In Elkins v. QBE Insurance Corporation, No. C11-5150, US District Court (W.D. Washington), Mr. and Mrs. Elkins filed suit against their condominium association’s insurance carriers for loss of rental income after a fire damaged common areas and individual units. The Elkins alleged that their individual loss of rent was part of the “community income” as defined in the property and casualty policy in question.
Harbour Commons Condominiums, a commercial office condominium, was the named insured under the QBE policy. The Elkins owned 2 office units located in the Harbour Commons building and leased those office units to commercial tenants.
The insurer tendered policy proceeds to repair the damage caused by the fire to the common areas and the Elkins’ units. QBE declined payment for the Elkins’ loss of rental income after the fire, asserting that the Elkins’ were not “named insureds” under the policy and that the contract did not cover loss of rent or income for individual unit owners.
The Elkins argued that the rental loss provision was not limited to “named insureds” under the policy and that it afforded coverage for “loss of community income,” which encompassed loss of rents by individual unit owners.
The Declarations Page provided that the Named Insured was “Harbour Commons, A Condominium” and there were no other additional insureds listed on the declarations page. The coverage provision at issue stated:
II. PROPERTY CONSEQUENTIAL COVERAGES SECTION
Unless specified otherwise, coverages apply as a
consequence of direct physical loss or damage to
"covered property" caused by or resulting from a
COVERED CAUSE OF LOSS for which a limit of
insurance is shown for such "covered property" in the
"Declarations." The coverages in this section are only
provided when limits of insurance are shown in the
B. COMMUNITY INCOME
We will pay for the loss of community income,
including loss of rent or loss of lease payments,
due to the suspension of your operations during
the "period of restoration." Community income
does not include maintenance fees and
The United States District Court found that:
The State of Washington requires condominium associations to maintain certain insurance coverage for condominiums. RCW 64.34.352 states that a condominium association shall maintain, to the extent reasonably available:
(a) Property insurance on the condominium, which may, but need not, include equipment, improvements, and betterments in a unit installed by the declarant or the unit owners, insuring against all risks of direct physical loss commonly insured
against. * * *
(b) Liability insurance, including medical payments insurance, in an amount determined by the board of directors….
The statute further provides that each unit owner is an insured person under the policy with respect to liability arising out of the owner’s interest in the common elements of the association. RCW 64.34.352(3)(a). There is no statutory requirement that an association provide coverage for the personal interests of unit owners. In fact, RCW 64.34.352(5) provides that a unit owner is entitled to obtain insurance for the owner’s own benefit.”
The Harbour Commons Condominium Association’s bylaws filed with the Washington Secretary of State required the association to maintain property insurance on the common areas and units of the condominium. The Elkins argued that under this obligation and the policy in question, their loss of rents should be considered “community income.”
The Court disagreed with the Elkins and granted summary judgment in favor of the insurer:
The term “community property” as defined in the Property Direct Coverages Section is confined to property that is owned or controlled by the named insured. The provisions providing coverage for “Community Personal Property” limit coverage to the named insured (i.e. indoor and outdoor furnishings, appliances, machinery, temporary structures, etc). Dkt. 14-4 pp. 5-6. The provisions for coverage for “Special Community Property” are limited to items that might be considered part of common areas (i.e. structural glass, bridges, docks, retaining wall, satellite dishes, newly constructed buildings), or items specifically owned by the Asscociation (i.e. money, securities, computer and media equipment, papers, receivables, records, etc.) Dkt. 14-4 pp. Thus, other than the mandate to cover the repair of the units of the condominium, other direct coverages applicable to the community property are confined to the named insured.
The same is true under the Property Consequential Coverages Section. The coverage of maintenance fees and assessments, accounts receivable expenses, and extra expenses incurred to continue normal operations during restoration, are all limited to the named insured. Dkt. 14-4 pp. 8. Even more telling is the provision entitled “Increased Period of Restoration Coverage.0020Dkt. 14-4 pp. 9. This provision provides for an extension of coverage for loss of “community income,” including loss of rent, “to include the amount of actual and necessary loss you sustain during the increased period of restoration of normal community operations.” Dkt. 14-4 pp. 9. As previously noted, the term “you” is defined as to refer to the named insured, Harbour Commons Condominiums Association. Only the named insured is entitled to extended coverage for loss of rent.
The policy provides coverage for loss of community income, including loss of rent or loss of lease payments, due to the suspension of Harbour Commons Condominiums Association’s operations during the period of restoration. Community income is that income attributable to Harbour Commons Condominiums Association. The policy does not provide insurance for loss of rent to the individual unit owners.
It is important to note that many commercial condominium policies list their lessees and unit owners as “additional named insureds.” In those cases, the individual owners may not suffer the same fate as the Elkins, as the loss of rent or income provision could also inure to the benefit of any additional named insured.