One of the issues that generates a considerable amount of friction in a Michigan condominium is the one that follows a water leak, a water overflow, or a water backup in an attached condominium: who pays to fix the damage? A co-owner discovers a stain spreading across the ceiling and assumes the condominium association is responsible. The association reads its Bylaws and concludes the loss belongs to the co-owner. The upstairs neighbor whose bathtub overflowed insists that no one can prove the leak was his fault. Each may be partly right, because the answer, as with most legal questions, is that it depends.
The answer largely depends on three things:
- What was damaged and where it sits within the condominium
- How the governing documents and the applicable insurance policies allocate the loss, including any deductible
- Whether the damage resulted from a co-owner’s negligence.
Michigan condominium associations are governed by the Michigan Condominium Act, MCL 559.101, et seq. (the “Act”), and by the community’s governing documents, which typically consist of a Master Deed, Condominium Bylaws, and Articles of Incorporation. It is those governing documents—read against the backdrop of the Act and the insurance policies the documents require—that ultimately decide who pays. This article explains the framework Michigan practitioners use to allocate water-damage costs and identifies the recurring situations in which those costs are most frequently disputed.
Water Damage in a Michigan Condominium: Start With What Was Damaged
Every water-damage analysis begins with the same question: what was damaged, and how is the damaged item defined under the governing documents? A condominium project is comprised of two broad classifications of property—Common Elements and Condominium Units. The Act defines the Common Elements as the portions of the condominium project other than the Condominium Units, MCL 559.103(6), and defines a Unit as “that portion of the condominium project designed and intended for separate ownership and use.” MCL 559.104(3). The Common Elements are further divided in two. General Common Elements are, by definition, the Common Elements other than the Limited Common Elements. MCL 559.106(5). Limited Common Elements are those portions of the Common Elements reserved in the Master Deed for the exclusive use of less than all of the co-owners. MCL 559.107(2). These definitions matter because the governing documents generally assign maintenance, repair, and replacement responsibility depending on which category the item to be maintained, repaired or replaced falls within.
General Common Elements
These typically include the structural components of the buildings—foundations, roofs, the floor construction between levels, and the perimeter walls of a Unit—together with building-wide systems such as the water distribution network, often up to the point it connects to a Unit’s fixtures. Under most Bylaws, the association maintains, repairs, and replaces the General Common Elements, including restoring them to their pre-loss condition after a casualty.
Limited Common Elements
These often include the interior surfaces of perimeter walls, ceilings, and floors, along with equipment or lines that serve only one Unit, such as a segment of plumbing or an HVAC component dedicated to a single Unit. Responsibility for Limited Common Elements varies considerably from one community to the next. Some Bylaws allocate routine maintenance and decoration to the co-owner while assigning structural repair and replacement to the association; others place the entire burden on the co-owner to whom the element is appurtenant; and others assign the entire responsibility to the association.
The Unit
The interior of the Unit—generally the space between the interior finished surfaces of the perimeter walls, the finished ceiling, and the finished subfloor—together with most interior finishes such as floor coverings, cabinetry, and fixtures, is ordinarily the co-owner’s responsibility to maintain, repair, and replace, unless the governing documents or an insurance policy shift that obligation.
The first practical step in any dispute, then, is to determine how the damaged component is defined. In most cases, that single determination goes a long way toward answering who pays.
Three Separate Questions: Who Repairs, Who Insures, and Who Pays
Before turning to the details, it helps to separate three questions that are easily conflated but frequently have different answers. First, who must repair the damaged item? That is set by the Master Deed and Bylaws according to the definitions described above. Second, who must insure it? Insurance ordinarily should follow maintenance and repair responsibility, and the governing documents ordinarily make that allocation. Third, who ultimately pays? Payment usually follows the insurance allocation and the deductible—but not always. A Co-owner can bear a deductible even where the association’s insurance applies, and the party who performs a repair is not necessarily the party who funds it.
Keeping these questions distinct prevents a common error in water-damage disputes: assuming that whoever caused the loss, or whoever owns the damaged space, must also pay for it. As explained below, the better default is to treat a water loss much like a no-fault claim—identify what was damaged, read the documents to determine responsibility, and shift the cost to a party at fault only where the documents actually authorize the shift.
