Florida Condo & HOA Legal Blog : Florida Condo Lawyer & Attorney : Becker & Poliakoff Law Firm : Condominium & HOA Law Blog

By:  Tammy LoVecchio, Gulfshore Insurance (Naples & Ft. Myers) and Greg Marler, Becker & Poliakoff, P.A., (Naples)

We were pleased to present a one-hour flood insurance webinar on August 19th. 

Please feel free to view the webinar in its entirety.

We especially appreciate the interest shown and questions raised by the attendees. There were some recurring follow-up questions that warrant brief discussion.

Mortgagee Demands
First, it appears that several owners and associations have recently received demands from mortgage lenders to obtain flood insurance.  Some report being asked to increase the amount of current coverage above the maximum available through the National Flood Insurance Program (NFIP), that being $250,000 per home or unit, or in some cases, above the replacement cost of the property.  Some associations have even been threatened with force-placed insurance on the entire community.

As we discussed during the webinar, the most common source of the requirement to have flood insurance is the National Flood Insurance Reform Act of 1994, which requires most lenders to require flood insurance on any property located in a Special Flood Hazard Areas (SFHA).  But that Act, and all of the regulations and guidelines adopted by FEMA and government sponsored entities such as Fannie Mae, clearly only require flood insurance up to a maximum of $250,000 per home/unit.  It is not at all clear why these new demands are being made.  It is certainly within the authority of a lender to make risk management decisions and impose insurance requirements in excess of those imposed by the Act.  To determine if the lender can then force place insurance on you as a borrower, you must read your mortgage.  But there is no legal authority for a lender on a home or unit in a shared ownership community to force place flood insurance on an entire association.  Our advice is that you inquire directly with the demanding lender to determine its specific basis for making the request.

Homeowners’ Associations
Some questions seek clarification of flood insurance requirements for a homeowners’ association.  Because single family homes, and usually the lots on which they are built, are separately owned and freestanding, insurance on those homes must be obtained directly by the owner.  But what about an association’s clubhouse or other amenities?  Must the association carry flood insurance for those improvements?

Unlike condominiums, the law governing homeowners’ associations in Florida does not contain mandatory insurance coverage requirements.  But you should review your governing documents to determine if they contain insurance requirements.  Unless the association has a mortgage on its property, in which case it would be reasonable to expect there are insurance covenants, the only possible, remaining source of a flood insurance requirement on homeowners’ association-owned improvements is the fiduciary obligation of the board to protect and maintain the property against known or reasonably foreseeable risks.  We are not aware of any cases that have established that a homeowners’ association has a legal obligation to carry flood insurance.  But since the issue will likely arise only after a catastrophic flood loss when the stakes are high, there is some risk to simply dismissing the issue.

To add to the risk, directors and officers liability insurance policies typically exclude coverage for claims against the directors based upon the failure to obtain insurance.  It is true that the exclusion can be removed, but obtaining flood insurance is a condition of removing the exclusion.  This is akin to obtaining auto insurance on the condition that you agree never to own or drive a car.

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Florida Insurance Guaranty Association (FIGA) issued the following announcement:

Effective July 26, 2010, Coral Insurance Company (“CIC”) was ordered into receivership for the purposes of liquidation by the Second Judicial Circuit Court in Leon County, Florida.

With the entry of the liquidation order, the Florida Insurance Guaranty Association (“FIGA”) has been activated to help pay outstanding claims for property and casualty policies. The processing and payment of covered claims will be made by FIGA (subject to the lesser of policy limits or FIGA’s maximum cap). The maximum amount FIGA will cover is generally $300,000 per claim or $100,000 per unit for condominium and homeowner association claims. An additional $200,000 is available for structure and contents on homeowners’ claims.

FIGA is the state backed system that pays portions of claims against insolvent insurance companies.   Since FIGA is statutory, there is a shorter period of time to report and/or file an action with respect to a disputed claim.  Pursuant to Section 631.68, Florida Statutes, the deadline for settling a claim or filing suit against FIGA for damages from a loss formerly insured by Coral Insurance Company is July 25, 2012.

For more information on claim filing deadlines or refunds of unearned premiums, please visit Alex Sink's website: myfloridacfo.com.

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 Did you know you can potentially collect full policy limits from both your flood and property insurance policies?  Do you know how?

According to the National Flood Insurance Program, flood is the most common disaster in the United States.  On average flood claims stem from more than thirty thousand ($30,000) worth of damages.

Did you know that almost 25% of flood insurance claims come from moderate to low risk areas?

Floods do not discriminate.  They can and do happen all over the country.  Flood damages may be due to a heavy rainstorm or hurricane, melting snow, plumbing malfunctions, levee or dam failures and rising bodies of water.  Even new development can cause floods due to a change in the drainage patterns of adjacent properties.   

Becker & Poliakoff's Disaster Claims Recovery Team is in place to help you prepare for the consequences of a flood in your community. Answers to important questions will be provided in this live web event:

• What exactly does flood insurance cover?
• Who needs it?
• Are community associations required to carry it? 

Join moderator Ken Direktor, Esq. of Becker & Poliakoff ( Ft. Lauderdale ), and Greg Marler, Esq. of Becker & Poliakoff ( Naples ), who will present with guest speaker Tammy LoVecchio, AAI of Gulfshore Insurance for this Free Webinar Flood Insurance: What You Should Know to Protect Your Community.

Register below and you will receive a confirmation email with information on how to participate.

