Water Leaks in your Condominium???
Maintenance and Insurance Issues Related to Water Leaks in Condominiums
By: Clarence Lau, Esq.
An upstairs Owner at a Condominium has a water leak in his Unit, which results in extensive water damage to multiple Units below. In such a situation, who is financially responsible for the repair and replacement of the property damage sustained at the Condominium?
This has unfortunately been a fairly common issue for some of our condominium association clients. Pursuant to Section §14-3-107(a) of the Georgia Condominium Act (the “Act”), a condominium association is required to obtain “a property insurance policy affording fire and extended coverage insurance for and in an amount consonant with the full insurable replacement cost, less deductibles, of all buildings and structures within the condominium.” However, “fire and extended coverage insurance” does not include insurance for property damage caused by water (i.e. pipe bursts, slow leaks, sewer back-ups, etc.). The first question which needs to be answered, therefore, is whether the condominium association has obtained insurance to cover property damage caused by water.
In the Absence of Insurance Coverage for Water Damage:
If insurance to cover property damage caused by water has not been obtained by the condominium association, or if the water damage does not constitute a “covered claim” by the insurance company, absent negligence and/or an intentional act, each party is responsible to repair and replace the Unit and/or the Common Elements as required by the maintenance provisions set forth in the condominium’s governing documents. O.C.G.A. § 44-3-105 of the Act entitled “Upkeep of the condominium; damage to common elements” provides that “except to the extent otherwise provided by the condominium instruments, all powers and responsibilities with regard to maintenance, repair, renovation, restoration, and replacement shall pertain to the association in the case of the common elements other than limited common elements and to the individual unit owner in the case of any unit and the limited common elements, if any, appurtenant thereto.” Accordingly, unless the condominium’s governing documents provide otherwise, the Unit Owner is responsible to repair all portions of his/her Unit and any Limited Common Element assigned to the Unit, and the Association is responsible for all portions of the Common Elements. Of course, maintenance responsibilities may be shifted by the condominium instruments. Therefore, you must carefully review all of the condominium instruments (Articles, Declaration, Bylaws, Plats, Plans, rules and regulations, etc.) to properly determine how maintenance, repair and replacement responsibilities are divided amongst the Owners and the Association.
Where There is Insurance Coverage for Water Damage:
Although not required by the Act, in the interest of all Owners, condominium associations will typically maintain insurance to cover property damage caused by water. If such a policy has been obtained, under a covered claim, the Association’s insurance would kick in, and pay out the claim, less any applicable deductible. Please note that many if not all insurance policies require the insured (in this case, the condominium association) to notify the company of any potential claim which has arisen. Failure to timely notify the insurance company of a potential loss or casualty may result in a denial of coverage down the road. Therefore, it is important for the Association to notify its insurance company of any potential claim, even if it does not believe the damage sustained is (1) from a covered peril, (2) a covered portion of the condominium property, or (3) in excess of the deductible amount. For the same reason, each Owner should be directed to notify his/her insurance carrier of the potential claim.
Who is responsible for the deductible?
O.C.G.A §44-3-94 of the Act provides that “to the extent provided for in the condominium instruments, the association may allocate equitably the payment of a reasonable insurance deductible between the association and the unit owners affected by a casualty against which the association is required to insure; provided, however, that the amount of deductible which can be allocated to any one unit owner shall not exceed $2,500.00 per casualty loss covered under any insurance required to be maintained by the association under this article.” Therefore, for insurance required under the Act (fire and extended coverage), the Association is authorized to pass on to each Owner up to $2,500.00 of the insurance deductible per casualty loss, provided the condominium governing documents expressly allow for such action. Significantly, this limit does not apply when allocating deductibles in water damage claims and other claims involving insurance coverage that is not required by the Act.
This may be better explained by taking a look at the below scenario: Suppose a fire caused damage to two (2) Condominium Units and a portion of the Common Elements. The insurance adjuster estimated the total loss to be $20,000.00, and the insurance company paid the claim, less the Association’s $10,000.00 deductible. The adjuster also calculated that Unit A sustained 50% of the total damage and Unit B and the Common Elements each sustained 25% of the total damage. In this case, Unit A should be allocated 50% of the entire deductible ($5,000.00). However, pursuant to the Act, the Association may only pass on up to $2,500.00 of the deductible per any one casualty loss. Therefore, Unit A is only responsible for $2,500.00 of the deductible. Unit B (25%) would be responsible for $2,500.00 of the deductible. The Association would be responsible for $5,000.00, which is calculated by adding the 25% allocated to the Common Elements ($2,500.00) plus the portion of Unit A’s share in excess of the maximum allowed by the Act ($2,500.00).
Note that §44-3-94 only applies to insurance required under the Act (fire and extended). As stated previously, insurance for property damage caused by water is not “required under the Act”. This means that the $2,500.00 deductible limitation does not apply to insurance taken out by the Association to cover water claims. Therefore, the entire deductible associated with a water claim, may be passed onto the affected Unit Owner(s), provided the condominium instruments allow for such action. Please note that if a part of the Common Elements was affected under the claim, the Association would be responsible for a portion of the deductible, in accordance with the percentage of “benefit” or “repairs” attributed to the Common Elements.
Taking the same hypothetical as above, but changing the damage from fire to water damage (i.e. a pipe break in one Unit causes damage to a Unit and the Common Elements below): Unit A would now be responsible for $5,000.00 of the deductible, instead of just the $2,500.00. Unit B would still be responsible for $2,500.00 (25%) of the deducible, and the Association would be responsible for only $2,500.00 (25%) of the deductible.
The above provides only a general summary of the financial responsibilities of Owners, the Association, and/or the insurance company with respect to water damage at the Condominium. The Association’s governing documents may shift or alter these responsibilities. Therefore, it is imperative that an association or its counsel properly review all condominium instruments to determine whether provisions contained therein would alter the conclusions discussed above.