In condominium, townhome, and homeowner associations, the governing declarations play an important role in defining the scope of responsibilities and insurance coverage. These governing declarations, often referred to as “Declarations of Covenants, Conditions, and Restrictions,” are legal documents that outline the rules, regulations, and guidelines governing a residential community. These declarations are binding agreements between the property owners and the HOA and are recorded with the local recording office, making them enforceable. The documents can also determine the outcome of insurance coverage, such as in Wildwood Townhome Homeowners Association v. Travelers Property Casualty Company of America. 1
The Wildwood case arose after a hailstorm caused damage to various components of the Wildwood Townhomes property in Fort Collins, Colorado. The Wildwood Townhome Homeowners Association submitted a claim to their insurer, Travelers Property Casualty Company of America, seeking coverage for the damage. While Travelers paid for damage to common elements that the association was responsible for maintaining and repairing, it denied coverage for damage to windows, screens, doors, garage doors, and air conditioning condensers, arguing that these components were the responsibility of individual unit owners under the governing declarations. At the heart of the Wildwood dispute was the concept of “insurable interest,” which is necessary for coverage in any insurance claim. An insurable interest exists when the insured party would suffer a financial loss if the insured property were damaged.
Wildwood argued that the Colorado Common Interest Ownership Act (CCIOA) created an insurable interest by mandating that all condominium associations insure the totality of the buildings and units within the community, except for interior finishes of the privately owned units. Wildwood further asserted that the association had an insurable interest in the disputed components because Colorado law allows for such interest based on potential maintenance and repair obligations under the association’s declarations, regardless of ownership.
Travelers argued that the CCIOA does not apply to the Wildwood Townhome Homeowners Association’s insurance claim because the Wildwood community is a “Planned Community” and not a condominium or cooperative, thus only requiring insurance for “common elements.”
Travelers further noted that the CCIOA’s requirement for insurance coverage applies to buildings with horizontal boundaries, which do not exist in the two-story townhomes of the Wildwood community, making individual unit components like windows and doors the responsibility of the unit owners. Finally, Travelers pointed out that the Wildwood Association’s governing declarations specifically assigned the responsibility for maintaining, repairing, replacing, and insuring the disputed property to the individual townhouse owners, not the association.
The court sided with Travelers, ruling that the Wildwood association did not have an insurable interest in the disputed property components, as the governing declarations clearly assigned the responsibility for maintaining and insuring these components to the individual unit owners. As a result, the Wildwood Association could not claim coverage under its policy for the damage to these items.
While an association’s obligation to insure certain property components under its governing declarations can create an insurable interest arising from the potential financial liability or responsibility to repair or replace damaged property, it must be clearly outlined. Even if the association does not own the property, it can still hold a vested interest in ensuring adequate coverage to fulfill its duties and protect the community. The Wildwood ruling highlights the importance of well-drafted and clearly defined governing association declarations. The association declarations should not only outline the responsibilities of the association and unit owners but also should delineate what property the association is obligated to insure. In the absence of an insurable interest, as defined by the declarations, an association cannot successfully claim insurance coverage for certain property damages.
This case aligns with the broader principles discussed in a previous Merlin blog post, It’s All About the Property Interest, or Why Associations Aren’t Normally Responsible for Damage to Individual Condominium Units. Both Wildwood and the points raised in that post illustrate that associations are generally not responsible for insuring or repairing property that is privately owned by unit owners unless there is some other mechanism creating such a responsibility.
Ultimately, the Wildwood case serves as a reminder of the importance for associations to review and ensure the governing declarations clearly define intended responsibilities and align with the insurance policies chosen, protecting both the association and its members from disputes and potential losses.
1 Wildwood Townhome Homeowners Ass’n v. Travelers Prop. Cas. Co. of Am., No. 20-CV-01361, 2022 WL 889179 (D. Colo. Mar. 25, 2022).
