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Community Associations Beware

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Community Associations Beware: Minnesota law requires replacement cost insurance rather than actual cash value coverage

Recently, one of our clients informed us that certain insurers were selling and providing actual cash value policies to Minnesota community associations; the client questioned whether such policies complied with Minnesota law.  Minnesota law requires that associations subject to the Minnesota Common Interest Ownership Act (MCIOA) (Minnesota Statutes Chapter 515B) obtain full insurable replacement cost coverage.  Specifically, Minnesota Statutes Section 515B.3-113 provides, in part, as follows:

“(a)  Commencing not later than the time of the first conveyance of a unit to a unit owner other than a declarant, the association shall maintain, to the extent reasonably available:

(1)  subject to subsection (b), property insurance (i) on the common elements and, in a planned community, also on property that must become common elements, (ii) for broad form covered causes of loss, and (iii) in a total amount of not less than the full insurable replacement cost of the insured property, less deductibles, at the time the insurance is purchased and at each renewal date, exclusive of items normally excluded from property policies.”

(Emphasis added.)

MCIOA’s insurance provisions govern all condominiums, regardless of their date of formation, within the State of Minnesota.  MCIOA also governs planned communities (i.e. townhome associations) formed after June 1, 1994.  MCIOA also governs planned communities that have opted to be covered by MCIOA.  The determination of whether a community association is subject to MCIOA should be analyzed on a case-by-case basis.  However, if an association is subject to MCIOA, it is subject to the foregoing quoted insurance requirements. 

Pursuant to Section 515B.3-113 (k), “The provisions of this section may be varied or waived in the case of a common interest community in which all units are restricted to nonresidential use.”  Thus, commercial associations (i.e. non residential) may be excluded and are not required to obtain the required insurance coverage.  However, residential associations are legally required to provide insurance coverage for the full insurable replacement cost and do not have the option of providing actual cash value policies.

Based on the provisions of MCIOA, it is clear that community associations covered by MCIOA do not have the option to obtain actual cash value coverage, since the statute specifically requires full insurable replacement cost coverage.  Associations governed by MCIOA should verify with their insurance agents that they are carrying appropriate coverage.  Questions or concerns regarding your Association’s insurance coverage can be directed to me.