Live Webinar on Thursday, August 19, 2010
10:00 AM-11:00 AM EDT (9:00 AM-10:00 AM CDT)

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If you missed the recent webinar Anatomy of a Disaster Claim, it is now available for replay by following the link below:

DISASTER CLAIM WEBINAR

We thank all the participants for their valuable input.  If your community has not developed or implemented a disaster plan, I suggest reviewing the lead article in one of the more recent Community Updates.  Click below to link to the article:

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 Concern for Florida's Consumers Important in Decision to Veto SB 2044 (Property Insurance) and SB 1964 (Design Professional Liability).

Governor Crist vetoed SB 2044, despite support from the Florida Insurance Commissioner and other industry representatives.  The Governor expressed his concerns that increases in insurance premiums and changes to mitigation discounts would be especially hard on Florida's consumers during "these very difficult economic times".

Consumer protection was likewise a major factor with respect to the veto of SB 1964.  Governor Crist agreed with critics of the bill who argued design professionals are not entitled to avoid liability, effectively "removing a consumer's right to bring a tort action against them for economic damages caused by their negligence".  Shifting the burden of economic loss to consumers without sufficient alternative remedies was not acceptable to the Governor.

On the other hand, HB 965, relating to real property assessments, received the Governor's approval.  Owners of properties affected by Chinese drywall may be entitled to a downward adjustment of the assessed value of the property for tax purposes.   Contact your local Property Appraiser to request re-valuation - you may be entitled to a significant discount.

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I talked about the distinction between a carrier's duty to defend and the duty to indemnify early in the year in connection with the U.S. District Court's ruling that a D&O policy did not provide coverage for claims of breach of fiduciary duty, breach of contract and negligence. In Eastpointe Condominium I Asn. Inc. v. Travelers Casualty & Surety Company an owner sued the association claiming the board of directors failed to adequately maintain the roof and other portions of the property.  The carrier took the position that the "property damage" exclusion in the policy controlled.  The Court agreed.

The 11th Circuit Court of Appeal recently affirmed that decision in an unpublished opinion issued on May 20, 2010.

These types of claims are pretty typical.  A unit owner (or several unit owners) feels that the board is not "doing its job" and files suit seeking various remedies often including:

• injunctive relief (demanding that work, repairs, maintenance or improvements, be performed);
• reimbursement for costs sustained as a result of damages to property that would not otherwise exist if the board appropriately attended to the needs of the property;
• damages for the loss in property value, loss of enjoyment of the property, loss of use and the like; and
• reimbursement of attorney's fees and costs for bringing the claim.

Many of these cases involve differences in opinion as to whether maintenance/repairs were or are necessary, what products and methods to use for the repairs or maintenance, which contractor is better, etc.  In many cases the amount of money sought by the unit owner or owners is less than what it costs to defend the claims.   Defense costs can easily eat into the association's cash flow.

Isn't the association's board of directors protected against claims of negligence or breach of fiduciary duty?  If the D&O policy has a similar property damage exclusion, maybe not.

The Traveler's D&O policy excluded coverage for loss in connection with any claim "for or arising out of any damage, destruction, loss of use or deterioration of any tangible property including ... mold, toxic mold, mildew, fungus, or wet or dry rot."

The Eleventh Circuit departs from an earlier ruling that required a carrier to cover claims brought by homeowners against the association.  In Lumbermens Mutual Casualty Co. v. Dadeland Cove Section One Homeowners Asn. Inc., the District Court found that the D&O policy covered property damage losses based upon claims of breach of fiduciary duty, regardless of the tangible property exclusion.

What does your policy cover?  What does it exclude?  If you're not sure, please speak to your agent and/or have your attorney review and compare the policies before you renew because it seems coverage denials (and disputes) are becoming more prevalent.

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A number of bills CALL tracked this session were sent to Governor Crist recently.  He has until June 1, 2010 to act (veto or sign) on the following bills:

• SB 1196, Relating to Community Associations
• HB 663, Relating to Building Safety
• HB 713, Relating to Department of Business and Professional Regulation
• HB 1035, Relating to Elevator Safety
• HB 1411, Relating to Timeshare Foreclosures

We've included bullet point summaries of SB 1196 on this blog, but refer you to the actual text of the bill for more complete information.  Community Update will outline the impact of important bills on community associations - Becker & Poliakoff''s association clients will receive the electronic version shortly.

The Governor's office is in the process of reviewing SB 1964.  We've included concerns about this bill before in Condos/HOAs Have a Lot to Lose if Design Professional Protection Bills Become Law.  In 1999, the Florida Supreme Court codified a long standing principle that design professionals should be held accountable for economic loss damages that they cause just like other professionals in Florida. Board certified construction law attorney Steve Lesser said the following:

[Design professionals] have an obligation to design to meet code and protect the health, life & safety concerns of consumers.  An error in design judgment can be devastating to a unit owner and homeowners that cause damages and in fact- economic damages.  An elevator that fails to operate at the appropriate speeds and breaks down results in loss of use which is an economic loss.  Imagine how this could impact elderly unit owners.  A parking garage that is not properly shored up based on engineering calculations can result in economic loss.  These consumers are largely lay persons that often sign agreements (presented by the professional) that contain limitation of liability clauses. 
 

Please contact the Governor's office to express your support or opposition to 2010 legislation.  Make your voices heard in Tallahassee. 

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With the oil still gushing off our shores and no end in sight, only one thing is for certain, the impact on the environment and economy of Florida’s Gulf Coast will be devastating.

By John Cottle, Esq.

Governor Crist said Floridians must “prepare the worst and hope for the best”. We completely agree with the Governor. It is imperative that anyone with a financial or other vested interest that needs protecting begin doing so as quickly as possible.  Some prompt actions are recommended while it may be wise to consider waiting (as difficult as that may be) regarding others.

