Michigan Condo and HOA Association Insurance: The Statute Will Not Tell You Where the Line Falls

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Michigan condo association insurance turns on a question the state does not answer: where does the association's responsibility stop and the co-owner's begin? Boards look for that line in the Condominium Act and cannot find it, because it is not there. It is in your master deed and bylaws. Understanding that — and knowing which document does contain a real insurance mandate — is what separates a board that gets a claim paid from one that gets a lawsuit.

What Michigan law actually says

The Michigan Condominium Act is 1978 PA 59, MCL 559.101 et seq. Here is what surprises most boards: the Act does not order an association to buy insurance. What it says, at MCL 559.156, is that the bylaws may contain provisions "for insuring the co-owners against risks affecting the condominium project, without prejudice to the right of each co-owner to insure his condominium unit or condominium units on his own account and for his own benefit."

That is permissive language, and it is the statutory root of why your documents, not the state, decide where the insurance line falls.

The real mandate sits somewhere almost nobody looks: Michigan's administrative rules. Mich. Admin. Code R. 559.508 provides that the bylaws "shall provide that the association of co-owners shall carry insurance for fire and extended coverage, vandalism and malicious mischief, and, if applicable, liability and workers' disability compensation, pertinent to the ownership, use, and maintenance of the premises," with all premiums an expense of administration, and that the association may carry other coverage including cross-coverage for damage done by one co-owner to another.

Two things that rule does not do: it sets no dollar limits, and it does not draw a walls-in or walls-out line. Note also the precise shape of it — it is a requirement about what the bylaws must say, enforced through review of condominium documents, rather than a freestanding duty on an existing association. Michigan's condominium rules require the bylaws to obligate the association to carry that coverage. That is the accurate sentence.

So where is the walls-in line?

In your master deed. The Act points there twice — MCL 559.161 makes each unit together with its appurtenant share of the common elements a sole property, and MCL 559.163 gives each co-owner an exclusive right to the unit plus rights in the common elements "as are designated by the master deed." Both roads lead back to the same document.

If you want to know whether your association insures the drywall, the statute will not tell you. The master deed will. The practical instruction for a board: read the master deed's definitions of common elements and limited common elements alongside the maintenance-and-repair article, then have your agent and the association's attorney compare that to what the master policy actually insures. Those three documents disagreeing is the most common serious defect we see on Michigan association accounts, and nobody discovers it until a pipe breaks.

Bare walls, single entity, all-in — and why the co-owner's HO-6 depends on it

"Bare walls," "single entity" and "all-in" are industry shorthand for how far into the unit the master policy reaches. They are not defined in any standard form or in Michigan law — they are descriptions of what a given master deed and master policy happen to do. The narrower the master policy, the more the co-owner's unit-owner policy has to carry.

The unit-owner form is the HO-6. Coverage A on an HO-6 does not insure the building; it insures the co-owner's side of the line — additions, alterations and improvements, and the interior finishes the master deed leaves to the co-owner. In our experience HO-6 policies are frequently issued with a Coverage A limit far below what it would actually cost to rebuild the inside of a unit.

Lenders care about this even when boards do not. Fannie Mae states plainly that to the extent the master policy does not cover the interior of the unit or improvements to it, the borrower must maintain individual unit-owner property insurance — and that an HO-6 is required whenever the master policy includes a per-unit deductible. The minimum is the greater of enough to restore the unit to pre-loss condition for whatever the master policy does not cover, or the master policy's per-unit deductible, and it must be replacement cost. (You will see "20% of appraised value" repeated all over the internet as the Fannie Mae standard. It is not in the current guide.)

Loss assessment: the $1,000 nobody notices

When the association takes a loss and assesses the co-owners, loss assessment coverage on the HO-6 is what responds. The standard form builds in $1,000 under Section I (property — your share of an assessment traceable to direct physical loss to commonly owned property from a covered peril) and a separate $1,000 under Section II (liability — your share of an assessment tied to bodily injury or property damage, or to liability for an act of a director, officer or trustee, provided that person was elected by the members and serves without deriving income from those duties). That proviso is not decoration: a paid officer or a management-company appointee can sit outside it. You will see it quoted as "$2,000" in places; it is two separate additional coverages, not one limit.

Three things must line up: the assessment has to be charged during the policy period, the underlying loss must be to property owned by all members, and the cause must be a peril insured against.

Now the trap. Assessments levied to fund the association's deductible were capped at $1,000 inside the loss assessment limit under the older endorsement edition (HO 04 35 04 91). The 05 11 edition removed that special limit, so an increased loss assessment limit can reach deductible assessments — but only if your carrier is on that edition and using standard forms at all. Ask which edition of the loss assessment endorsement is on your policy; that single question is most of the answer. With Fannie Mae permitting master-policy deductibles up to 5% of the coverage amount or $50,000 per unit, a $1,000 sublimit is not a rounding error — it is the difference between a co-owner writing a check for a few hundred dollars and one writing a check for five figures. Supplemental loss assessment is available by endorsement, and limits of $50,000 to $100,000 are commonly available. In the markets we place, the cost of increasing this limit is typically modest — ask for it priced both ways and decide with the numbers in front of you.

