Master policy and insurance shortfalls

Two policies, one building, one seam

A condominium is a single physical building owned in pieces. Insuring it means drawing a line between the building and the unit, then making sure two contracts — the association's master policy and each owner's unit policy — meet exactly at that line with no gap. Almost every insurance failure in a condominium is a failure at that seam.

The seam is defined in three places, and they do not always agree:

• The state condominium act, which often sets a default about what the association must insure.
• The declaration, which allocates maintenance, repair and insurance responsibility.
• The master policy, a contract with an insurer that can be broader or narrower than either.

Where the declaration requires one thing and the policy delivers another, the owner sits in the difference, and nobody finds it until there is a loss. So the declaration's insurance article and the current policy declarations page have to be read against each other. A certificate of insurance will not do it. None of this generalises nationally either — some state acts make the association insure the units as originally constructed but not owner improvements, most states have their own defaults, and the baseline has to be checked where the building sits.

Bare walls, single entity, all-in

These are market terms, not statutory ones, and a real policy can sit between them, so the label alone is never the answer.

Bare walls

The narrowest. The master policy covers the common and limited common elements and stops at the unfinished interior surfaces of a unit. Interior finishes, cabinetry, flooring, fixtures and appliances belong to the owner, who needs a substantial building-property limit of their own, because a total-loss rebuild of the interior is theirs.

Single entity

Also called original specifications. The master policy covers the common elements and the unit interiors — fixtures, cabinets, floors, interior structural components — but only to the like kind and quality originally installed by the developer. Owner upgrades are not covered.

This is the form buyers most often misread. Told the master policy covers the inside of the unit, they under-insure. If the unit has been renovated — and in an older building almost every unit has — the difference between the original builder-grade finish and what is there now is uninsured, and that gap widens every year.

All-in

Single-entity coverage plus betterments and improvements made by owners, so the policy responds to the interior as it currently exists. The owner still needs a unit policy for contents, liability, loss of use and loss assessment, but the building-property limit can be smaller.

One caution applies to all three. The form decides who insures what, not who maintains and repairs what. Those allocations sit in the declaration and do not have to line up.

What agency rules require of the master policy

The secondary-market requirements are the closest thing to a national baseline. As published in the Fannie Mae Selling Guide master property insurance section, version dated 5 August 2026:

• A special coverage form or equivalent, and coverage of at least 100 percent of estimated replacement cost value of the project improvements, on a replacement cost basis — with roofs excepted in that they must be insured but need not be on that basis.
• Named perils including fire, explosion, windstorm including named storms, hail, smoke, vandalism, sprinkler leakage and water damage. Where the policy limits or excludes a required peril, acceptable coverage must be obtained separately.
• Building ordinance or law coverage in three parts: loss to the undamaged portion, demolition costs, and increased cost of construction.
• Equipment breakdown coverage where there is central heating or cooling, and a condominium association coverage form with recognition of an insurance trustee, waiver of subrogation against unit owners, and primary status over individual unit policies.
• Capped deductibles — a maximum stated as a percentage of the coverage amount, and a separate maximum per-unit deductible in dollars. Both are published figures that get revised, so read the current section rather than a summary of it.

Ordinance or law coverage is invisible until it matters. When an older building is substantially damaged, code may require the undamaged portions to be upgraded, or demolition rather than repair, and without it that difference becomes a special assessment. Full text at Selling Guide B7-3-03.

Deductibles, and why the percentage deductible is the trap

An ordinary property deductible is a flat dollar amount. A percentage deductible is a percentage of the insured value — and in a condominium the insured value is the replacement cost of the whole building, not one unit.

A percentage of the total insured value of a large tower produces a deductible in the hundreds of thousands or millions of dollars, applied before the master policy pays anything. They commonly run in the low single digits of insured value for standard perils — the Insurance Information Institute describes roughly one to five percent, retrieved August 2026 — and higher for wind and named storms, and in high-risk coastal markets a flat-dollar alternative may not be offered at all. Allocated across the units, each owner's share of that first layer can far exceed what most owners carry in loss assessment coverage.

