While we are assisting Condominium Associations and working with property managers trying to manage their Hurricane Sally insurance claim, this is about the time in the insurance claims settlement cycle that we start getting calls from property owners living in condos, who are looking for help following property damage to their building that impacted their unit. This often takes the form of damage to the unit owner’s property, including their personal property as well as items such as carpet, other types of floor covering, trim items such as door frames, baseboards, cabinets and the list goes on depending on the type and severity of the damage and the wording in their condominium documents. When a covered casualty event occurs, whether it is from wind, water, fire, or the dreaded “mold” word, the finger pointing starts and in many cases the unit owner is caught in the middle.

Why all this controversy? After all, the Master Association will most likely have insurance to cover the value of the association’s property. Unit owners can also purchase policies called HO6 forms that are tailored to the unit owner’s interest.  So, with two insurance policies to look to for coverage, why do claims involving unit owner’s property and the Master Association property seemingly always create controversy?

After 40 plus years in the claim business, I think I have a fairly accurate picture of the problems. In fact, I can recall back in the 1970’s when the insurance industry realized the growing demand for communal living and insurance policy forms were written to cover these two separate interests. At the insurance company that employed me for ten years, we struggled every time a claim was reported trying to understand what was covered in the unit owner’s policy and what was covered in the Master Association policy.  Remember, each entity owns parts of items that normally would be unquestionably owned and covered in a single homeowner or commercial policy form. In a condo, both classes of property are commingled in a building structure, precipitating the need to have some type of separation. Over the years, this led the legislature to rewrite the laws defining who owns what and thus who has to insure their property or self-insure.

As a result of all the uncertainty of ownership, the Florida legislature made many changes over the years to the condo statute 718.111.   These changes were so numerous that I and others in my firm used to carrying around a chart detailing the yearly changes just so we had some idea of what we were dealing with in a particular condominium loss scenario.  Remember, this is all about who owns what property in a communal living setting, who has to insure it (or self-insure) and who has the right and obligation to make repairs. And of course, we still see questionable coverage calls being made and accepted by condo boards who don’t muster the forces to investigate their claim or just want to settle it and make it go away.

When you walk into a condominium unit, you will likely be looking at property that in part belongs to the unit owner and in part belongs to the Master Association. And don’t forget some of the structural parts of the unit such as the windows, A/C, plumbing, walls etc., even with all the legal changes, ownership may still be up for debate following a loss.  And remember there is the issue of who has the right and obligation to make repairs due to the wording in condo documents that can often create an ambiguity due to confusion about repair and replacement maintenance issues for everyday wear and tear versus a causality loss.  Sadly, over the last 40 years, the confusion and passing of the buck has continued.

So given the long and tortuous history of condo losses and the adjustment process that goes with it and the fact that we do have practices and procedures that have been codified to some extent, why do we still have angry unit owners getting the run around?

In my view it’s simple.  It’s called responsibility.  No one in the communal setting of a condominium wants to accept responsibility notwithstanding the courts, the laws passed by the legislature, as well as rulings issued by the state regulatory body at the Division of Florida Condominiums, Timeshares and Mobile Homes that oversees condominiums in Florida.  Let’s take a closer look under the hood to understand this issue better.

First you have the Master Association.  While the Master Association is made up of unit owners, no one unit owner or group of owners own the building or buildings that make up the condo association. In theory, all unit owners own a part of the association based on some formula that may be spelled out in the condo documents.  Given this arrangement, a policy is typically purchased that insures the building’s common elements. The Master Association is governed by a board of directors who often are supported by an outside property management company and may have a temporary or permanent on-site manager to handle the affairs of the association. The Master Association will also have its own insurance agent or broker who will procure insurance for the Master Association’s property.

In my view, despite what others may say, this group has its first allegiance to the function and good order of the Master Association. And yes, I know this is good governance practice that should benefit all the unit owners’ interests.  Admittedly, for the most part this works (not withstanding barking dogs, loud music, and any number of fights and sundry issues people living on top of or next to each other may have) except when a property loss occurs.