How Condominium Insurance Shifts Water Damage Responsibility
Determining the allocation of responsibilities under a Master Deed for a damaged item identifies who is responsible for the repair as a default matter, but insurance frequently rearranges that default. The Act permits the Bylaws to provide for insuring the co-owners against risks affecting the condominium project, “without prejudice to the right of each co-owner to insure his condominium unit . . . on his own account and for his own benefit.” MCL 559.156(c). In addition, the Bylaws of most Michigan condominiums require the association to insure at least the General Common Elements. Many go further, insuring all Common Elements and, in a substantial number of communities, the interior walls within a Unit together with the pipes, wires, conduits, and ducts within those walls and the “standard” items originally furnished with the Unit.
Practitioners generally describe the resulting structure for the association’s master policy in three forms:
- Bare walls. Often the drafting default: the association insures the structure and generally the drywall, and the co-owner insures the interior from the wall surfaces inward, including improvements, fixtures, flooring, and contents.
- Single entity or standard specifications model. The association insures all Common Elements and the Units as originally built, but not a co-owner’s later upgrades, leaving the co-owner to insure betterments and contents.
- All-in. The association’s coverage extends to the Unit interiors and fixtures, including owner-installed betterments, leaving the co-owner to insure only contents and personal liability.
Which model applies is a function of the Master Deed, Bylaws and the association’s master policy, and the model should match the responsibility allocation in the Master Deed; a mismatch between the two is a frequent source of disputes.
The distinction is decisive. If a loss is covered under the association’s policy, repairs to the insured items are typically handled by the association, while the co-owner remains responsible for personal property and for upgrades the master policy does not cover. But if a loss is not covered—because it falls below the policy’s deductible, or because it is excluded—then the fact that the Bylaws nominally require the association to insure an item does not put money on the table, and interior repairs that would have shifted to the association had the loss been covered can fall back on the co-owner. The existence of an insurance obligation in the Master Deed and Bylaws, in other words, is only the beginning of the analysis; the terms of the actual policy—its coverage model, its deductible, and its exclusions—determine whether that obligation produces coverage.
Deductibles: Who Pays, and Can a Co-owner Insure Against Them?
Determining who is responsible for the deductible often creates an additional dispute. As premiums have climbed, associations have increasingly accepted large deductibles—commonly $5,000 or $10,000, and in some communities considerably more—to keep premiums manageable. A large deductible changes the economics of every claim, because the master policy pays nothing until the deductible is satisfied.
Two questions follow. The first is who bears the deductible. Many Bylaws address this directly. Some allocate the deductible to the association as a common expense shared by all co-owners; others provide that where a loss originates within a particular Unit, or is caused by a particular co-owner, that Co-owner bears the deductible. A number of Bylaws cap a negligent co-owner’s exposure, when the association files a claim, at the amount of the deductible plus any damages the policy does not cover—an important limitation, because it bounds what might otherwise be open-ended liability. Because these provisions vary, the allocation of a deductible cannot be assumed; it must be determined by reading the governing documents.
The second question is the one co-owners most often overlook, and it is among the most-missed coverages in condominium insurance: when a co-owner is charged the association’s deductible, can the co-owner’s own policy cover it? Frequently the answer is yes—but only if the co-owner purchased the right coverage in advance.
A co-owner’s individual HO-6 policy can include “loss assessment” coverage (sometimes referred to as “deductible assessment” coverage), which is designed to pay the co-owner’s share of a charge the association levies when the master policy falls short, including a charge for the master policy’s deductible. The economics are compelling: a $25,000 roof-loss deductible spread across fifty Units is $500 per Unit, an amount a loss assessment endorsement is designed to absorb for a modest annual premium.
That protection is narrower than it appears, however: the coverage included automatically is often only $1,000 to $2,000, and even a raised limit often sublimits the portion that pays a master-policy deductible assessment—frequently to $1,000—unless a specific deductible-assessment endorsement is added, and it responds only where the underlying peril is covered under the co-owner’s own policy. A co-owner who seeks to utilize loss assessment coverage should give their insurance agent a copy of the governing documents, confirm that the policy’s loss assessment limit is adequate and in fact reaches deductible assessments, and size the coverage to the association’s actual deductible structure.