Make a Record of Everything
Having been through major disasters and the arduous claims process that follows, I can assure you that there is no such thing as “too much information” when it comes to establishing conditions prior to a casualty loss or in proving “damages”.  Some actions which should be taken immediately include:

• Take photographs – lots of them – and as soon as possible, before any physical damage is caused by the oil spill.  If any damage is sustained, photographs of the damage are indispensable.
• Prepare a  video with narration.
• Rental losses due to canceled reservations should be well-documented. 
• Document all information you receive from anyone who contacts you regarding the oil spill.

Governmental Jurisdictions Can Be Confusing
Beaches, in general, fall under the regulatory authority of several agencies including the Army Corps of Engineers (“ACE”) and on the state level the Florida Department of Environmental Protection (“DEP”).   It is essential to confirm in advance what regulations apply and to obtain any required permits before proceeding with any actions that may violate state or federal laws.

Engaging Professionals
Engaging professionals may be a prudent course of action.  Condominiums and community associations should consider securing the services of a competent coastal engineer.  The advice and recommendations of a professional may provide significant assistance in protecting property and in navigating the confusing web of state and federal regulations applicable to beachfront property. Additionally, it would be wise to seek legal assistance to help protect your assets and income. Some pundits are predicting that this incident will create more lawsuits than any other single event in history. Beware of the contractors, public adjustors and attorneys from all over the country trying to get in on the action.  While many are competent, capable, and professional,  others are not.  It is important to check the history and credentials of any professional before engaging their services.  No substantial claims are likely to be settled quickly, and prudence rather than haste in choosing legal representation will pay off in the long run.

The cleanup from the oil spill will take years.  The litigation and claims processes will take even longer.  Property owners who follow the steps outlined above and keep on top of the news will be in a better position than those who act out of desperation and panic.

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Section 718.111(11), Florida Statutes requires all unit-owner controlled condominium associations to use 'best efforts' to obtain and maintain adequate insurance. 

There have been many debates over the years regarding insurance coverage for condominium associations and the individual unit owners.  Some attorneys and industry representatives take the position that owner insurance (insurance for the contents of the unit and the portions of the unit not insured by the master policy) has been required by law for years, others contend that the law does not require individual coverage at all.  Debates concentrating on the proper scope and amount of coverage for the association pursuant to the master policy are likely to continue, regardless of the pending changes to the Condominium Act. 

The obligation to obtain master coverage (a policy issued to the association) for a multi-family building is not subject to debate.  Even though money is tight, the economy is in trouble and many owners are faced with hard times, there are certain obligations that cannot be ignored.  The tragedy faced by the unfortunate owners of the condominium building that burnt down in Broward County, Florida last week is made exponentially worse by the fact there is no insurance coverage.

Mortgage payments and property taxes do not vanish into thin air when the building burns down.  Will these owners have the funds to re-build?  Do they have any recourse? Probably not, says Gary Poliakoff.  What about the impact on the neighboring condominiums?  Living next to a partially demolished building is not likely to be pleasant or have a positive impact on property values.

Condominium directors, officers and unit owners - take advantage of the educational opportunities offered by various organizations to learn about the realities of condominium living and ownership.  Educational sessions offered by CAI are generally free to community leaders.  While you may not have the ability to prevent a fire, you can prevent this situation from happening to you by understanding the responsibilities of ownership and association operations.

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Large Insurance Bill Addresses Fees & Advertising by Public Adjusters, Deadlines for Filing Windstorm/Hurricane Related Claims, Policy Terms and Payouts by Carriers. 

 CS for CS for SB 2044 is a rather large bill addressing many aspects of insurance.  It limits payments to public adjusters for supplemental or reopened claims to 20% of additional insurance proceeds obtained and prohibits public adjusters from charging more than 10% of proceeds paid by a carrier if the claim involves losses from events that are subject to a declaration of a state of emergency by the Governor.  While the bill goes on to regulate advertising or solicitation by public adjusters and the form of contract between the public adjuster and the insured, more attention is being paid to three new provisions that, if they become law, impact property owner obligations, the carrier's ability to change the terms of the contract upon renewal and payment of claims.

These portions of the bill pertain to residential (personal lines) coverage.  Policies issued to multi-family property owners/managers (the Association) are generally (if not always) classified as commercial policies.

One part of the bill purportedly bars homeowners from filing claims.  It says that the insured must provide notice of any claim (including supplemental or reopened claims) based on a windstorm or hurricane loss to the carrier within three (3) years of the date of the storm.  While it doesn't change the applicable statute of limitations for civil actions, in some cases homeowners do not have a full understanding of all the damages caused by the windstorm/hurricane until after demolition and reconstruction begins.  Thus, the three (3) year time frame may result in loss of insurance proceeds, depending upon whether the homeowner has the ability to attend to reconstruction after the storm.

Another section of the bill allows the insurance carrier to change the terms of the policy upon renewal by use of a notice entitled "Notice of Change in Policy Terms".  Payment of the renewal premium constitutes acceptance of the new terms.

Most importantly, the bill removes the prompt payment requirements on the part of carriers.  It only requires the carrier to pay "actual cash value" minus the deductible, regardless of whether the homeowner paid for replacement cost coverage.  The carrier then only pays additional amounts once a contract for reconstruction is in place and the costs are incurred (as the work progresses).  Critics argue that this provision disproportionately impacts lower income families that do not have funds available to pay for reconstruction (along with all the non-insured items) and/or replacement of personal property without insurance proceeds.

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Community Leaders, Management, Staff and Owners Must Act Now to Protect Their Investments, Livelihoods and Homes.