It’s at this time that little pesky details typically arise which in part are driven by the unilateral interpretation of the condo statutes as well as language in the condominium documents none of which are likely to be uniform given when they were written and the property they apply to. Then you have the problem of legal advice from condo and plaintiff attorneys who I have seen give conflicting interpretation of the statutes and the condominium documents depending on the issues, who they represent and who pays them after a property loss. 

The most frequent and common loss in a condominium community in Florida is a water damage event. This could occur from water intrusion of roofs or windows, from the unit above, next door, from a pipe in the walls, an appliance, a water heater or perhaps a dishwasher that accidentally discharges water into the unit. This water often subsequently migrates to other units in the building. Thus, one water leak will likely impact property that belongs to the unit owner where it originated, the Master Association’s property and multiple units throughout the building.

So, who pays for what? Well, that seems simple if there are two policies in place, right? Easier said than done. What about deductibles--both policies have deductibles? The unit owner does not want to go out-of-pocket especially if the water came from above--it’s not their fault this happened. The board or the management company does not want to pay or for that matter even turn in a claim if the loss was caused by a unit owner next door or the unit above the damaged unit. From our experience, boards and/or their management company does not like to be bothered and expect the unit owner (where the loss originated from) to take care of the problem even though some or often most of the damaged property within a unit is owned and insured by the Master Association, i.e., drywall, wall insulation and depending on the condo documents may include door frames, base boards and other building items as originally conveyed by the developer/builder.   

Then there is the negligence issue. We see a lot of condo boards and their management companies advising the unit owner that the responsibility for the loss is with the owner where the loss originated. Sometimes this works and the offending unit owner will call their insurance company and report a liability claim. But here is where it gets interesting.  The liability adjuster very seldom will agree to accept liability but instead blame the water loss on a defective appliance or leaks from pipes in the walls or ceilings that in fact may belong to the Master Association or the unit owner depending on interpretations of the documents and statutes. Thus, a finding of no liability and no payment from the offending unit owner’s liability insurance carrier is a common outcome I have seen.     

Then there is the issue of mold.  If the water cleanup and dry out was not immediately taken care of, it’s a good bet air quality testing will be needed (if you can get someone to pay for it) to see if mold is growing in the unit or within the walls. And what if mold is determined to be in the walls? Clearly the wallboards or drywall belongs to the Master Association, but any wall covering, paint, etc., is the unit owner’s responsibility. So if mold is determined to be in the wall cavity, which insurance carrier will agree to mold remediation and all that may be involved in that process? And remember, wall coverings such as paint, wallpaper, or maybe high-end wall finishes are the unit owner’s property. 

In most cases the Master Association through its management company will have the water cleaned up by an emergency service restoration company.  But when the bill shows up (and in our experience), this is often where the trouble starts.  As an example, how do you proportion out the emergency service bill with two property owners benefiting from the work. And who pays for unit owners and Master Association property that likely will be destroyed or damaged in mitigation efforts? 

These are but a few of the issues we run across in condominium loss adjusting. When you have controversy following a loss to multiple owners who for the most part do not know or understand the rules, regulations, laws or the language in their own condominium documents, things can quickly get out of control. In fact, condo issues with payment disputes to emergency service firms may be the genesis of the Assignment of Benefits mess roiling the insurance industry in Florida.

What should a unit owner do who is getting the run around from the Association Board or a management company? One technique we have seen used is to send a certified letter to the board of directors (all of them) and the management company demanding they notify their errors and omissions or directors and officers insurance company of a claim that the unit owner will be making against the board for their negligence in failing to handle the loss in a proper manner. From our experience, just the threat of this action has worked wonders and hopefully starts a conversation to properly address and rectify the situation.

Alternatively, unit owners, management companies and condo boards should consider retaining an experienced and reputable public adjusting company with condominium adjusting references who can manage the entire loss so the issues can be properly sorted out and all the resources available can be utilized to properly repair and restore the property to its pre-loss condition.

Hurricane Sally has created numerous challenges to condominium unit owners and associations. Let us know about your condominium insurance claim nightmare. Tutwiler & Associates have been working hurricane claims since 1984. For your own peace of mind, call our Pensacola insurance adjusters now at 850-783-3319 for a free, no-cost claim evaluation, visit our Hurricane Sally Insurance Claim Public Adjuster page for additional information or contact a public adjuster to submit a question to one of our insurance claim experts.