There is a Michigan wrinkle worth naming. Because Michigan commercial lines are largely exempt from filing, your association's master policy may not be a standard form at all, while the co-owner's HO-6 is a personal lines form and is filed. The two documents that have to coordinate are not drawn from the same book. That asymmetry is real and it is why comparing master policies on premium alone tells you nothing.

Board D&O: Michigan gives co-owners a statute to sue you with

Volunteer board members are frequently astonished to learn they can be sued personally. Michigan makes it explicit. MCL 559.207 provides that a co-owner may maintain an action against the association and its officers and directors to compel enforcement of the condominium documents — and adds fee-shifting to whichever side prevails, to the extent the documents so provide.

That is a purpose-built claim generator. The disputes that produce it are the ordinary business of a board: selective rule enforcement, architectural approvals, election disputes, deferred maintenance, and decisions about who pays for what after a loss. None of those are bodily injury or property damage, so the association's general liability policy is not the policy that answers them. Directors and officers liability is.

Two structural points for a board evaluating D&O: check whether the policy covers the association and the individual directors, including volunteers and committee members, and check whether defense costs erode the limit. Also worth reviewing separately with counsel: Michigan's nonprofit corporation statutes let articles of incorporation limit a director's or volunteer officer's liability, and indemnification is governed by its own separate set of provisions. Those are two different mechanisms and neither is insurance. Ask your association's attorney what your articles actually say.

Fidelity, workers' comp and the rest

• Fidelity / crime coverage. Associations handle other people's money, often with volunteer oversight and a management company in between. Embezzlement from association funds is a recurring claim type nationally, and lenders commonly require fidelity coverage on the project.
• Workers' compensation. Michigan's administrative rule names it. Michigan classifies employees engaged in the care, custody and maintenance of condominium or cooperative premises under Code 9015 — the manual's phraseology expressly reaches condominiums and cooperatives, housing authorities, and janitorial and custodial care. Associations that use only contractors still need to collect certificates: under MCL 418.171 a principal can be made to pay comp for an uninsured contractor's injured employee. See 1099 subcontractors and Michigan workers' comp.
• Reserves. An underfunded reserve is not an insurance problem, but it becomes one at claim time: a board that cannot fund its deductible assesses the co-owners, and that is where the loss assessment math above lands.

Frequently Asked Questions

Does Michigan law require a condo association to carry insurance?

Not in the Condominium Act itself. MCL 559.156 is permissive — it says the bylaws may contain provisions for insuring co-owners against risks affecting the project. The requirement lives in Michigan's administrative rules, which provide that the bylaws shall obligate the association to carry fire and extended coverage, vandalism and malicious mischief, and where applicable liability and workers' disability compensation. Neither the Act nor the rule sets dollar limits.

Who insures the drywall — the association or the co-owner?

Your master deed decides, not Michigan law. The Act repeatedly points back to the master deed for what is a unit, a common element and a limited common element. Read the master deed's definitions alongside its maintenance-and-repair article, then compare that to what the master policy actually insures. Have your agent and the association's attorney do that comparison together, because the three documents disagreeing is a common and expensive defect.

How much loss assessment coverage does a condo owner need?

The standard unit-owner form includes $1,000 under Section I and a separate $1,000 under Section II. Assessments levied to fund the association's deductible have historically been capped at $1,000 within that limit unless more is purchased. Given that master-policy deductibles can run to 5% of the coverage amount or $50,000 per unit under Fannie Mae's rules, supplemental loss assessment of $50,000 to $100,000 is commonly recommended and costs very little.

Can a Michigan condo board member be sued personally?

Yes. MCL 559.207 expressly allows a co-owner to bring an action against the association and its officers and directors to compel enforcement of the condominium documents, with fee-shifting to the prevailing side to the extent the documents provide for it. Those claims are not bodily injury or property damage, so the association's general liability policy does not answer them. Directors and officers liability is the coverage for it.

Why does my HO-6 matter if the association has a master policy?

Because the master policy stops where the master deed says it stops. If your project is written on a narrow basis, the interior finishes, cabinetry, flooring and any improvements a prior owner made are yours to insure. Lenders enforce this too — Fannie Mae requires an individual policy wherever the master policy does not cover the unit interior or carries a per-unit deductible.

The bottom line

An association program is evaluated on four documents read together: the master deed, the bylaws, the master policy, and the D&O policy. When they agree, claims get paid. When they do not, a board of volunteers ends up litigating with its own co-owners over who pays for the drywall.

We work best with established Michigan associations — a real budget, funded reserves or a plan to get there, professional management or an engaged board, and a few years of loss history. If that is your association, send us your master deed and bylaws, your current master policy declarations, and your last two loss runs. We will tell you where your documents and your policy disagree before we talk about price. As an independent agency representing more than twenty commercial carriers, we can compare master policies that are not written from the same book. Call (248) 693-6455 or request an association review.