed to be marketed with little or no monthly assessments. Many have little or no common area costs. The only way to do that is to leave roofing, windows and exterior surfaces to be paid by each unit owner, not by an association. Therefore, townhouse owners often do their own unit maintenance. To some owners, maintenance is important, and to others it is not done at all. In a townhouse, even if maintenance of some items is accomplished in common, usually insurance is provided by each unit owner.

By and large, insurance has doubled in the last 12 months. Every insurance I have personally has doubled. The insurance industry will tell you that lawyers are primarily responsible for that. I believe politics, and the fact that elections are funded by business groups including insurance underwriters, has had the result that there is almost no insurance rate regulation left. I suspect that both sides are correct. I would love for the legislature to devise an alternative system for owners to collect insurance proceeds than by lawsuits. I also suspect that every large business group has found its way into politics, and today more than ever before those with money control the system.

But this article is specifically about townhome insurance. Unless a developer thought enough about his buyers to require each owner to provide insurance, or in the Declaration gave the association the power to assess the owners to provide insurance, many units in today’s market are uninsured.

To legitimize this article’s title, no one is swimming naked until the tide goes out. The same is true for insurance. No one is underinsured until there is a loss. Some owners believe the risk they run will expose only themselves. The alarm I intend by this article is to make sure townhouse owners know that you are different. You will either swim together or drown together.

Townhome units are built within buildings of three or more units (or they would be a single-family subdivision). There is absolutely no way to rebuild some units in a building without rebuilding them all. We have had experience locally with just that problem. No unit can be rebuilt until all units are rebuilt together. It is heartbreaking to have people with the resources to get back in their homes who can’t do that because one owner had no insurance.

The message at the beginning of this hurricane season to townhome boards is to be aware of how insurance is handled in your declaration. Either purchase insurance as a common area expense or require each owner to either get insurance or prove the resources to rebuild if necessary. Proceeds should be paid to an insurance trustee if that’s possible. If this power is not in your documents, see your lawyer and get your documents amended now, not later.

Condominiums have their own problems, and hopefully one day we can address some of those. In the meantime, in the insurance market the legislature needs to create a workable alternative to obtain insurance benefits than requiring litigation for that. For instance, a special master or arbitration alternative could be quicker and less expensive. If our elected overseers care about townhome owners, they also ought to require provisions in Declarations that deal with insurance. In the meantime, if you own a townhome, understand that a mass loss will challenge every legal and personal relationship neighbors have. A significantly uninsured loss may be impossible to deal with constructively.