Wind, hail, hurricane and named storm

These displace the all-other-perils deductible when the triggering event occurs, and triggers vary by state and carrier. A named storm deductible triggers on a storm named by the National Weather Service or National Hurricane Center, which can include tropical storms, not only hurricanes. A hurricane deductible typically triggers on a declaration, watch or warning, or a stated wind speed, and stays in force for a window afterwards whose length differs by state.

Two questions apply everywhere: does the deductible reset per event, per season or per calendar year, and it is a percentage of what — total insured value, the coverage on the damaged building, and the loss itself are three different bases. Where the deductible falls is then set by the declaration and state law; commonly a deductible for a loss confined to units is allocated to those owners in proportion to damage, while a common-element deductible is a common expense. Where the master policy carries a per-unit deductible, agency rules require the borrower to carry a unit policy sized to at least that amount.

Loss assessment, coinsurance and flood

Loss assessment is the endorsement that responds when the association levies a special assessment arising out of an insured event: the owner's share of covered damage exceeding master limits, of a liability claim exceeding master liability limits, or of the master deductible after a covered loss.

• The built-in limit is usually small, bearing no relationship to a realistic per-unit share of a large master deductible. There is no reliable national default worth quoting, which is the point: read your own policy. Higher limits are generally available for a modest premium.
• The assessment must arise from a peril the owner's own policy covers. An assessment after flood or earthquake damage is generally not covered unless the owner carries that coverage.
• It does not cover ordinary special assessments. An assessment to replace a roof, fund reserves, repair spalling concrete or comply with a structural inspection mandate is a capital and maintenance expense, not an insured loss, and no endorsement responds to it.

That third point separates two questions buyers merge. Insurance answers what happens when something sudden and accidental damages the building; reserves answer what happens when the building wears out, and wearing out is not an insured peril anywhere, under any form. Some states also cap what an association may pass through to an owner, which is state-specific.

Coinsurance

A commercial property policy commonly requires limits equal to a stated percentage of insurable value. If the limits carried fall below that at the time of loss, the insurer pays only the proportion the limit carried bears to the limit required — and applies that reduction to every loss, not only total ones. Insured value means replacement cost today, not market or assessed value, and it has moved a great deal — so a limit set years ago and renewed with a small annual uplift can slide below the requirement with nothing to signal it until a claim. The cures are a current replacement cost valuation by a qualified professional, which agency rules expressly accept as evidence of adequacy, and an agreed value endorsement, which suspends the clause for the policy term.

Flood is excluded from standard policies and insured separately. The National Flood Insurance Program's condominium association policy is built on a statutory maximum per unit multiplied by unit count and carries its own coinsurance requirement, both set by program rules that change. In an expensive building that limit can sit well below replacement cost, and the shortfall lands as a special assessment.

What it means for financing, and what to ask for

Insurance is one of the few project requirements that applies at every level of review, including where project review is otherwise waived, and the coverage requirement has no exception route. A project that cannot evidence coverage equal to 100 percent of replacement cost does not become eligible by argument.

That is why a hard insurance market is a financing problem and not only a budget problem. A state insurance division has documented associations that, unable to afford full catastrophe coverage, insure only a fraction of the building's hurricane exposure — and stated the consequence plainly: because the agencies require full building coverage, units in an under-insured project may be saleable only to cash buyers.

Be equally plain about what is not a financing problem. Most master policies on institutionally managed buildings meet these requirements without difficulty. A high deductible is not a coverage shortfall. An insurance line that rose sharply is not a coverage shortfall. A low loss-assessment limit on the buyer's own policy is not a coverage shortfall — it is a gap the buyer can close before closing, for a small premium. The eligibility question is narrower: does the master policy cover replacement cost in full, on the required perils, with the required endorsements, inside the deductible caps.

• Which master policy form is in force, and does the declaration require that form. When replacement cost was last appraised, and whether there is a coinsurance clause and an agreed value endorsement.
• The all-other-perils deductible, flat or percentage; any wind or named-storm deductible, what triggers it, what it is a percentage of, and whether it resets per event or per season; and whether there is a per-unit deductible.
• Whether ordinance or law coverage is in place in all three parts, whether flood is insured and at what limit, and whether fidelity coverage is in the association's own name.

Name the boundary. Reading a declaration's insurance article against the policy in force is work for the buyer's own insurance agent, and where the two conflict, for an attorney. Neither the association nor its manager is the buyer's adviser here.

Common questions

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