Insurance - Individual policies - Connected Problems

This my sound like a stupid question, but we have been talking over a hypothetical situation. In our townhome community, each homeowner is responsible for full replacement insurance on their homes. If there was a fire and a home was completely burned, we are not sure that there is anything requiring the homeowner to rebuild their home as it was in series. Does anyone know if this needs to be addressed in the HOA governing documents or if it is something that is part of your homeowners policy?

I will appreciate your thoughts.

William this should be spelled out in your governing documents. While townhomes are different than my 12 family condo unit in what each owner is responsible for; our documents require the Association to have and maintain replacement insurance for the building. It is up to each owner to obtain replacement insurance for the contents of their own unit. Under your hypothetical what would stop an owner from using the proceeds of any fire to pay off his mortgage holder and using the balance if any for other things? How do you guarantee that they rebuild at all?

The Association, as a common expense, shall obtain for the benefit of all owners insurance on all building structures or other improvements now or at any time hereafter constituting a part of the condominium property against loss or damage by fire, lightning and such perils as are at this time comprehended within the terms “extended coverage” and “all risk”, and vandalism and malicious mischief in an amount of not less than 100% of the replacement value thereof. Such insurance shall be written in the name of, and the proceeds thereof shall be payable to the Association as Trustee for each of the unit owners in accordance with the percentage of ownership in the Common Areas and Facilities set forth in Article III herein.

Such insurance by the Association shall be without prejudice to the right of the owner of a Unit to obtain individual contents or chattel property insurance, but no Unit owner may at any time purchase individual policies of insurance on his Unit or his interest in the Common Areas and Facilities as real property unless the Association shall be named insured in such policy, and be advised of the same.

Such policy of insurance may contain an endorsement recognizing the interest of any mortgagee or mortgagees of any Unit.

Such policy shall also provide for the release by the insurer thereof of any and all rights of subrogation or assignment and all causes and rights of recovery against any Unit owner, member of his family, his tenant, or other occupant of the Condominium Property for recovery against any one of them for any loss occurring to the insured property resulting from any of the perils insured against under such insurance policy.