Section 1: Duty to Obtain Insurance; Types

The Board shall cause to be obtained and maintained adequate blanket public liability insurance (including medical payments), with such limits as may be considered acceptable to the Federal National Mortgage Association (not less than $1 million covering all claims for personal injury and property damage arising out of a single occurrence), insuring against liability for bodily injury, death and property damage arising from the activities of the Association and its members, with respect to the common Property and any other Property under its jurisdiction. The Board shall also cause to be obtained and maintained fire and casualty insurance with extended coverage, without deduction for depreciation, in an amount as near as possible to the full replacement value of the common and limited common Property and, where not covered by an individual unit owner’s policy, those portions of the unit’s fixtures, installations or additions comprising a part of the buildings housing the units and all built-in or set-in appliance, cabinets and initial basic floor coverings, as initially installed or replacements thereof in accordance with the original plans and specifications for the project, or as installed by or at the expense of the owners. Such insurance shall be maintained for the benefit of the Association, the owners, and the mortgagees, as their interests may appear as named insured, subject, however, to less payment requirements as set forth herein. The Board of Directors shall purchase such other insurance, as necessary, including, but not limited to, errors and omissions, directors, officers and agents liability insurance, plate glass insurance, medical payments, malicious, mischief, and vandalism insurance, fidelity bonds and worker’s compensation, flood insurance, and other risks as shall customarily be covered with respect to townhome projects similar in construction, location and use. Fidelity bond coverage must be obtained by or on behalf of the Association for any person or entity handing funds of the Association, including, but not limited to, officers, directors, trustees and employees of the Association and employees of the professional managing agent of the Association. Notwithstanding any other provisions herein, the Association shall continuously maintain in effect such casualty, flood and liability insurance and a fidelity bond meeting the insurance and fidelity bond requirements for “PUD” projects established by the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”) and The Mortgage Corporation (“TMC”), so long as any of which is a mortgagee or owner of a townhome within the project, except to the extent such coverage is not available or has been waived in writing by the FNMA, the GNMA and TMC, as applicable. See the FNMA Conventional Home Mortgage Selling Contract Supplement for specific requirements regarding qualification.

Section 2: Waiver of Claim Against Association

As to all policies of insurance maintained by or for the benefit of the Association and the owners, the Association and the owners hereby waive and release all classes against one another, the Board of Directors and Grantor, to the extent of the insurance proceeds available, whether or not the insurable damage or injury is caused by negligence of or breach of any agreement by any of said persons.

Section 3: Right and Duty of Owners to Insure

It is the responsibility of each owner to provide insurance on his personal property and upon all other property and improvements within his unit. Nothing herein shall preclude any owner from carrying any public liability insurance as he deems desirable to cover his individual liability for damage to person or property occurring inside his individual unit or elsewhere upon the Property. Such policies shall not adversely affect or diminish any liability under any insurance obtained by or on behalf of the Association, and duplicate copies of such other policies shall be deposited with the Board upon request. If any loss intended to be covered by insurance carried or on behalf of the Association shall occur and the proceeds payable thereunder shall be reduced by reason of insurance carried by any owner, such owner shall assign the proceeds of such insurance carried by him to the Association, to the extent of such reduction, for application by the Board to the same purposes as the reduced proceeds are to be applied.

Section 4: Notice of Expiration Requirements

If available, all of the policies of insurance maintained by the Association shall contain a provision that said policy or policies shall not be cancelled, terminated or expired by their terms, without ten (10) days’ prior written notice to the Board, grantor, owners and their respective first mortgagees (provided that grantor, such owners of mortgagees have filed written requests with the carrier for such notice) and every other person in interest who requests such notice of the insurer.

Section 5: Insurance Premiums

Insurance premiums for any blanket insurance coverage obtained by the Association and any other insurance deemed necessary by the Board of Directors shall be a common expense to be included in the annual assessments levied by the Association and collected from the owners. That portion of the annual assessments necessary for the required insurance premiums shall be separately accounted for by the Association in the reserve fund, to be used solely for the payment of premiums of required insurance as such premiums become due.

Section 6: Trustee for Policies

The Association, acting through its Board of Directors, is hereby appointed and shall be deemed trustee of the interests of all named insureds under policies of insurance purchased and maintained by the Association. All insurance proceeds under any such policies as provided for in Section 1 of this Article shall be paid to the Board of Directors as trustees. The Board shall have full power to receive and to contract for the proceeds and to deal therewith as provided herein as if they were an attorney in fact for the owners. Insurance proceeds shall be used by the Association for the repair or replacement of the Property for which the insurance was carried or otherwise disposed of as provided in Article 12 of this Declaration. The Board is hereby granted the authority to negotiate loss settlements with the appropriate insurance carriers, with participation, to the extent they desire, of first mortgagees who have filed written requests within ten (10) days of receipt of notice of any damage —

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3. Any right of set-off, counterclaim, apportionment, proration or contribution by reason of other insurance not carried by the Association;
4. Any invalidity, other adverse effect or defense on account of any breach of warranty or condition caused by the Association, any owner or any tenant of any owner, or arising from any act, neglect, or omission of any named insured or the respective agents, contractors and employees of any insured;
5. Any right of the insurer to repair, rebuild or replace, and, if the improvement is not repaired, rebuilt or replaced following loss, any right to pay under the insurance an amount less than the replacement value of the improvements insured;
6. Notice of the assignment of any owner of his interest in the insurance by virtue of a conveyance of any townhome; and
7. Any right to require any assignment of any mortgage to the insurer.