This subject carries a governance lesson for Boards as well. A Board that intends to pass deductibles back to individual co-owners should confirm that the Bylaws clearly authorize the practice and should communicate the policy to the membership, so that co-owners can obtain adequate loss assessment coverage before a loss rather than after.
Negligence, “No-Fault,” and Waivers of Subrogation
A persistent misconception is that an upstairs co-owner is automatically responsible for water damage to the Unit below. As a general matter, that is not necessarily the case. Many governing documents require proof of “act or neglect”—that is, negligence—before repair costs shift to a co-owner. Absent admissible evidence that a co-owner did something wrong, or failed to do something required, repair responsibility commonly remains with whoever is otherwise assigned the damaged items: the association usually for the Common Elements, and the affected co-owner for his or her own interior finishes. Water does not carry liability with it as it travels downward; fault usually must be established.
Where negligence can be proven—for example, a drain assembly that failed after a prolonged lack of maintenance—and where the governing documents allocate financial responsibility to the party at fault, the analysis changes. The association can often recover, or “assess back,” the cost of repairing the damaged Common Elements against the responsible co-owner, and, where the Bylaws so provide, the master policy deductible as well.
Two limits are worth noting. This recovery is ordinarily confined to damage to the Common Elements; the association generally cannot use the assessment mechanism to make one co-owner pay for damage to another co-owner’s interior finishes, which is instead a matter between those co-owners and their insurers. And because cost-shifting usually turns on proof of fault, the party asserting negligence must be prepared to establish it—suspicion is not enough.
Even where fault is clear, recovery is not automatic if an insurer pays, because of a feature of the policies that is easy to overlook: the waiver of subrogation. Subrogation is the right of an insurer that has paid a loss to step into its insured’s shoes and pursue the third party who caused it. Here, the downstairs co-owner’s insurer who pays a claim potentially pursuing the upstairs co-owner whose supply line failed and who is viewed as primarily responsible. A waiver of subrogation in the downstairs co-owner’s insurance policy bars that recovery, even against the party at fault.
Bylaws commonly require the association to use commercially reasonable efforts to obtain a waiver of subrogation and to treat losses paid by the association’s insurer on a no-fault basis. Where these provisions apply, each affected party and its insurer absorbs its own loss regardless of fault, and the upstairs-downstairs blame game becomes largely academic.
Insurance Exclusions That Commonly Defeat Water-Damage Claims
Because the availability of coverage so often determines who pays, it is worth knowing some of the exclusions that frequently defeat a water-damage claim. Three recur.
Gradual leaks, wear, and deterioration. Property policies insure sudden and accidental losses, not maintenance. Damage that develops slowly—a fitting that has been seeping for months, or deterioration attributable to deferred upkeep—is typically excluded as wear and tear. This is one reason the governing documents impose ongoing maintenance obligations and the Act contemplates a reserve fund: some water damage is a maintenance problem, not an insurable event.
Freezing. Damage from frozen pipes is frequently excluded unless heat was maintained or the affected Unit was properly winterized. In a Michigan winter, this exclusion turns an unheated or vacant Unit into a meaningful exposure, and it is a principal reason associations and co-owners adopt winterization requirements.
Mold. Mold is often excluded or subject to a low sublimit, even when the underlying water loss is covered. Because water intrusion so reliably produces mold, a co-owner or association can find the water damage covered but the resulting remediation only partially so—sometimes requiring a separate remediation protocol and clearance testing.
Each of these exclusions can convert what appears to be an insured loss into an out-of-pocket expense, which in turn reactivates the who-pays analysis under the governing documents.
Drywall: The Recurring Flashpoint
Few components generate as many allocation disputes as drywall, since it sits at the boundary between the structural Common Elements and the Unit interior, and because the governing documents treat it inconsistently from one community to the next. Three patterns are common:
- The association repairs the drywall on perimeter walls and ceilings—treating it as a structural or Limited Common Element surface—while the co-owner paints and finishes it after the repair.
- The documents expressly place drywall damaged from inside the Unit on the co-owner, while preserving the association’s responsibility for the adjacent structural Common Elements and for remediating mold within Common Element spaces.
