Colorado's Property Insurance Requirements for Common Interest Communities

Credit: Jessica Quinn (VISIT DENVER)

Similar to most states, Colorado sets forth minimum requirements of insurance for common interest communities under the Colorado Common Interest Ownership Act.

Section 38-33.3-313(1)(a) of the Act requires that the association maintain property insurance on the common elements equal to the replacement cost of the property less applicable deductibles. Where the building contains horizontal boundaries described in the declaration, Section 38-33.3-313(2) requires that the insurance also cover the units, but not the finished interior surfaces of the walls, floors, or ceilings of the units, and need not include improvements and betterments installed by unit owners. If the policy provides coverage for betterments and improvements to units, the increased charges for that coverage should be assessed by the association to those owners with betterments and improvements.

It should also be noted that fidelity coverage, to the extent reasonably available, must be maintained by an association with thirty or more units where a unit owner or employee of the association controls or disburses funds of the association.

Because Colorado does not require an association to maintain insurance for the finished surfaces and improvements of a unit, it is important for owners to identify and understand the coverage provided by the association to determine whether they should purchase additional insurance to protect themselves in the event of a loss.

Association's Delay in Repair of Common Area Results in Payment to Owners of Damaged Townhomes

In Lakeside Village Homeowners Association, Inc. v. Belanger,1 the Texas Court of Appeals found an HOA violated the Declaration of Covenants when it delayed repairing common areas of the Lakeside Village townhome community in Rockwall County, Texas.

Lakeside is a gated townhome community comprising 498 units by a lake in Rockwall County, Texas. The HOA (referred to as “Lakeside”) owned and controlled the common areas, which was defined in the Declaration of Covenants as “all real property owned by [Lakeside] for the common use and enjoyment of the owners.” As the court explained it, Lakeside was responsible for “the 13,500 square feet of streets, 7,800 square feet of retaining walls, street lights, tennis courts, the pool, the gym, and the golf course.” When the HOA failed to repair faulty retaining walls that caused damages to a duplex, the duplex owners sued.

Belanger and Drennan were the owners of two townhomes connected by an interior wall and a foundation wall, making the units a duplex. When the property was purchased, railroad tie retaining walls were on the common areas to the north, east, and south of the duplex property. Unfortunately, these walls proved to be structurally failing. Rather than divert water, its faulty structure allowed the water to build up and exert pressure against the foundation, eventually compromising the foundation and structure of the property and walls and stucco to separate.

In 2007, Belanger noticed water damage to the property caused by the faulty common area’s retaining walls. And, in 2011, Drennan became a resident of Lakeside townhomes and noticed cracks and flooding to the driveway. Although Lakeside was aware of their faulty structure in 2006, nothing was done to fix the problem, even after several complaints from Belanger and Drennan.

In 2011, Belanger and Drennan sued Lakeside and its management company, Principal, for breach of contract, trespass, negligence, and diversion of water claims, and the trial court ruled in their favor. Although Lakeside and Principal appealed, the Texas Court of Appeals found the association had breached its contractual duties to maintain the common areas, and their failure to repair or maintain the common area retaining wall caused water to be unlawfully diverted onto the owners' property, causing property damage in violation of Water Code and a trespass on the owners' property.

Ultimately, the HOA and its management company’s decision to delay paying for the repair of the faulty retaining walls resulted in the court ordering payment for the repair, trespass and Water Code violations.

1 Lakeside Village Homeowners Association, Inc. v. Belanger, No. 08-15-00214-CV (Tex. App. Jun. 14, 2017).

Who is Responsible for Limited Common Elements?

Condominium property is often divided and categorized into association property and unit property. Association property can be further subdivided into common elements and limited common elements. How an area of condominium property is classified may change the respective rights and responsibilities of the association and its members, including whose insurance will cover damage to each type of property.

To determine the type of property, Florida Statute §718.103 provides definitions for certain areas of condominium property:

(27) “Unit” means a part of the condominium property which is subject to exclusive ownership. A unit may be in improvements, land, or land and improvements together, as specified in the declaration.

(8) “Common elements” means the portions of the condominium property not included in the units.

(19) “Limited common elements” means those common elements which are reserved for the use of a certain unit or units to the exclusion of all other units, as specified in the declaration.

Although limited common elements are exclusive in ownership, in Cedar Cove Efficiency Condo. Ass'n, Inc. v. Cedar Cove Properties, Inc., 558 So. 2d 475, 479-80 (Fla. 1st DCA 1990), a Florida appellate court held that limited common elements such as balconies and patios may fall under the responsibility of the association and not the unit owners. In Cedar Cove, after a dispute developed on whether an association could levy an assessment over exterior balconies and doors, in identifying the responsibilities of the association and unit owners the court stated:

The Act's definition of “limited common elements” implies they are a subset of “common elements” and therefore a “common expense” properly within the scope of the association's authority. Sections 6.1 and 6.2 of the declaration of condominium authorize the association to levy an assessment to maintain and repair all unit exteriors and common elements. Even if the balconies and closet doors are not considered “common elements”, it is difficult to refute their classification as part of the unit exterior. The balconies and doors fall within the scope of the association's broad authority to maintain condominium exteriors.

Even though limited common elements such as balconies and patios may be considered the responsibility of the association and not the unit, other movable personal property that is placed or installed on limited common elements generally remains the property and responsibility of individual unit owners. After a Florida governmental agency had declared otherwise, another Florida appellate court set the record straight in Costa Del Sol Ass'n, Inc. v. State, Dept. of Bus. & Prof'l Regulation, Div. of Florida Land Sales, Condominiums, & Mobile Homes, 987 So. 2d 734, 736 (Fla. 3d DCA 2008):

In the total absence of any cognizable legal basis for the inside-and-outside distinction drawn by the Division, which would as well apply to a barbeque or even a lounge chair placed on the patio, it is self-evident that this ruling, that the owner of all the sticks or incidents of ownership which make up the proverbial bundle of property rights is not its owner and that something or someone else is, cannot stand.

The court went on to find that the association would not even have an insurable interest in these items of personal property that a unit owner individually purchases and retains exclusive rights over, even if they are placed in a limited common element. As an individual unit’s property, the unit owner would be responsible for insuring.

Theses cases and statutes represent Florida law, and the law often varies in different states and jurisdictions, so please contact competent legal counsel for assistance with any analysis of insurance covering limited common elements.