Condominium master policy does not cover damage to individual owners' units; Court grants summary judgment to defendant insurer

New Jersey Manufacturers Ins. Co. v. Hamilton Specialty Ins Co, et al., MER-L-18-17 (Sup.Ct. Mercer Cty. Aug. 28, 2017)

How is one to know whether a condominium association's policy provides coverage for individual units, and not just the common elements that are owned in common by all the unit owners? A New Jersey motion court recently determined that a master policy providing coverage for a condominium complex did not include unit owners as insureds or provide coverage for the interior of units. It therefore granted summary judgment to the defendant insurer and dismissed water damage subrogation claims against it asserted by unit owners' insurer.

The claim arose when the defendant unit owner in the condominium left her sink running. The overflow seeped into units below, which were owned by the plaintiff's subrogors, and it caused damage to their dwellings and fixtures (though not to any personal property). Plaintiff paid its insureds' claims, including additional living expense, and commenced a subrogation action, seeking reimbursement for the payments from, among others, the insurer that issued a master policy which named the condo's homeowners association. It contended that the condominium association coverage form under that policy obligated the defendant insurer to reimburse it.

On a motion for summary judgment the plaintiff argued that the subrogor unit owners were insureds under the defendant's policy because they were both members of the named insured homeowners association and the policy was intended to cover the interests of all members. Alternatively, plaintiff argued that they were intended third-party beneficiaries of the defendant's policy. As insured, the plaintiff contended, they were entitled to coverage for their property damage under the policy's coverage for fixtures, improvements, alterations that are part of the structure, and appliances.

Defendant opposed the motion and made a cross-motion, contending that the policy does not cover individual unit owners' property and the individual unit owners did not qualify as named insureds or additional insureds. The policy admittedly covered condominium common property, specifically real property in which all unit owners have an interest. The policy could only extend coverage to real property and appliances within the units if the association had agreed to insure them. Here, there was no such agreement.

The court reviewed two possible sources of such an agreement by the association to insure the units: the condominium bylaws and a condominium master deed, as informed by New Jersey statutory definitions and case law. It concluded that, "the master deed confirms that the property insurance scheme existing for this complex was that of the association was to procure insurance for the common elements of the complex and that the unit owner could, if desired, get his or her own insurance for the unit property." The bylaws created no obligation to procure insurance on the units, and one of the association's resolutions provided evidence to the contrary, that is, of an intent that unit owners were to obtain and maintain insurance covering the maintenance and repair of their own property.

AGF&J partner Michael E. Gorelick briefed and argued the defendant's cross-motion, assisted by associate Michael Goldwasser.