Legislative News

Condominium Insurance Changes for 2010

Here is some analysis of Senate Bill 1196 which was signed by the Governor and is effective July1, 2010.

1. The insurance statute only deals with residential condominiums as defined in chapter 718. in the Florida Statutes.

2. The Condominium Association insurance must be based on the “replacement cost value” as opposed previously to the “full insurable value” as determined by an “independent insurance appraiser” done at least every 36 months. Although insurance must be based on replacement cost valuation, there appears to be no mandate that the association must insure to 100% of it’s replacement cost building structural value. This would then leave the association board the burden to determine what “adequate insurance” is whether they purchase 80%, 90% or 100% of the replacement cost structural building value and still meet the statute.

3. Associations are still allowed to self-insure, as long as Florida Statutes 624.460 -624.488 are followed.

4. The board may still choose the property deductible they feel appropriate for their association as long as it is in a manner that is consistent with “…prevailing practice for communities of similar size and age, and having similar construction and facilities in the locale where the condominium property is situated.”

5. The association is required to obtain and maintain “property” insurance for the condominium property whereas, in the prior statutes the association only had to obtain and maintain “adequate” insurance for the condominium property. Directors and Officers coverage, workers compensation, and flood insurance “may” be obtained; although these coverages are not mandatory under Chapter 718. of the Florida Statutes.

6. The association can elect not to insure a free standing building of the association consisting of only one unit if the bylaws require the unit owner to insure it.

7. Heating, venting, and air conditioning (HVAC) equipment is no longer on the excluded list of property under the association master insurance policy including air handlers, heat pumps, thermostats, compressors, and duct work whether located within the units or not. Consequently, the board cannot opt out of insuring the HVAC equipment of the association. The Florida Statute deals only with the associations duty to insure the HVAC equipment and does not address maintenance and/or repair responsibility. Even though the responsible for repair, replace and maintain HVAC equipment is not really addressed within the 2010 statute; one could review the condominium bylaws and documents for answers on responsibility issues.

8. The master policy now excludes: “…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 curtains, drapes, blinds, hardware, and similar window treatment components, or replacements of any of the foregoing.” The associations primary responsibility would include items such as originally installed drywall, windows, sliding glass doors, interior non-load bearing walls, doors, toilets, bath tubs, sinks, and closet rods.

9. The 2010 Statute (627.714) mandates that new and renewal policies on or after July 1, 2010, to contain at least $2,000. of property loss assessment coverage. The deductible cannot be more than $250. This deductible would not apply to the unit owner if the unit owner was paid for that damage as a direct loss to his/her unit. (ie. hurricane damage to the building) Moreover, the new wording would also indicate that the limit of coverage in effect the day before the direct damage causing the assessment is the maximum coverage available.

10. The enclosed has been eliminated from the 2010 statute: Improvements and alterations made by unit owners that benefit fewer than all residents (such as an enclosed balcony, Jacuzzi, new interior walls, or in-ground BBQ pit) shall be insured by the unit owner(s) benefiting from the improvements. Additionally, the association may opt to cover these items and pass that cost along to the unit owner(s) who benefit from the improvements or alterations. Nonetheless, the master policy does not cover additions, alterations, and upgrades installed within the unit by the unit owners. Unit Owners must take the responsibility to insure any additions, alterations and upgrades installed that they made within their unit as the master policy does not cover these items.

11. The association is no longer required to have unit owners produce evidence of hazard and liability insurance annually. The 2010 statute eliminated the wording from the statute. However, Condominium bylaws and documents can and often do still require unit owners to obtain and maintain insurance. There is no statute that prevents an association from voting to continue to require unit owners to maintain insurance. The legislature eliminated the required unit owner coverage because they felt that disputes over this are best left between the association and it’s unit owners and possibly the association attorney.

12. Not withstanding the 2010 Florida Statute change in item #11 above, the real question is whether the board is better off to enforce the unit owners to produce evidence of insurance or not. Some benefits to the Board enforcing purchase of homeowners insurance by the unit owners:

 

1. Unit owners suing the condominium board for failure to enforce condominium bylaws that may require unit owners to obtain and maintain hazard insurance with respect to their personal contents and liability.
2. The Board inherits problems when unit owners have no insurance and cause water damage to floors below their unit.
3. The Board takes on the responsibility of maintaining and obtaining property insurance to protect the association, the association property and the condominium property required to be insured by the association for the coverages under the master policy allowable under the Florida Statutes. Does the unit owner have the same responsibility to cover their personal contents, liability and the unfinished items within their unit that the master policy does not cover? If not, then who will be the target to pay for the damage to the unit owners losses? Could the loss be attached to the Association to pay under the Association liability and could that increase your renewal premium accordingly?
4. How will the Board collect for an assessment to the unit owners to cover the high windstorm deductible on the windstorm coverage should the unit owners have no insurance which covers up to $2,000. Loss Assessment coverage?
5. Lawsuits against Condominium Boards from unit owners can be tied up in the legal system for several years before they are resolved while the damages are still unresolved and can only escalate in costs when resolved. How much mental anguish, time and expense is the board willing to endure until an issue is resolved? (In our professional opinion, when each party (ie. Association Boards and Unit Owners) takes the responsibility to cover their property and liability rightfully; then life gets better for all the parties involved. Even though “hazard” was not defined in the 2008 statute; most insurance scholars and professionals feel that the term “hazard” includes the peril of windstorm as a coverage. This is because without the windstorm coverage; the mandate for coverage would not adequately be met under the 2008 statute. Since the association is no longer required to have unit owners provide evidence of hazard and liability coverage; it would be incumbent upon the Board to enforce unit owners to take measures that would insure that they meet their responsibility as to their personal property and liability including windstorm. If one can’t afford a condominium homeowners policy with an approximate annual premium of $295.00 which could be with a company payment plan option, then how could they afford a water damage loss to 3 or 4 floors below their unit in the thousands of dollars in damages?

 

13. The 2008 requirement to have the name of their association as an additional named insured be listed on the unit owners policy has been completely eliminated from the 2010 statute.

14. Reconstruction work after a loss shall be undertaken by the association, except where noted in the statute.

15. There has been no change in the Fidelity Bond Requirement under the 2010 legislation.

16. The 2010 legislation eliminated the words specifically stating that the unit owner’s policy had no rights of subrogation against the association.

17. There are a couple other parts of the 2008 statute that were not changed in the 2010 legislation except for a few word substitutions.