- The documents treat the perimeter walls, floors, and ceilings themselves—including the drywall—as association work, while leaving the interior surfaces and finishes with the co-owner.
Because these approaches produce different outcomes on identical facts, the drywall question underscores the central lesson of this article: there is no substitute for reading the specific definitions in the community’s own governing documents.
Common Water Damage Scenarios in Michigan Condominiums
The following recurring scenarios illustrate how the framework applies. In every case the governing documents and the insurance policy control, and the outcomes below describe the typical—not the invariable—result.
Roof and attic leaks
The roof and attic are nearly always General Common Elements. The association typically repairs the affected Common Elements and remediates any mold within those Common Element spaces. The Co-owner generally remains responsible for interior decoration—repainting and refinishing—unless the master policy’s coverage extends to those interior items.
A drain or supply line serving a single Unit
A line that serves only one Unit is frequently a Limited Common Element appurtenant to that Unit, and the co-owner is typically responsible for the cost of repairing it. A related trap: associations are ordinarily not obligated to reimburse a co-owner for unauthorized, self-initiated repairs to Common Elements. A co-owner who discovers such a problem should give prompt notice and let the association authorize and coordinate the work.
A toilet or fixture overflow
Even where the toilet and its components are the co-owner’s maintenance responsibility, many Bylaws require the association to insure and rebuild interior walls and standard items after an insurable loss, with the co-owner handling personal property and upgrades. If the association files a claim and negligence is alleged, the co-owner’s responsibility may be limited by the Bylaws to the deductible and any non-covered amounts—precisely the exposure that loss assessment coverage is designed to address.
A burst supply line
If the failure occurs in the building’s water distribution system before the connection to a Unit’s fixture, it is generally a General Common Element; the association repairs the line and commonly, depending on the language of the governing documents, addresses incidental damage to the Unit caused by that Common Element failure, subject to the insurance and deductible dynamics discussed above. Where the pipe or component serves only one Unit, or lies beyond the fixture connection, responsibility can shift to the co-owner; and if the break resulted from freezing in an unheated Unit, the applicable policy’s freezing exclusion may leave the loss uninsured altogether.
How to Avoid Condominium Water Damage Disputes
A handful of habits prevent most water-damage disputes from escalating.
Identify the location and the component first. Determine whether the damaged item is a General Common Element, a Limited Common Element, or part of the Unit interior. That determination typically decides who bears the default responsibility.
Stop the source and mitigate. Halt the source of the water and retain a qualified restoration contractor promptly. Policies require an insured to mitigate, and delay compounds both the damage and the risk of a mold exclusion swallowing the claim.
Preserve evidence and assess cause. If negligence is suspected, gather the relevant facts early, while they can still be established—photographs, the date and time of the loss and of notice, and the condition of adjacent Units. Absent proof of act or neglect, costs follow the default allocations.
Notify before you fix. Most Bylaws require a co-owner to notify the association when a Common Element needs repair, and do not require reimbursement for unauthorized, owner-initiated work. Prompt notice lets the association scope the repair, coordinate insurance, and select vendors.
Confirm the insurance and the deductible allocation. Determine whether the master policy covers the damaged items, whether an exclusion or deductible effectively shifts the cost back to a co-owner, and how the Bylaws allocate the deductible. Co-owners should carry loss assessment coverage adequate to the association’s deductible structure and should give their agent the governing documents so the policy matches the community’s coverage model.
Conclusion
Every community’s Master Deed and Bylaws read a little differently, and the applicable insurance policies can change the outcome even where the documents appear clear. The common thread, however, remains consistent: allocate the cost according to what was damaged and how the damaged item is defined, keeping distinct the separate questions of who repairs, who insures, and who pays; then test whether negligence or an insurance term shifts that default. When a loss occurs, the most productive first steps are to stop the source and mitigate, read the definitions, confirm the scope of coverage and the allocation of any deductible, and document the cause and scope of the damage promptly. A condominium association or co-owner facing a significant or disputed water-damage loss should consult experienced community association counsel to apply these principles to the specific language of the governing documents and the terms of the applicable policies.
