(1) Commencing not later than the time of the first
conveyance of a unit to a person other than a declarant, the association shall
maintain, to the extent reasonably available:
(a) Property insurance on the common elements and, in a planned
community, also on property that must become common elements, for broad form
covered causes of loss; except that the total amount of insurance must be not less
than the full insurable replacement cost of the insured property less applicable
deductibles at the time the insurance is purchased and at each renewal date,
exclusive of land, excavations, foundations, and other items normally excluded
from property policies; and
(b) Commercial general liability insurance against claims and liabilities
arising in connection with the ownership, existence, use, or management of the
common elements, and, in cooperatives, also of all units, in an amount, if any,
specified by the common interest community instruments or otherwise deemed
sufficient in the judgment of the executive board but not less than any amount
specified in the association documents, insuring the executive board, the unit
owners' association, the management agent, and their respective employees,
agents, and all persons acting as agents. The declarant shall be included as an
additional insured in such declarant's capacity as a unit owner and board member.
The unit owners shall be included as additional insureds but only for claims and
liabilities arising in connection with the ownership, existence, use, or management
of the common elements and, in cooperatives, also of all units. The insurance shall
cover claims of one or more insured parties against other insured parties.
(2) In the case of a building that is part of a cooperative or that contains units
having horizontal boundaries described in the declaration, the insurance maintained
under paragraph (a) of subsection (1) of this section must include the units but not
the finished interior surfaces of the walls, floors, and ceilings of the units. The
insurance need not include improvements and betterments installed by unit owners,
but if they are covered, any increased charge shall be assessed by the association
to those owners.
(3) If the insurance described in subsections (1) and (2) of this section is not
reasonably available, or if any policy of such insurance is canceled or not renewed
without a replacement policy therefore having been obtained, the association
promptly shall cause notice of that fact to be hand delivered or sent prepaid by
United States mail to all unit owners. The declaration may require the association to
carry any other insurance, and the association in any event may carry any other
insurance it considers appropriate, including insurance on units it is not obligated to
insure, to protect the association or the unit owners.
(4) Insurance policies carried pursuant to subsections (1) and (2) of this
section must provide that:
(a) Each unit owner is an insured person under the policy with respect to
liability arising out of such unit owner's interest in the common elements or
membership in the association;
(b) The insurer waives its rights to subrogation under the policy against any
unit owner or member of his household;
(c) No act or omission by any unit owner, unless acting within the scope of
such unit owner's authority on behalf of the association, will void the policy or be a
condition to recovery under the policy; and
(d) If, at the time of a loss under the policy, there is other insurance in the
name of a unit owner covering the same risk covered by the policy, the association's
policy provides primary insurance.
(5) Any loss covered by the property insurance policy described in paragraph
(a) of subsection (1) and subsection (2) of this section must be adjusted with the
association, but the insurance proceeds for that loss shall be payable to any
insurance trustee designated for that purpose, or otherwise to the association, and
not to any holder of a security interest. The insurance trustee or the association
shall hold any insurance proceeds in trust for the association unit owners and
lienholders as their interests may appear. Subject to the provisions of subsection
(9) of this section, the proceeds must be disbursed first for the repair or restoration
of the damaged property, and the association, unit owners, and lienholders are not
entitled to receive payment of any portion of the proceeds unless there is a surplus
of proceeds after the property has been completely repaired or restored or the
common interest community is terminated.
(6) The association may adopt and establish written nondiscriminatory
policies and procedures relating to the submittal of claims, responsibility for
deductibles, and any other matters of claims adjustment. To the extent the
association settles claims for damages to real property, it shall have the authority
to assess negligent unit owners causing such loss or benefiting from such repair or
restoration all deductibles paid by the association. In the event that more than one
unit is damaged by a loss, the association in its reasonable discretion may assess
each unit owner a pro rata share of any deductible paid by the association.
(7) An insurance policy issued to the association does not obviate the need
for unit owners to obtain insurance for their own benefit.
(8) An insurer that has issued an insurance policy for the insurance
described in subsections (1) and (2) of this section shall issue certificates or
memoranda of insurance to the association and, upon request, to any unit owner or
holder of a security interest. Unless otherwise provided by statute, the insurer
issuing the policy may not cancel or refuse to renew it until thirty days after notice
of the proposed cancellation or nonrenewal has been mailed to the association, and
each unit owner and holder of a security interest to whom a certificate or
memorandum of insurance has been issued, at their respective last-known
addresses.
(9) (a) Any portion of the common interest community for which insurance is
required under this section which is damaged or destroyed must be repaired or
replaced promptly by the association unless:
(I) The common interest community is terminated, in which case section 38-33.3-218 applies;
(II) Repair or replacement would be illegal under any state or local statute or
ordinance governing health or safety;
(III) Sixty-seven percent of the unit owners, including every owner of a unit or
assigned limited common element that will not be rebuilt, vote not to rebuild; or
(IV) Prior to the conveyance of any unit to a person other than the declarant,
the holder of a deed of trust or mortgage on the damaged portion of the common
interest community rightfully demands all or a substantial part of the insurance
proceeds.
(b) The cost of repair or replacement in excess of insurance proceeds and
reserves is a common expense. If the entire common interest community is not
repaired or replaced, the insurance proceeds attributable to the damaged common
elements must be used to restore the damaged area to a condition compatible with
the remainder of the common interest community, and, except to the extent that
other persons will be distributees, the insurance proceeds attributable to units and
limited common elements that are not rebuilt must be distributed to the owners of
those units and the owners of the units to which those limited common elements
were allocated, or to lienholders, as their interests may appear, and the remainder
of the proceeds must be distributed to all the unit owners or lienholders, as their
interests may appear, as follows:
(I) In a condominium, in proportion to the common element interests of all
the units; and
(II) In a cooperative or planned community, in proportion to the common
expense liabilities of all the units; except that, in a fixed or limited equity
cooperative, the unit owner may not receive more of the proceeds than would
satisfy the unit owner's entitlements under the declaration if the unit owner leaves
the cooperative. In such a cooperative, the proceeds that remain after satisfying the
unit owner's obligations continue to be held in trust by the association for the
benefit of the cooperative. If the unit owners vote not to rebuild any unit, that unit's
allocated interests are automatically reallocated upon the vote as if the unit had
been condemned under section 38-33.3-107, and the association promptly shall
prepare, execute, and record an amendment to the declaration reflecting the
reallocations.
(10) If any unit owner or employee of an association with thirty or more units
controls or disburses funds of the common interest community, the association
must obtain and maintain, to the extent reasonably available, fidelity insurance.
Coverage shall not be less in aggregate than two months' current assessments plus
reserves, as calculated from the current budget of the association.
(11) Any person employed as an independent contractor by an association
with thirty or more units for the purposes of managing a common interest
community must obtain and maintain fidelity insurance in an amount not less than
the amount specified in subsection (10) of this section, unless the association names
such person as an insured employee in a contract of fidelity insurance, pursuant to
subsection (10) of this section.
(12) The association may carry fidelity insurance in amounts greater than
required in subsection (10) of this section and may require any independent
contractor employed for the purposes of managing a common interest community
to carry more fidelity insurance coverage than required in subsection (10) of this
section.
(13) Premiums for insurance that the association acquires and other
expenses connected with acquiring such insurance are common expenses.