Condo Association Insurance Requirements in Washington State

Washington State does not leave condo association insurance to guesswork. The Washington Condominium Act, codified in RCW 64.34, establishes specific insurance requirements that every condominium association created under the Act must follow. These are not suggestions or best practices. They are legal obligations, and failing to meet them can expose board members to personal liability, leave the community's assets unprotected, and create financial chaos for unit owners when a loss occurs.

Whether you serve on a condo association board, manage a community as a property management professional, or own a unit in a Washington condominium, understanding these requirements is essential. This guide breaks down what Washington law requires, what your CC&Rs likely add on top, and how to make sure your association stays compliant and properly protected.

Washington Condominium Act Insurance Requirements

The Washington Condominium Act (RCW 64.34) is the primary legal framework governing condominium associations in the state. It addresses creation, governance, rights and obligations of unit owners, and importantly, insurance. The insurance provisions apply to all condominiums created under the Act and establish minimum standards that associations must meet.

The Act requires the following categories of insurance:

• Property insurance on common elements: The association must insure the common elements and, depending on the declaration, potentially the units themselves against physical loss
• Liability insurance for common areas: The association must carry general liability coverage for injuries and property damage occurring in common areas
• Fidelity bonds or crime coverage: Associations that handle funds are required to carry fidelity coverage to protect against theft and embezzlement
• Additional coverages as specified in the declaration: The association's CC&Rs may impose requirements above and beyond the statutory minimums

These requirements apply regardless of size. A 10-unit building and a 300-unit complex are both subject to the same statutory framework, though coverage amounts and policy structures will differ based on size, value, and risk profile.

Required: Master Property Insurance

Master property insurance is the cornerstone of any Washington condo association's insurance program. The Condominium Act requires associations to maintain property insurance on all insurable common elements, and in many cases the requirement extends to the building structure including the portions that enclose individual units.

Replacement cost coverage, not actual cash value. Washington law and virtually all CC&Rs require the master property policy to be written on a replacement cost basis, paying to repair or rebuild at current construction costs without deducting for depreciation. An actual cash value policy would leave a significant funding gap after a major loss, particularly for older buildings.

Minimum coverage: full replacement value of insurable common elements. The association must insure for full replacement value. This figure should be informed by the reserve study. If your reserve study identifies replacement cost at $12 million, your master property policy should provide at least $12 million in building coverage. Carrying less creates an underinsurance gap that can trigger coinsurance penalties.

Named perils vs. all-risk coverage. A named peril policy only covers losses caused by specific listed events. An all-risk (open peril) policy covers all causes of physical loss unless specifically excluded. For condo associations, all-risk coverage is strongly recommended because it provides broader protection and shifts the burden of proving an exclusion to the insurer.

"Bare walls" vs. "all-in" coverage. Under a bare walls policy, the association insures the structure up to the unfinished interior surfaces of each unit. Drywall, flooring, cabinets, and fixtures within the unit are the owner's responsibility under their HO-6 policy. Under an all-in policy, the association insures the building including unit interiors as originally constructed. Your declaration specifies which approach applies. Miscommunication about this distinction is one of the most common sources of coverage gaps after a loss.

Required: General Liability Insurance

General liability insurance protects the association against claims for bodily injury or property damage in common areas, including lobbies, hallways, stairwells, elevators, parking garages, walkways, pools, fitness centers, and playgrounds.

Common scenarios that trigger claims include:

• A visitor slips on an icy walkway outside the building
• A resident trips on a damaged stair in the common stairwell
• A light fixture falls from a lobby ceiling and injures a guest
• Water from a common area pipe leak damages a unit owner's property

For most Washington condo associations, the recommended minimum limits are $1 million per occurrence and $2 million aggregate. Larger associations with extensive common areas or amenities like pools and fitness centers should consider higher limits. An umbrella or excess liability policy can provide additional coverage at relatively modest cost.

Required: Fidelity Bond / Crime Coverage

Washington law requires fidelity coverage for condo associations that handle funds, which in practice means every association. Board members, property managers, and bookkeepers who have access to bank accounts and reserve funds represent a risk for embezzlement, theft, or fraud.

The standard benchmark is coverage equal to at least the association's total reserve funds plus three months of regular assessments. If your association maintains $500,000 in reserves and collects $30,000 per month in assessments, your fidelity bond should provide at least $590,000 in coverage.

Cases of embezzlement from condo associations are well documented across Washington. Board treasurers, management company employees, and professional bookkeepers have been caught diverting funds. Without fidelity coverage, the loss falls directly on all unit owners through a special assessment. Review your policy to confirm coverage extends to all individuals who handle or have access to association funds.

Strongly Recommended: Directors and Officers (D&O) Insurance

While not strictly required by the Condominium Act, D&O insurance is considered essential. It protects individual board members from personal financial liability arising from decisions made in their capacity as directors.

