Explaining the Difference Between a “Studs-Out” vs an “All-In” Insurance Policy: Pros And Cons

Condo Media interviewed board member Greg Pierce, CPA, Senior Vice President, Northstar Insurance Services, Inc.

 

Question:

Can you explain the difference between a ‘Studs-Out” vs an ‘All- In’ insurance policy and the pros and cons of each type?

Answer:

Paramount to a clear understanding of association vs. unit owners’ insurance-related responsibilities is the question of how the Master Policy is going to respond with respect to in-unit property in the event of a covered property claim.

The two main ways in which an association’s Master Policy will typically address damage to real property is via “All In” coverage, or “Studs Out” coverage; and which treatment is relevant to a specific association is generally dictated within that association’s documents (not necessarily the policy document itself, in many cases).  A brief overview of these two treatments is as follows.

  • “All-In” coverage dictates, generally, that everything attached to the real property would be covered by the association’s Master Policy, including the building envelope, all common area property, as well as the unit owners’ property that is affixed to the structure within their units, such as countertops, cabinets, window fixtures, wall and floorcoverings. In the instance that All-In coverage is afforded by the Master Policy, a unit owner’s responsibility would theoretically be to insure only their own personal property within the unit that is not affixed to the structure.  It is also well advised for individual unit owners to be cognizant of the Master Policy property deductible, and carry enough building coverage on their HO-6 policy to at least reach the level of the Master Policy’s deductible in the event of a loss.
  • “Studs-Out” coverage means that anything attached to the structure up to the studs in the walls would be covered by the Master Policy, while anything beyond the studs within an individual unit, i.e. inside of the unit, would be the responsibility of the unit owner to insure.  In other words, the Master Policy would cover the real property up until the interior of individual units, at which point a unit owner’s HO-6 would theoretically be responsible for covering in-unit property.  For example, in the event of a claim that impacts the interior of a unit, the HO-6 policy would be responsible for covering damage to in-unit affixed property like cabinets, countertops and other fixtures, as well as wallboard, flooring and ceiling materials inside of the studs (not to mention unit owners’ other personal property), while the Master Policy would only respond if there was damage outside of the studs.

Most insurance professionals would agree that in “real life” claim situations, All-In coverage is generally preferable from both a logistical and financial standpoint vs. the alternative.  The main advantage of All-In coverage is that it allows for the association to structure a single Master Policy that would address property loss to the entire structure, including in-unit affixed property, vs. relying on insurance coverage that is the responsibility of individual unit owners to purchase independently.  In a large association with many unit owners, the idea of relying on all unit owners to understand and properly execute their insurance-related duties prior to a claim can be nerve-wracking, and an All-In Master Policy generally mitigates much of this risk.

Regardless of what one’s condo association documents dictate in terms of the interplay between the Master Policy and HO-6, it is critical that association leaders engage a knowledgeable insurance agent to help structure the right insurance program for the community based on this guidance.  It is also critical that unit owner responsibilities are communicated clearly, and in a timely fashion, especially in the event of a Studs-Out Master Policy.