Liability insurance is required for all condo and co-op projects, with the following exceptions:
condo projects reviewed under the Limited Review method, or
two- to four-unit condo projects that do not maintain commercial general liability insurance, but meet the following criteria:
the project is horizontal in nature (no vertical or stacked units);
there is documentable evidence acceptable to the lender that the project does not contain any common elements that would require liability coverage (for example, units are only separated by lot lines and a party wall); and
the association’s legal documents do not require the maintenance of a general liability policy in the name of the HOA.
Note: Liability coverage is waived for projects that meet the criteria for a waiver of project review. See B4-2.1-01, General Information on Project Standards, for additional information.
The HOA or co-op corporation must maintain a commercial general liability insurance policy for the entire project, including all common areas and elements, public ways, and any other areas that are under its supervision. The insurance must also cover commercial spaces that are owned by the HOA or co-op corporation, even if they are leased to others. The liability insurance policy must provide coverage for bodily injury and property damage that results from the operation, maintenance, or use of the project’s common areas and elements.
The amount of coverage must be at least $1 million for bodily injury and property damage for any single occurrence.
If the policy does not include severability of interest or separation of insureds in its terms, Fannie Mae requires a specific endorsement to preclude the insurer’s denial of a unit owner’s claim because of negligent acts of the HOA or co-op corporation or of other unit owners.
The liability insurance policy for a condo or co-op project must include a provision that calls for at least ten days’ written notice to the HOA or insurance trustee before the policy can be canceled or substantially modified for any reason.
The table below provides references to the Announcements that have been issued that are related to this topic.