2019 Tennessee Code
Title 66 - Property
Chapter 27 - Multiple Ownership of Property
Part 4 - Tennessee Condominium Act of 2008 — Unit Owners' Association
§ 66-27-413. Insurance.

(a) Commencing no later than the time of the first conveyance of a unit to a person other than a declarant, the association shall maintain, to the extent reasonably available:

• (1) Property insurance on the common elements insuring against risks of direct physical loss commonly insured against for similar properties. The total amount of insurance after application of any deductibles shall be no less than eighty percent (80%) of the total replacement cost of the insured property at the time the insurance is purchased and at each renewal date, exclusive of land, excavations, foundations and other items normally excluded from property policies; and

• (2) Liability insurance, including medical payments insurance, in an amount determined by the board of directors, but no less than any amount specified in the declaration, covering all occurrences commonly insured against for death, bodily injury, and property damage arising out of or in connection with the use, ownership, or maintenance of the common elements.

(b) In the case of a building containing units having horizontal boundaries described in the declaration, the insurance maintained under subdivision (a)(1), to the extent reasonably available, shall include the units, but need not include improvements and betterments installed by unit owners.

(c) If the insurance described in subsections (a) and (b) is not reasonably available, the association shall promptly cause notice of that fact to be hand-delivered or sent prepaid by United States mail to all unit owners. The declaration may require the association to carry any other insurance, and the association, in any event, may carry any other insurance it deems appropriate to protect the association or the unit owners.

(d) Insurance policies carried pursuant to subsection (a) must provide that:

• (1) Each unit owner is an insured person under the policy with respect to liability arising out of the unit owner's interest in the common elements or membership in the association;

• (2) The insurer waives its right to subrogation under the policy against any unit owner, lessee, or member of the owner's or lessee's household, unless it can be shown that the act with intent to cause the loss of the unit owner, lessee, or member of the owner's or lessee's household was the cause of the loss;

• (3) No act or omission by any unit owner, unless acting in the capacity of a governing board member of the association, will void the policy or be a condition to recovery under the policy; and

• (4) If, at the time of a loss under the policy, there is other insurance in the name of a unit owner covering the same risk covered by the policy, the association's policy provides primary insurance.

(e) Any loss covered by the property policy under subdivision (a)(1) and subsection (b) must be adjusted with the association, but the insurance proceeds for that loss are payable to any insurance trustee designated for that purpose, or otherwise to the association, and not to any mortgagee or beneficiary under a deed of trust. The insurance trustee or the association shall hold any insurance proceeds in trust for unit owners and lienholders as their interests may appear. Subject to subsection (h), the proceeds must be disbursed first for the repair or restoration of the damaged property, and unit owners and lienholders are not entitled to receive payment of any portion of the proceeds unless there is a surplus of proceeds after the property has been completely repaired or restored, or the condominium is terminated.

(f) An insurance policy issued to the association does not prevent a unit owner from obtaining insurance for the unit owner's own benefit.

(g) An insurer that has issued an insurance policy under this section shall issue certificates or memoranda of insurance to the association and, upon written request, to any unit owner, mortgagee, or beneficiary under a deed of trust. The insurer issuing the policy may not cancel or refuse to renew it until after notice of the proposed cancellation or nonrenewal has been mailed to the association and to each and any additional insured under the policy at their respective last known addresses, in accordance with the Cancellation of Commercial Risk Insurance Act, compiled in title 56, chapter 7, part 18, or, if the policy is a policy of personal risk insurance, as defined in § 56-5-102, then in accordance with the law governing such insurance.

(h)

• (1) Any portion of the condominium for which insurance is required under this section that is damaged or destroyed shall be repaired or replaced promptly by the association unless:

  • (A) The condominium is terminated;

  • (B) Repair or replacement would be illegal under any state or local health or safety statute or ordinance; or

  • (C) Eighty percent (80%) of the unit owners, together with eighty percent (80%) of owners of units that are assigned limited common elements that will not be rebuilt, vote not to rebuild.

• (2) The cost of repair or replacement in excess of insurance proceeds and reserves is a common expense. If the entire condominium is not repaired or replaced:

  • (A) The insurance proceeds attributable to the damaged common elements must be used to restore the damaged area to a condition compatible with the remainder of the condominium;

  • (B) The insurance proceeds attributable to units and limited common elements that are not rebuilt must be distributed to the owners of those units and the owners of the units to which those limited common elements were allocated, or to lienholders, as their interests may appear; and

  • (C) The remainder of the proceeds must be distributed to all the unit owners or lienholders, as their interests may appear, in proportion to the common element interests of all the units.

• (3) If the unit owners vote not to rebuild any unit, that unit's allocated interests are automatically reallocated upon the vote as if the unit had been condemned under § 66-27-207(a), and the association promptly shall prepare, execute, and record an amendment to the declaration reflecting the reallocations. Notwithstanding this subsection (h), § 66-27-318 governs the distribution of insurance proceeds if the condominium is terminated. This section may be varied or waived in the case of a condominium all of whose units are restricted to nonresidential use.