Gulf Coast communities have dealt with a lot of casualties over the years.  Many owners were displaced for years after Hurricane Opal.  Opal's 20 foot storm surges destroyed buildings and businesses.  While special assessments mounted to cover mitigation, repair and other costs, property owners & businesses that cater to community association management/vacation rentals lost their source of revenue - a double whammy.

Oil continues to gush into the Gulf of Mexico.  This disaster is as potentially damaging to the Gulf Coast communities as any hurricane or tornado.  News reports indicate an oil slick the size of Delaware hovers offshore and is likely to make landfall in significant amounts.  Gulf shore residents can expect tar on the beach, an ocean sheen, fish and birds washing up onto shore and more.  Needless to say, tourists are already canceling their plans to visit the Gulf Coast and business are showing signs of distress. While there are still a lot of unknowns, the effect of this spill on the environment and the economy on the northern Gulf Coast is certain to be devastating.  

Community leaders, managers, staff members & owners all have a role in minimizing losses.  Please, protect yourselves and your investments.  Implement your disaster plan and document all losses, including cancellations of vacation plans, beach clean up, damages to personal property and the like.

As with any catastrophic loss, Gulf Coast owners and residents can expect a mass influx of outsiders looking to benefit from this unfortunate event.  Contractors, public adjusters and yes, even attorneys, are likely to swoop down on the region.  BP created a claims process - anyone believe that the oil company is looking out for your best interests?

Becker & Poliakoff Attorneys have represented community associations in the Gulf Coast/Panhandle area for more than twenty (20) years.  Helping clients recover from casualty losses is one of our services.  Attorneys Ray Newman, John Cottle, Angela Chao Clark and John Townsend are already in the process of advising clients how to minimize their losses and prepare for the legal issues they will need to confront in the coming days, weeks, months - perhaps years.

John Cottle explained to Tallahassee Democrat publication that obtaining the remedies available under the federal Pollution Act of 1990, requires evidence of losses. Board Certified Construction Attorney Sanjay Kurian (a contributor to this blog) indicated that insurance claims are not easy or simple matters in an article published by the News Press.  His experience comes from helping community associations recover insurance proceeds from Hurricanes Charley, Jeanne, Francis & Katrina (among other cases).

Becker & Poliakoff has maintained a fully staffed office in Panhandle area since 1998, representing hundreds of community associations with respect to board/association operations, interpreting and enforcing covenants and restrictions, regulatory compliance issues, disaster recovery, insurance claims, construction disputes and more.

For more information on what you can do now to prepare, minimize your losses and ultimately recover for your damages, please visit www.hurricane-recovery.com.   We wish for the best for the Gulf Coast, surrounding areas and all of Florida. 

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On March 2, 2010, Congress passed and the President signed H.R. 4691, which extended the National Flood Insurance Program (NFIP) through March 28, 2010.  Homeowners (including community associations) who have current flood insurance policies still have coverage; but NFIP cannot issue new policies, increase coverage on existing policies or issue renewal policies.  Since the extension expired, please refer to the NFIP guide titled “Recommendations/Guidance for Possible NFIP Authority Lapse and Hiatus”.  FEMA has advised that "any hiatus period should be brief and most of the nearly 5.6 million flood insurance policyholders nationwide will not be affected".

Congress is scheduled to reconsider H.R. 4851 entitled the "Continuing Extension Act of 2010", which extends several governmental programs, on April 12, 2010. Once Congress authorizes the NFIP program again, it’s expected to make it retroactive.  However, the hiatus may slow down or delay closings that were scheduled to take place in early April.

Since flooding can often lead to mold if not addressed immediately, the U.S. Environmental Protection Agency publishes helpful information including mold clean-up guidelines. 

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OPPAGA Report Finds that Insureds Received Larger Insurance Settlements when Public Adjuster Involved in Claim.  Florida Legislature Considers Additional Regulations Governing Solicitation by Public Adjusters. 

 The number of public adjusters in Florida increased by more than 300% over the last six (6) years - no doubt as a direct result of the catastrophic damages caused by hurricanes in 2004 and 2005.  As the deadline to file Hurricane Wilma claims becomes closer and closer, more homeowners, association leaders and building managers are being solicited to re-open old claims.  In the aftermath of Hurricane Wilma many distraught association leaders readily 'signed on the dotted line' after being told 'not to worry' about the association's insurance claim or repairs to the property. 

Did the use of a public adjuster make a difference?  The report issued by the Office of Program Policy Analysis & Government Accountability (OPPAGA) finds that claims took longer but payouts were higher when a public adjuster represented the insured.  In fact, Citizens Property Insurance Corporation paid insureds represented by public adjusters at least five time (5x) more than it paid insureds handling claims by themselves.

While Section 626.8795, Florida Statutes specifically prohibits the public adjuster from having anything to do with the repair or reconstruction of the damaged property, contractors and public adjusters often seemed interchangeable to association leaders.  The Department of Financial Services recently stepped-up enforcement efforts against contractors - including United Roofing Systems.    Moreover, solicitations became so intrusive that the Florida laws were amended in both 2008 and 2009 to impose restrictions:

• limiting hours of solicitation (in person or by telephone) from Monday through Saturday between 8:00 a.m. and 8:00 p.m.;
• prohibiting contact with policyholders until at least 48 hours after an event; and
• limiting fees to 10% of the claims related to declared emergencies and 20% for all other new claims.

 SB 2264, filed by Senator Bennett seeks to control solicitation by public adjusters even more and according to the Sun-Sentinel, industry groups are all for it, claiming that public adjusters lead to higher premiums.  Among other things the bill seeks to:

• prohibit solicitation in person or by phone (unless the insured is someone they know or a family member);
• require written communications to include the word 'ADVERTISEMENT' in red ink and be sent via regular mail (not certified or registered);
• prohibit mailers until 30 days after the insurable event takes place; and importantly
• cap fees at the 10%/20% limits for re-opened claims.

