We recommend that every condominium association and homeowners association review their insurance policies on an annual basis. Every year the board of directors should request that the insurance agent(s) for the association provide the following information:
- A list of every policy of insurance including:
- policy number
- term (beginning and end date)
- policy limits (including any special limits such as windstorm or mold caps)
- whether the policy is a ‘claim made’ or ‘occurrence’ policy
- deductibles
- premium
- supplements or riders
- general description of the scope of policy (ie: flood insurance, director and officer liability.)
- Recommendations of the agent as to any changes such as:
- changing the policy limits to match replacement costs anticipated in the event of a casualty
- changing underwriters to save on premium, or because of exclusions or limitations in the current policies that are not included in the policies issued by competing insurance companies
- additional insurance policies, or supplements to existing policies to cover risks of the association not properly covered under the existing insurance policies
To assure that the insurance agent is properly evaluating the insurance coverage, when making the request for an annual survey include a summary of the association’s assets and common areas. For example, I know of several associations that had pools and hot tubs in their common areas that were not properly covered by insurance because these items were overlooked or were acquired after the original insurance policy was issued. I recommend that the insurance agent personally attend a meeting of the board of directors to discuss his or her recommendations. This assures that insurance coverage issues will receive proper attention rather than simply presenting the premium cost to the board as part of the budgeting process.
In addition, the association’s manager should keep on file a full copy of each insurance policy. It is not sufficient to keep only the declaration page. It is also important that the association keep a running insurance matrix of both current policies and policies for prior periods. Many policies are ‘occurrence’ polices which provide coverage for events occurring during the policy term even if a claim against the association does not arise until years after the policy has expired. Maintaining a complete matrix of policies, agents, and addresses helps the association quickly file a claim for coverage if the association is ever sued. The time to hunt for policies is not after a lawsuit is filed and a response is due, because until a claim is filed with the insurance company all of the defense costs will be an expense of the association even if an insurer ultimately accepts the claim and hires a lawyer to defend the association.
In addition to the above practices, the association should have each new policy, and any changes to a policy reviewed by their attorney. There is no shortcut to reading the full policy and determining if it fully covers all appropriate risks. Recent court decisions make this critical to the financial health of an association.
In the recent case Citizens Property Insurance Corporation v. River Manor Condominium a Florida appellate court was asked to decide a dispute between the condominium association and the hazard insurance company over the scope of coverage. The lawsuit arose after the condominium suffered from approximately six million dollars in damages caused by Hurricane Wilma. The terms of the insurance policy included exclusions which significantly reduced the amount of the claim Citizens was willing to pay. Although not stated in the opinion, the logical assumption is that the condominium board of directors never reviewed the policy language itself and was unaware of the problem until devastated by the hurricane.
In the Citizens case, the insurance policy included this common provision: “Any terms of this policy which are in conflict with statutes of [Florida] are amended to conform to such statutes.” Florida Statute 718.111 requires the association to purchase insurance for the “full insurable value” of the common elements and other property owned by the association based on the replacement cost. The replacement cost must be determined no less than every 3 years. The River Manor condominium association argued to the court that since they were required to carry this insurance the policy should be interpreted to provide the minimum coverage specified under s. 718.111. The appellate court rejected this argument, and while recognizing that the association’s failed in its duty to appropriately insure its property, found the policy exclusions to be valid leaving the association short of the funds needed to repair the damage caused by the hurricane.
The lesson from the Citizens case is know thy policy terms. Never assume that a policy will fully cover your association without a legal review of the terms and exclusions. Even if the maximum policy limit is sufficient, the boilerplate may exclude the very items that require insurance. For example, I have seen liability insurance policies covering plumbers that excluded any claim for water damage!
Click here to download and read: Citizens v River Manor 4D12-901 op 130410
