Q: I am a member of the board of directors of the condominium association which governs the community in which I reside. While we were preparing for Hurricane Irma questions arose relating to insurance coverage for damages caused to the community’s buildings and other property and to condominium units. Does the condominium association’s insurance policy cover damages caused by the hurricane to all property damages caused to building exteriors and unit interiors?
P.M., Stuart, Florida
A: The question you raise was one of the issues facing condominium associations in the aftermath of Hurricane Wilma in October of 2005. The issue arose in the context of insurance coverage disputes in which condominium associations made claims under their property insurance policies and in which the unit owners simultaneously made claims under their homeowners insurance policies for the same event- the hurricane- the result of which was that the competing insurance companies denied coverage under the association’s insurance policy claiming that the unit owners homeowners insurance company was responsible and vice-a versa. In order to provide clarity relating to the scope of the association’s and the unit owner’s insurance obligations, and those of insurance companies to decide which property is covered under the association’s and the unit owner’s insurance policies, the Florida legislature made changes 718.111(11) of the Florida Condominium Act (the “Act”), the purpose of which was to “protect the safety, health and welfare of the people in the [state] and to ensure consistency in the provision of insurance coverage to [residential] insurance coverage to condominiums and their unit owners,” with the intent to “encourage lower or stable insurance premiums. . .”
Under 718.111(11)(a), an association must provide adequate property insurance for the replacement cost of the insured property as determined by an independent insurance appraisal or update of a prior appraisal, which must be determined at least once every 36 months. When determining the adequate amount of property insurance coverage, the association may consider deductibles as a component of the insurance costs as determined by the board so long as they are consistent with industry standards and prevailing practice for communities of similar size and age, and having similar construction and facilities in the locale. The amount of deductibles may be based on available funds, including reserve accounts, or predetermined assessment authority at the time the insurance is obtained, in the event an association desires to set a larger deductable to be funded by association dollars in consideration of reducing the insurance premium costs.
As to the scope of the association’s insurance coverage, the association’s must provide primary coverage for all portions of the condominium property as originally installed or replacement of like kind and quality in accordance with the original plans and specifications; and all alterations or additions made to the condominium or association property. For insurance purposes insurance coverage “condominium Property” general means all property not included within a confines of a unit, up to the horizontal and vertical concrete slabs extending to and including the unfinished drywall.
Conversely, the association’s property insurance must exclude all personal property within the unit or limited common elements, and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, built-in cabinets and countertops, and window treatments, including drapes, blinds, hardware and similar window treatment components, or replacements to any of foregoing which are located within the boundaries of the unit and serve only such unit. Such property and any related insurance is the responsibility of the unit owner.
Unless approved by a majority of the total voting interests in the association, an association is required to repair, replace or reconstruct any property covered by its insurance, and all deductibles, uncovered losses, and other damages in excess of insurance are a common expense payable proportionately by all unit owners, unless a unit owner is responsible for the costs not paid for by insurance as a result of intentional conduct, negligence or failure to comply with the terms of the declaration or association rules.
In dealing with the intricacies and nuances incident to association insurance matters the best practice is for the association to seek the advice of experienced legal counsel, and insurance company professionals intimately familiar with community associations. The best time to address an association’s insurance needs and the scope of its insurance policy’s coverage is before the need to make a claim arises and before the association discovers that the existing insurance policy does not provide the coverage which was thought to exist.
If the need arises for an association to make a property damage claim with its insurance company, in addition seeking the advice of legal counsel and insurance professionals, the recommended best practice for the association would be to consider retaining reputable building industry professionals to assist in damage assessment; and a public adjuster to act as the associations’ agent in the claims administration process. All of the members of the association’s team assembled to tackle the claims assessment and administration process must work hand-in-glove to achieve the best result for the association.