Contracts between insureds and public adjusters often result in disputes leading to expensive and protracted litigation.  It is therefore extremely important to consult with counsel before entering into any contract with a public adjuster or contractor after a casualty occurs.  For more information on disaster planning and recovery, please go to www.hurricane-recovery.com.

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Has your carrier been 'red-flagged'?  The Florida Association of Insurance Agents and other industry professionals warned the legislature about carrier financial instability, underwriting losses and reductions in surplus funds.  Sarasota's Herald-Tribune reports that "Weak Insurers put Floridians at Risk" and notes that carriers in Florida are highly more leveraged than in other states.

The Herald-Tribune's investigation found:

• One third of homeowners rely on private insurance carriers that exhibit at least one sign of financial risk;
   
• More than 100,000 homeowners rely on companies that can barely pay claims for fires, let alone hurricanes or other casualties; and
   
• Almost one-third of the private carriers have decreased cash set aside for claims.

A presentation by Insurance Commissioner Kevin McCarty stated:

• A license to operate as an insurer should never be confused as a complete guarantee if financial health and profitability.  These are private companies and sometimes economic conditions can create financial distress to one degree or another.

• Solvency regulation is designed to reduce financial risks for the policyholder by proactive early detection of potential insurer distresses; and

• Current market conditions have impacted insurers to varying degrees and will likely continue.

Herald-Tribune identifies six (6) carriers with red flags:  Homewise Preferred; Magnolia Insurance; Northern Capital Insurance; People's Trust; Sunshine State; and Southern Oak Insurance.  Coral Insurance and American Keystone insurance failed last year and Magnolia is reportedly under state supervision, but has not been liquidated.

Citizens' Insurance Corp., has become the primary insurer.  However there is an understanding in the industry that premiums charged by Citizens are 40-60% below sustainable rates, leaving Floridians subject to assessments for casualty losses.

Community leaders are well advised to educate themselves about the financial stability of the carriers providing coverage to their communities and to understand whether FIGA provides any relief in the event of insolvency.

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There May be no Coverage Available for Claims Against the Association for Allegations that Include Failing to Maintain & Repair the Property, Negligence, Breach of Contract and Breach of Fiduciary Duty.

Eastpointe Condominium I Association, Inc. v. Travelers Casualty and Surety Company of America, United States District Court - order entered October 14, 2010.

 This recently decided case highlights several legal maxims that should be more widely known, such as:

Tangible Property Exclusion  - the "Non-Profit Management and Organizational Liability Insurance Policy" was for the purpose of covering "any loss ... incurred by the [Association] as the result of any claim ... made against the [Association] ... for a Wrongful Act."  The term "Wrongful Act" was defined in the typical way, as any error, act, omission, misleading statement or breach of duty that caused, or is alleged to cause, damages.  However, the policy excluded coverage for claims "arising out of any damage, destruction, loss of use or deterioration of tangible property".  The definition made sure to mention that damages from construction defects, mold, toxic fungus or mildew were specifically excluded.  Thus, the insurance carrier was right when it determined there was no coverage for defense or indemnification under the policy in light of an owner's claim for damages to her unit, personal property and common elements of the condominium that forced her to use alternative accommodations.

 Duty To Defend v. Duty to Indemnify - You may have heard or been aware of this maxim. 

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Seville Place Permitted to Add a Bad Faith and Punitive Damage Claim against State Farm after Umpire Signed Appraisal, but before Final Judgment.

On October 14, 2009, the Third District Court of Appeal ruled that an insured could proceed with a bad faith and punitive damage claim against State Farm in its initial lawsuit against the insurer for damages from Hurricane Wilma. 

The association made a claim under the policy for hurricane-related losses.  State Farm inspected the property and estimated the total amount of loss was $324,017.00 for repairs to the roofs.    In January 2006, it made two payments on the claim which totaled $90,564.62, reducing the amount payable by the deductible and depreciation.  On the other side of the spectrum, Seville Place’s estimate of the damage exceeded $4.6 million.

In October 2006 (a year after the loss), Seville Place made a written demand for appraisal. The policy contained a typical appraisal clause that said:

If we [State Farm] and you [the Association] disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. Each party will notify the other of the selected appraiser's identity within 20 days after receipt of the written demand for an appraisal. The two appraisers will select an umpire. If the appraisers cannot agree upon an umpire within 15 days, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. . . . If we submit to an appraisal, we will still retain our right to deny the claim.

The association filed suit after State Farm would only agree to appraisal under certain conditions. The appraiser and the umpire signed a final appraisal award, fixing the insured loss at $2,960,405.   The Association then filed a Motion asking to amend its complaint to include bad faith and punitive damage claims.  State Farm objected, indicating that Seville Place must obtain a final judgment from a jury before it may proceed with its bad faith and punitive damages claim. The Court disagreed.  It said:

State Farm originally estimated the Association's covered loss at $324,017. This is less than eleven percent of the amount determined by the appraisal process. State Farm will have an opportunity to explain this fact, to explain the extraordinary length of time it has taken to resolve the Association's claim, and to defend State Farm's aggressive legal tactics (including the unfounded imposition of conditions on the contractually-stipulated appraisal provision and the last-minute attempt to remove the neutral umpire). For now, however, we find no basis in this record to quash the orders below as requested by State Farm.

 The Court also rejected State Farm’s argument that a bad faith claim is premature until the insurer exhausts all appellate remedies regarding liability and loss amount, noting no “decision by this Court or the Florida Supreme Court has held that liability and the extent of damages must also be “finally final,” surviving any appellate remedies sought by an insurer, before the insured's bad faith claim is ripe.”

