Board Condominium Financial Governance Insurance Legal

Can a Community Association Lose Common Grounds if Not Insured Properly?


R.M. from New Haven County writes:

Dear Mister Condo,

If the proper insurance is not in place and the associations cash is not bountiful, can a homeowners park lose its common grounds (pool area, boat launch, playground, etc) in/to a lawsuit?

Mister Condo replies:

R.M., most associations require that proper insurance be in place at all times but, as your question points out, just because it required to be doesn’t mean that it has to be, especially if the association were not being properly governed or ran into significant financial distress and couldn’t afford to insure itself properly. Since I was uncertain of the correct response, I turned to a friend who practices community association law. Here is what the attorney had to say:

“If an association fails to maintain the proper insurance and does not qualify for the narrow exemptions for that obligation, the association may become susceptible to a court order directing it to acquire coverage or even direct liability for any loss which the insurance otherwise would have covered.  If that liability was significant enough, it’s theoretically possible that the resulting judgment could be secured by a lien against the association’s property and foreclosed.  However, common areas are only owned by the association itself in a “planned community” or cooperative, not in a condominium where the common areas are owned jointly by the unit owners themselves.  So the answer to your question is “no” for a condominium, but “maybe” for a planned community or cooperative which has no other assets to pay for a civil judgment against it.”

I hope that helps. All the best!

2 thoughts on “Can a Community Association Lose Common Grounds if Not Insured Properly?”

Leave a Reply

Your email address will not be published. Required fields are marked *