Horizontal Property Regimes (“HPRs”), often referred to as condominiums, are legally unique developments with various laws applicable exclusively to HPRs. Determining what an HPR association’s insurance obligations are or when and if an HPR association should file a claim are some of the most frequently addressed issues. This is understandable given that the HPR’s governing documents may conflict with state law, and those state law requirements may seem contradictory to common understandings of how individual condos are owned, maintained, and insured. While this article cannot cover every possible HPR insurance situation (and does not seek to), this article aims to call attention to South Carolina law concerning HPR insurance and provide information which may be helpful to HPR associations in their evaluation of insurance obligations and decisions on filing insurance claims.
First, it is important to note that for HPRs, the maintenance and repair obligations should be considered separate and apart from the insurance obligations.
While individual owners may have the obligation to maintain, repair, or replace a part of the condominium, the HPR association might have the obligation to maintain insurance which happens to cover the cost of that same maintenance, repair, and replacement for covered losses. This is a common source of confusion as it may sometimes seem contradictory.
South Carolina imposed insurance obligations on HPRs as a matter of state law by way of the South Carolina Horizontal Property Act (the “Act”)[1], which requires an HPR association to “insure the property against risks, without prejudice to the right of each co-owner to insure his apartment on his own account and for his own benefit.”[2] This Section is relatively vague. That said, the Act defines “property” as (1) the land whether leasehold or in fee simple and whether or not submerged, (2) the building, all improvements, and structures on the land, in existence or to be constructed, and (3) all easements, rights, and appurtenances belonging thereto.”[3] The Act also defines the term “building” to include “an existing or proposed structure or structures, containing in the aggregate two or more apartments, comprising a part of the property.”[4] This broad language of the Act implies that the HPR association must insure the entire property, including the buildings and the apartments (e.g., condos or units) within. By operation of state law, this statutory requirement overrides any language in the Master Deed or Bylaws of a HPR that would require lesser insurance coverage. However, it is important for HPR associations to still review the insurance obligations in their governing documents to see if there is a greater obligation imposed, or other specific provisions as to the details of the coverage required.
Generally, it would seem the intent of the Act is that an HPR should have insurance coverage sufficient to rebuild the condominium buildings, and not just the shells of the buildings, in the event of catastrophic loss.[5] Although, it is doubtful that the intention of the Act was to require an HPR association to insure the contents of the units,[6] the Act seemingly requires the HPR association to maintain at least sufficient coverage to reconstruct individuals units within the buildings, to at least an as-built condition.
Filing a claim in the event of catastrophic loss of a condominium property is easy to reconcile—the HPR’s coverage will almost always be considered primary.
However, catastrophic loss does not occur that often. More frequently, insurance issues and questions arise when there are damages affecting a smaller portion of the property, such as a water leak resulting from one unit’s pipes that not only damages that unit, but others. Although unit owners typically have the obligation to maintain, repair, and replace elements of their own unit, the issue of insurance complicates the question of who has the obligation to file.
Most unit owners in an HPR have a standard HO6 policy An HO6 policy generally insures the interior of a condominium unit and its contents. Some HPRs require owners to insure their units with an HO6 policy, while others simply allow it. If the HPR is maintaining insurance that is compliant with the Act, as they should be, and a unit owner has an HO6 policy, there will be an overlap in coverage. So, the question is often which insurance is considered primary in the event of covered damage within the unit? The answer is often fact specific and based on a number of circumstances. One example of a potential issue would be if the owner has an HO6 policy but is not required to have an HO6 policy pursuant to the HPR association’s governing documents. It is likely that the owner’s insurance carrier would take the position that the HPR association’s insurance is primary because they voluntarily obtained their policy, and therefore the HPR should be required to file a claim with the HPR association’s insurance carrier.
More often than not, the conflict arises when there is an overlap in coverage because the unit owner is required to maintain an HO6 policy pursuant to the HPR association’s governing documents.
Sometimes, the Master Deed or Bylaws may set forth provisions dictating the order of application of policies which may help avoid debate, but not always. There is a possibility that the HPR association is legally required to file the claim, even if the damage resulted from an element of the unit and only caused damage inside the unit. However, there are a number of questions and factors that can impact the determination of when the HPR association should file a claim on the HPR’s policy.
In closing, it is important to be familiar with the South Carolina Horizontal Property Act and your HPR’s governing documents. When complicated HPR insurance issues arise and there is conflict as to who should be filing a claim, it may be necessary to consult with not only your insurance professionals but also legal counsel. Our attorneys at McCabe, Trotter & Beverly, P.C. are experienced and well-equipped to answer questions you may have regarding HPR insurance and when an HPR is legally required to file a claim. Please contact us at (803) – 724 – 5000 for further information. McCabe, Trotter & Beverly, P.C. blogs and other content are for educational and informational purposes only. This is not legal advice and does not create an attorney/client relationship between McCabe, Trotter & Beverly, P.C. and readers. Readers should consult an attorney to understand how this information relates to their personal situation and circumstances. You should not use McCabe, Trotter & Beverly, P.C. blogs or content as a substitute for legal advice from a licensed attorney.
Written by V. Morgan Bryant
[1] S.C. Code § 27-31-10 et seq.
[2] S.C. Code § 27-31-240 (emphasis added)
[3] S.C. Code § 27-31-20(k) (emphasis added).
[4] S.C. Code § 27-31-20(b) (emphasis added).
[5] Douglas Scott MacGregor, Esq., South Carolina Community Association Law: Condominiums and Homeowners Associations 45 (2019).
[6] See S.C. Code 27-31-250.