Of course the decision is not final until all post-trial motions have been resolved.  However, it does give hope to the thousands of community associations that are still struggling to obtain insurance proceeds for losses sustained from Hurricane Wilma and other storms.

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Citizens' Property Insurance Corporation announced it intends to increase premiums by approximately 20% for buildings with a replacement value over $10 million. 

Citizens' Property Insurance is the state-run, not-for-profit insurer of 'last resort' in Florida, created in 1992 and operating pursuant to Section 627.351, Florida Statutes.  It insures over 23,000 commercial residential properties in Florida and recently issued an Agent Technical Bulletin notifying the public of its intent to increase premiums for policies affording coverage to properties valued in excess of $10 million.  Many policyholders will see rates increase by 20%.  Insurance premiums are often the most significant line item in a community association budget.  Communities already struggling with shortfalls and bad debt need to take the increases into account when preparing budgets for the upcoming year.

This news comes at a time where two insurance companies were recently forced into receivership to be liquidated.  The Florida Department of Financial Services has been appointed as receiver for American Keystone Insurance Co., a company that entered the Florida market in 2007 and wrote policies covering homeowners, condominium owners and condominium associations.  According to the Department's website "in accordance with the terms of the liquidation order, all policies are canceled at 11:59 p.m. on November 8, 2009, unless otherwise canceled earlier in the normal course of business." 

The Department of Financial Services has been appointed and currently serves as receiver for 50 insurance companies.  Florida Insurance Guaranty Association ("FIGA") will adjust and pay claims associated with the American Keystone policies, subject to its limitations and the claims filing deadline. 

FIGA protection is only available for admitted carriers.  If you are not aware of the differences between admitted and non-admitted (surplus lines) carriers, please contact your community association attorney or insurance professional.

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In these troubling economic times we see more and more owners abandoning units or failing to attend to the maintenance and repair needs of the unit. Owners are obligated to maintain the unit in a manner that does not cause or contribute to damages to other portions of the condominium property.  Mold damages often result from slow and ongoing water leaks and are therefore not necessarily characterized as casualty damages for insurance coverage to apply.  Even if there is a casualty, most policies severely limit or exclude mold-related costs. 

The Board of Directors should consider creating standards, rules or criteria to hopefully prevent, or at least minimize, any mold-related problems.  Please consider the following suggestions: 

1. Inspect all appliances within the Unit and all related hoses and connections for condensation and leaks at least monthly;
2. Inspect units to determine whether heating, ventilation, or air-conditioning ducts, vents, and intakes are covered or blocked;
3. Inspect major appliances, including, but not limited to, hot water heaters, refrigerators, dishwashers, heat pumps, air conditioners, ventilation systems, humidifiers and dehumidifiers and require these components to be serviced, cleaned and maintained by a licensed professional at least annually;
4. Recommendations to empty, clean and dry refrigerator, air conditioner, dehumidifier and all other drip pans and filters on a continuous and regular basis and to de-ice and defrost all freezers and ice making devices at least annually;
5. Monthly inspections to determine whether all balcony weep holes are clear/clean to ensure proper drainage;
6. Require the owners to have the air conditioning and humidistat operating at all times;
7. Require the Unit Owner to do the following when a Unit is expected to be or is actually vacant or unoccupied for a period of seven (7) consecutive days or more:

• Turn off the main water supply to the Unit, and the individual water supply to the refrigerator, dishwasher and hot water heater, as well as any other device in the Unit utilizing the water supply, except emergency or life-saving devices such as fire sprinklers;
• Turn off the electric power to the water heater, being careful not to turn off power to the air conditioning, humidistat, smoke detectors, carbon monoxide detectors, emergency lighting or other emergency or life-saving devices; and
• Arrange to have someone routinely and periodically inspect the Unit, in order to maintain a continuous and meaningful presence in the Unit, to determine whether any mold, moisture, water leaks, or damage has occurred and notify the Association immediately.

The most proactive communities will devote staff or hire outside vendors to conduct inspections.  Some communities have amended their governing documents to authorize the Board of Directors to enter into maintenance contracts (for appliances and other facilities in the units) as a common expense to avoid the situation explained in the recent article written by Fallan Patterson.  While everyone knows that money is tight, Ben Franklin was right when he said "an ounce of prevention is worth a pound of cure" when it comes to these types of issues.

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Readers have submitted quite a few questions in the last few weeks regarding insurance for condominium property and responsibility for repair of damages.  Section 718.111(11), Florida Statutes, requires every condominium association to maintain insurance coverage for:

• All portions of the condominium property as originally constructed (including replacements of like kind); and
• All alterations or additions to the common elements or association property made in compliance with Section 718.113(2), Florida Statutes, but excludes:
• Floor, wall or ceiling coverings, electrical fixtures, water heaters, water filters, cabinets, countertops, appliances, window treatments and personal property within the units.

Every unit owner is required to carry coverage for their unit and any improvements or modifications made to their unit (or limited common elements).  Unit Owner coverage must:

• Be excess to the association's coverage;
• Contain at least $2,000 of loss assessment coverage; and
• Name the association as an additional insured and loss payee on the casualty portion of the policy.

 As for specific questions by readers:

 What is the new law concerning condo air-conditioners? Is there a new law?

The association's insurance policy must include coverage for the HVAC system - the air conditioning units, compressors, thermostats, duct work, etc., when in the past air conditioners serving the unit were insured by the individual unit owner.  Community leaders and managers make sure these items are included in the current appraisal so there is enough coverage in the event of a loss.