Common disputes that give rise to D&O claims include:

• Decisions to increase assessments or levy special assessments
• Enforcement or non-enforcement of CC&R rules
• Selection and oversight of vendors and management companies
• Decisions about maintenance priorities and capital improvements
• Handling of owner complaints and disputes

Even when a board acts in good faith, a dissatisfied owner can file a lawsuit. Legal defense costs alone can reach tens of thousands of dollars. Without D&O coverage, board members are personally exposed.

The practical effect extends beyond financial risk. Associations without D&O coverage struggle to recruit qualified board volunteers. Few people will donate their time if doing so exposes them to personal liability. Typical premiums for small to mid-size Washington associations range from $1,000 to $3,000 per year.

What Your CC&Rs Likely Require

Your CC&Rs frequently exceed the Condominium Act's minimums. These provisions are enforceable as a contract binding the association and all unit owners.

Common CC&R insurance requirements include:

• Specific coverage limits that exceed the statutory floor for property insurance, liability, and fidelity bonds
• Earthquake coverage, purchased as a separate endorsement or standalone policy, particularly relevant given Pacific Northwest seismic risk
• Flood coverage for associations in or near flood zones
• Specific deductible limits capping the association's out-of-pocket costs after a loss
• Annual insurance review obligations, often tied to the annual budget process

Lender requirements add another layer. Fannie Mae, Freddie Mac, and FHA all have insurance requirements for condominiums with conforming or government-backed mortgages. If your association does not meet these, unit owners may be unable to obtain or refinance mortgages, depressing property values. Common lender requirements include minimum property limits, fidelity bond coverage, and general liability limits of at least $1 million per occurrence.

Workers' Compensation Requirements

If your association directly employs anyone, including maintenance staff, groundskeepers, a resident manager, or office personnel, Washington requires workers' compensation through L&I. There is no option to purchase this from a private insurer.

Key points:

• Premiums are paid quarterly based on hours worked and job classification
• Even part-time or seasonal employees must be covered
• Failing to carry coverage can result in L&I penalties and personal liability for board members
• If you use a management company, verify they maintain their own workers' comp

Volunteers are generally not covered under workers' comp. Board members who volunteer, residents who participate in community work days, and other unpaid volunteers are not classified as employees. If a volunteer is injured while performing work for the association, workers' comp benefits would not apply. Associations that rely on volunteer labor should discuss this gap with their insurance provider.

How to Stay Compliant

Maintaining proper coverage requires ongoing attention throughout the year.

• Conduct an annual insurance review with your agent: Schedule a meeting each year, ideally timed with your budget process, to review all policies and verify coverage limits match current replacement costs
• Document insurance decisions in board meeting minutes: Policy renewals, coverage changes, and carrier selections should be recorded to demonstrate the board's fiduciary diligence
• Distribute certificates of insurance to unit owners: Owners need to know whether the master policy is bare walls or all-in so they can insure accordingly under their HO-6 policies
• Coordinate reserve study findings with insurance: Compare reserve study replacement cost figures to your property policy limits annually and adjust as needed
• Track policy expiration dates: A lapse in coverage creates non-compliance with CC&Rs, failure to meet lender requirements, and exposure to uninsured losses

What Happens If Your Association Is Underinsured?

The consequences of inadequate coverage are severe.

Board members may face personal liability. Board members have a fiduciary duty to the association. If the board fails to maintain required insurance and an uninsured loss occurs, individual board members can be held personally liable for damages.

Special assessments to cover uninsured losses. When a loss exceeds coverage, the shortfall is funded through a special assessment on all unit owners. Depending on severity, assessments can range from a few thousand dollars per unit to $20,000 or more, creating financial hardship and community conflict.

Lender requirements can force immediate action. If a lender determines the association's insurance is inadequate, it can require owners to purchase force-placed insurance at higher cost, refuse to approve new mortgages or refinances, or in extreme cases call existing loans due.

Real-world consequences. A mid-size Seattle condo association that carried limits $3 million below actual replacement cost experienced a major fire destroying six units. The insurance payout fell far short of reconstruction costs, forcing a $35,000 special assessment on every owner. Several owners could not pay and were forced to sell at a loss. Board members faced personal lawsuits from affected owners. These situations are preventable with an annual insurance review, proper valuations, and adequate limits.

Get Your Association Properly Covered

Protecting your condo association is a legal obligation, a fiduciary duty, and the most important thing your board can do to safeguard the community's assets. SmartInsured specializes in Washington State condo association insurance and understands the Condominium Act, CC&R compliance, lender guidelines, and the unique risk profile of multifamily communities.

We work with associations of all sizes and can review your current coverage, identify gaps, ensure compliance with RCW 64.34 and your CC&Rs, and provide competitive quotes from multiple carriers.

Get started today by visiting our quote form or calling us directly at 425-209-1206. We can typically complete a coverage review and provide options within days. Your board members volunteer their time to serve the community. Make sure they are protected, and make sure the building and finances are too.