What Is Covered by a Strata Insurance Policy?

Strata insurance, often referred to as a master condo policy or homeowners association (HOA) insurance, is a specialized type of coverage designed for properties with shared ownership. This insurance is tailored for condominium complexes, townhouses, and other communal living arrangements where multiple individual units exist within a larger structure or shared common areas. Its fundamental purpose is to protect the collective interests of all unit owners by covering common property, shared assets, and the overall building structure. Premiums for strata insurance are typically shared among unit owners, usually incorporated into their regular fees or assessments. Holding strata insurance is generally mandatory for strata corporations or HOAs across the United States. This collective policy ensures that the financial burden of damage or liability related to shared spaces does not fall solely on individual owners.

Core Components of Strata Insurance

A standard strata insurance policy encompasses several fundamental and typically mandatory areas of coverage, protecting the collective assets and liabilities of the community.

One component is coverage for the physical building structure, including the foundation, roof, exterior walls, and other common structural elements. It also extends to shared infrastructure like plumbing and electrical systems within common areas.

Strata insurance also covers common property and assets owned by the strata corporation. This includes a wide array of shared spaces and facilities, such as lobbies, hallways, stairwells, elevators, and recreational amenities like gyms, swimming pools, tennis courts, gardens, and parking structures. Equipment or furniture used in these common areas is also protected.

An important component is liability coverage. This protects the strata corporation and unit owners against claims of bodily injury or property damage occurring on common property. For example, if a visitor is injured in a common hallway, this coverage addresses the strata corporation’s legal responsibility, including legal fees and settlement costs.

Specific Perils and Property Elements Covered

Strata insurance policies typically cover a range of specific perils, which are the types of events or damages that trigger coverage. Common perils include fire, lightning, explosions, windstorms, hail, and impact by vehicles or aircraft. Vandalism, riot, and smoke damage are also often included.

Water damage is a covered peril, particularly from burst pipes or accidental discharge from plumbing or heating systems. However, external floods or sewer backups are commonly excluded and may require additional coverage. Common area glass, such as windows in lobbies or entry doors, is typically covered for breakage.

The scope of coverage for interior elements within individual units varies based on the master policy type. “Bare walls-in” policies may only cover basic structural elements like walls, wiring, and plumbing up to the drywall. “Single entity” or “builder’s specs” policies extend coverage to include original fixtures and standard finishes, such as flooring, cabinetry, and built-in appliances. “All-in” policies may even cover upgrades to original features within the unit, though these are less common.

Optional Coverage Enhancements

While a basic strata insurance policy provides foundational protection, strata corporations can enhance coverage with additional protections.

For properties in areas prone to natural disasters, earthquake and flood coverage are often offered as separate policies, as these perils are typically excluded from standard policies. Sewer backup coverage can also be added.

Boiler and machinery breakdown coverage protects shared mechanical systems like boilers, elevators, and HVAC units from mechanical or electrical failures.

Fidelity bond or crime coverage is available to protect against financial losses from dishonest acts, such as theft or fraud by strata council members or property managers. This coverage should extend to anyone handling association funds.

Directors and Officers (D&O) liability insurance protects strata council members from personal liability for decisions made in their official capacity. This coverage helps with legal defense costs and potential damages if council members are sued for alleged wrongful acts.

Some policies offer legal expense insurance, which covers legal costs for specific disputes the strata corporation might encounter. These optional coverages depend on the strata’s specific needs and risk assessments.

Distinction from Individual Unit Owner Policies

Strata insurance does not cover everything for individual unit owners. A significant distinction is that it generally does not cover a unit owner’s personal belongings within their unit, such as furniture, electronics, or clothing. These require a separate personal contents insurance policy, often called an HO-6 policy or condo insurance.

Renovations or upgrades made by a unit owner beyond the original standard finishes are not covered by the strata policy. For example, custom flooring or high-end appliances installed by an owner would be their responsibility to insure. Depending on the master policy type, some original interior structural elements of a unit might also not be covered, necessitating individual unit owner coverage.

If a unit becomes uninhabitable due to an insured event, such as fire or water damage, strata insurance typically does not cover the unit owner’s temporary accommodation costs or loss of rental income. This “loss of use” or “additional living expenses” coverage must be procured through an individual unit owner’s policy.

Strata insurance also does not cover a unit owner’s personal liability for incidents occurring within their own unit that cause injury to guests or property damage to others. This personal liability protection is a component of the individual HO-6 policy.

In the event of a strata insurance claim, unit owners may be responsible for contributing to the strata’s deductible. This can occur if the damage originated from or impacted their specific unit, or if the strata corporation levies a special assessment for uninsured losses or a high deductible amount. Deductibles can range from thousands to tens of thousands of dollars. Unit owners are advised to purchase their own personal condo insurance to cover these potential gaps and responsibilities.