I have heard from someone that this LAW (just the other day) has been overturned ..can you verify this?

 

The Florida legislature passed a bill that would have eliminated the Unit Owner coverage mandate, but that bill was vetoed by the Governor.  Consequently, every Unit Owner is required to purchase insurance coverage and provide evidence of the coverage to the association when asked.  If the Unit Owner fails to comply, the association actually has the option of buying coverage for the unit and charging the owner for the expense.   The charges can be included in a lien against the unit and the association can foreclose if the owner still refuses to reimburse it for the insurance expense.

For more information regarding the vetoed bill, please refer to an earlier post by clicking HERE.

What happens when there are damages from a roof leak, a burst pipe, a toilet that overflows?  More reader questions regarding damages later this week....

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HUD Implements New Approval Process for Condominium Projects to Qualify for FHA Insured Mortgages.

Website Allows Users to Search for FHA Approved Projects.

On June 12th the Department of Housing and Urban Development (HUD) published Mortgagee Letter 2009-19 announcing the new process for approval of condominium projects.  As previously reported on this Blog, Fannie Mae, a federally backed lender, announced several changes to its standards, including the imposition of PERS review.

Lenders are now permitted to determine FHA project eligibility, review project documentation and certify compliance with HUD regulations in furtherance of the directives contained in the Housing and Economic Recovery Act of 2008 (HERA).   In order for a condominium project to be eligible for FHA insured mortgages:

• Hazard and Liability Insurance must be in place.  Flood insurance is also required where applicable.
• Any right of first refusal in the declaration of condominium or other governing document cannot violate prohibitions against discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.  Many projects have been rejected as a result of the provisions granting the Association the rights to "screen" and "approve" purchasers.
• Commercial use cannot consist of more than 25% of the floor area and commercial uses must be homogeneous with residential use.
• A single investor cannot own more than 10% of the units.
• The owners of no more than 15% of the units may fall into arrears (defined as more than thirty days past due in maintenance fees or assessments).
• At least 50% of the units must be sold, although pre-sales apply.
• At least 50% of the units must be owner-occupied or sold to owners that intend to occupy the units as a primary or secondary residence.

HUD provides resources for home-buyers to determine whether projects are FHA approved.  You may search by location, name or status.  The website also reveals which projects have been rejected by FHA or whether approval is currently pending.  Click here to search whether your condominium is FHA approved.

FHA loans are advantageous for purchasers as generally there is less money required for the down payment,  lower closing costs and lower interest rates than sub prime loans.  FHA loans are a good option for borrowers that cannot qualify for conventional financing, as other alternatives generally include large pre-payment penalties.  FHA limits have increased as a result of the stimulus package as well.

Condominium project approvals expire two (2) years after the initial approval and re-certification to determine whether the project remains in compliance with HUD guidelines is required for continued approval.  

Community associations may want to consult with counsel to determine whether it is worthwhile to take action to qualify for FHA and/or Fannie Mae approval, especially if recent sales have slowed.

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Associations lose hundreds of thousands of dollars to unlicensed and uncertified contractors every year. Associations should protect their property by avoiding unlicensed contractors. Unlicensed individuals cannot pull permits and usually carry no insurance. Licensing is not necessarily a measure of competence but it presupposes a certain degree of professionalism and commitment to the industry. When dealing with an unlicensed contractor and the work is not done in accordance with the applicable building codes or workmanship standards, there is no recourse against the unlicensed individual other than through the courts.

Although licensing is not a guarantee of the contractor’s work, it can protect the Association from a number of potential problems such as:

• Unlicensed contractors are often unfamiliar with building codes, inspection sequences and inspection requirements.
   
• Limited recourse for breach of contract and/or defective work. When dealing with a licensed contractor, the Association always has the option of contacting the appropriate licensing agency. Some agencies are able to resolve issues and assist in recovering consumer losses. At a minimum, licensing agencies have the authority to suspend or revoke licensing privileges. This does not eliminate all contractor problems, but does provide contractors with an incentive to conduct fair business practices and comply with the law.
   
• Unlicensed contractors are usually uninsured. If an Association uses an unlicensed contractor and property damage occurs, the individual may have no way of reimbursing the Association for damages caused. Furthermore, if a third party suffers an injury at the Association’s property, there may be no insurance coverage. Many homeowners insurance policies exclude claims arising from unlicensed construction practices.
   
• Unlicensed contractors cannot pull permits. If the Association pulls the permits for an unlicensed contractor, then the Association, not the person doing the work, is held responsible.
   
• If the Association hires an unlicensed contractor, the Department of Business and Professional Regulation or the Building Department may issue a cease and desist order to stop the work, and may decide to take legal action against the Association to impose civil penalties for aiding and abetting unlicensed activities.
   
• If the Association hires an unlicensed contractor and the work is not completed in accordance with state and local building codes, the Association may have to pay additional monies to have the work brought into compliance.
   
• If an unlicensed contractor does not pay his subcontractors or suppliers, the Association may be liable for these costs. Subcontractors and/or suppliers who work for unlicensed contractors still have the right to file liens on the Association’s property.

There are steps that Associations can take to help protect themselves from unlicensed contractors. When hiring a contractor, Associations should:

1. Always ask to see the State of Florida license.
    
2. Note the license number and verify that the license is current and in good standing. To check on the license, call 850-487-1395 or visit www.myfloridalicense.com.
    
3. Ask for references and check each one.
    
4. Always get several estimates for comparison.
    
5. Never pay in cash, and never provide large up-front deposits. Beware of scams when individuals ask for money up-front or will only accept cash.
    
6. Beware of writing checks made payable to individuals especially, when the Association is dealing with a company or a corporation.
    
