Hurricane Season and a Special Concern for Condominium Community Claims
Florida’s condominium community, it’s heads up time up for this year’s hurricane season and the escalating threat as we approach the most active time for tropical storm development.
A few new releases from some of the weather pundits raised the possibility of more tropical storms this year. This is the second time this year the threat level has been raised for an increase in tropical storms in 2017. One respected weather guru who publishes a daily blog is sharing his concerns about all the weather waves moving off of Africa. So as they say, game on!
Yes, I know we have all heard and read about tropical storm threats ad nauseam over the last ten years, but this year it feels different to me. And why do I have a special concern for Florida’s condominium community? When large storms impact an area, condo associations and their tenants can be put into precarious situations where unit owners are put at odds with the condo associations.
Over the years, condos have been my thing. My reasoning for this focus had its genesis back in the day when I worked for the insurance industry. As a newbie, I witnessed the dysfunction of the claim process when condo losses were being reported. It seems no one had any idea how to separate often competing interests given the separation of property owned by the unit owners and that which has been declared the master association. In my view, this arrangement was a set-up for the perfect storm, especially with folks living cheek-to-cheek (so to speak) in the same building. Thus, over the years the Florida legislature was involved over and over again with rewriting the condo statutes regarding who owns what and who has the responsibility to insure and repair property in a communal living environment following an insurance covered casualty event. Ever wonder why all these changes needed to be made for what seemingly should be a simple process to make folks whole after a covered loss? Well, I guess it’s not so simple. So read on.
Notwithstanding all the statute changes over the years as well as the dress rehearsal with property insurance losses following the impact of the storms of 2004 and 2005, things still have not significantly changed in this space.
Take for example a recent loss where our firm was hired to represent a policyholder who had purchased a unit in an upscale condo association. At the time the client closed and took possession of the unit, there were no known issues with the interior of their unit. But over time, due to lack of a maintenance protocol for common elements by the board of directors, water began entering the unit from the exterior walls and migrated into the space owned by our client. Because property that was damaged included both unit owners and the master association, our client notified their HO-6 carrier as well as the condo board of directors.
Not surprisingly, the condo board said the water/mold problem in the unit owners space was not their problem. So the unit owner had to take on the task of dealing with the mess on his own despite the fact that the drywall clearly owned by the master association was damaged and mold was discovered behind the dry wall. Then of course there was the problem of fixing the water intrusion point of entry which was on the outside of the unit, clearly common element property.
Following intense pressure from the unit owner as well as members of our firm, the board finally agreed to open the exterior walls to see how bad things were especially given the mold odor that was apparent in our client’s unit. Things only went downhill from there as the board dragged their feet without a plan to address the repairs to the master association property. In the meantime, our client had to move out of their unit which involved storing personal property and incurring additional living expenses.
Fortunately, our client had some coverage through a HO 6-unit owner’s policy. But as you may guess, the H0-6 insurance carrier did not agree with the scope of damages. Nor did they feel they were responsible for the delays caused by the board of directors failing to fix the cause of the problem. And of course they were not going to pay for common element property which the master association was suppose to fix. After intense pressure from our firm and the unit owner, the master association insurance carrier was finally put on notice but denied coverage for repairs to the association property as they said the problems were long term decay, water intrusion, along with a failure to maintain the insured property, all as a result of the negligence of the current and past boards to take care of the upkeep and maintain the insured property.
As it now stands, the errors and omissions insurance carrier for the board of directors have stepped in and are considering some involvement due to the board’s failure to take the necessary actions that would have prevented the first party carrier from denying coverage.
From my experience, this is not an isolated claim event. In fact, it is fairly routine with condominium associations. No one wants to own up and take responsibility, but instead places the responsibility on the other party. So, while we continue on with this loss, hopefully this example will provide some inspiration to folks who live in condominium and homeowner associations to better educate themselves about not only what you purchased, but what the practices and procedures are in dealing with a property loss where overlapping property coexists.
As the tropical storm season ramps up, now is a good time to visit with your insurance agent, get an inspection, attend a board of directors meeting or ask questions to your association management company. Ask if the master association has a disaster plan in place. Find out what property you will be required to fix versus the master association’s property. Know what type of insurance coverage you will need, as well as possible out of pocket expenses you will be required to pay in the form of assessments levied by your board of directors.
Also make sure you understand what type of communal property you own. Some properties may look like condominiums but in fact may be homeowner’s association where the property is owned free simple which would require the unit owner to purchase a HO 3 homeowner policy.
Finally, not to be an alarmist but there was some recent news published that FEMA may not provide funding for communal living communities going forward following a disaster. There is ample recent evidence of FEMA cutting back on emergency funding from wild fires out west, to flooding in some of our southern states. From my experience, there will be a lot of financial losses in communal living communities to property that will be damaged such as parking areas, landscaping, recreational areas and other types of property commonly excluded in standard wind/flood policies.
One final tip. We are hearing stories in the field that some folks in the representative business are making promises that if you hire their firm they will get your deductible covered through assessments from the unit owners HO 6 policies. You would be well advised to steer clear of people making these statements since 1.) It is widely accepted that at best 50% of unit owners did not have the foresight to purchase assessment insurance that covers their interest typically if they have no mortgage and of course ignorance plays a big part and 2.) If assessment coverage is purchased, it will be limited to the terms that apply for that particular coverage. As an example, common elements cost of items as mentioned above will likely be excluded for assessment coverage. Finally, on assessments it has been my experience that how the wording is constructed will play a big part on how a HO 6 or a HO 3 carrier will respond. Once the bell is rung and the board sends out notices, the bell cannot be unrung.
Remember read and ask questions. As the old saying goes, “education is when you read the fine print, experience is what you get if you don’t.”