7. Everything should be in writing. At a bare minimum, a contract should include the contractor’s names, address and professional license number; a detailed description of the work to be completed and materials to be supplies; a completion date and total cost.
    
8. Have an attorney review all contracts before signing anything.

In these economic times, there are many individuals who try to hold themselves out as licensed contractors. They usually make promises of quick and inexpensive repairs and require large up-front deposits. When work needs to be done, Associations should choose a contractor carefully and make sure the contractor is properly licensed and insured.

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Members of Becker & Poliakoff's Hurricane Preparedness and Claims Recovery Team presented "Hurricane Season 2009: Are You Ready to Weather the Storm?"   

Shareholders Ken Direktor and Herb Brock explained the importance of developing a disaster plan that includes safeguarding documents by making digital backups, advising residents of local shelters and identifying and coordinating with the Local Emergency Management Coordinator.

Participants learned about the emergency powers granted by the legislature in Section 718.1265, Florida Statutes and what they, as community leaders and managers, need to do to prepare for a substantial casualty.  

Participants were reminded to review insurance policies and create a spreadsheet showing the types of policies, the carriers, policy numbers and contact information for the agent.  The speakers encouraged community association leaders to make arrangements with landscapers or other contractors in advance, so they are "first in line" to receive debris removal and other emergency services.

If you would like to view/listen to the recorded webinar, click on the link below.

http://events.vcall.com/VCall/ReplayLogin.aspx?room=2146003661

Becker & Poliakoff, P.A. maintains an extensive library of disaster recovery resources for community associations, including a 12-point preparedness checklist, videocasts and numerous articles on its hurricane recovery website.  Click here to review those materials.

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SB 714 Designed to Clarify Insurance Requirements & Provide Relief to Homeowners by Delaying Fire Sprinkler Retrofit.

Condominium Unit Owners Required to Maintain Insurance Coverage.

Governor Charlie Crist vetoed SB 714.  Too bad - SB 714 would have relieved Condominium Unit Owners from maintaining individual property insurance and likewise relieved Associations from the burden of requesting insurance certificates. 

Governor Crist expressed his concerns regarding the fire sprinkler retrofitting extension in his veto letter, citing safety risks. This means that condominium associations throughout Florida will have to retrofit their buildings, or  partially retrofit (if authorized by membership vote as set forth in Section 718.112(2)(l), Florida Statutes) by December 31, 2014, something that struggling condominium associations cannot afford at this time.

 Read Governor Crist's veto letter (click here).

Gary A. Poliakoff explained the negative impact of the veto in correspondence to the Governor (click here to read that letter) highlighting how significantly condominium and community associations have been hurt by the mortgage foreclosure crisis.

Consequently, the following insurance requirements, largely resulting from 2008 legislation, are still in effect:

1. Unit Owner coverage is still mandatory. 
2. Unit Owner insurance coverage must contain $2,000 "special assessment" coverage.  SB 714 would have corrected the language to "loss assessment" coverage. 
3. The Association is still required to be named an additional insured and loss payee on insurance policies issued to Unit Owners.
4. Association boards must set the master policy insurance deductible at an open board meeting - the notice of the meeting must contain the amount of the proposed deductible, available funds and cite the assessment authority as well as estimate potential assessments against each unit for possible casualty costs that are not funded by insurance coverage.
5. Unit Owners are still required to insure "improvements and additions" that benefit fewer than all the owners.  This is problematic from a number of perspectives, especially in light of the fact that the term "improvements and additions" is not defined.  This provision in Section 718.111(11)(g)(1), Florida Statutes may be interpreted to mean that Unit Owners bear responsibility for portions of the property traditionally insured by the master policy, such as balconies, vehicle enclosures such as carports (if the coverage is available), storage spaces and the like. 

 A press conference is being held today, June 4, at the South County Civic Center located at 16700 Carter Road, Delray Beach, Florida at 1 P.M.  Senator Deutch and Representative Kelly Skidmore will address legislative issues, foreclosures and ways to confront association financial losses.  CALL urged Senator Deutch to ask the Speaker of the House and the President of the Senate to call a special session to address these important problems. 

Community leaders are encouraged to contact their elected representatives and express their concerns.

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Much has been written about the insurance requirements for condominium associations and condominium owners. The Florida Condominium Act has been amended significantly over the years in this regard. Major changes resulted from the 2003 legislative session, by defining the terms “building”, “condominium property,” “insurable improvements,” and other terms contained in declarations of condominium when dictating the scope of property covered by the master policy. More recent amendments, some of which effective January 1, 2009, caused a whirlwind of controversy over unit owner coverage mandates and provisions allowing associations to “force place” coverage.

On the other hand, the Florida Statutes pertaining to Cooperative Associations have not received much attention, nor is there any statutory guidance for the scope of coverage required other than a reference in Section 719.104(3), Florida Statutes, to the obligation to procure “adequate insurance” to protect the association property. Consequently, the directors of a typical Cooperative Association containing multi-family buildings (whether high rise or low rise buildings) are often offered the same products that are available for Florida Condominium buildings and properties, regardless of whether the coverage is appropriate.

As a preliminary matter, there is a fundamental difference between a condominium and a cooperative property, even if the buildings are exactly identical. In a condominium, the unit owners (often referred to as “Members”) actually own a parcel of real estate subject to individual ownership - the condominium unit (as defined by the Declaration of Condominium). Those owners (Members) also own a share of the common elements. In a cooperative, the corporate entity (the Cooperative Association) is the usually the sole owner or lessee of the entire property, which includes the land and all buildings and improvements upon the land, including the individual units. The owners (often referred to as “Stockholders”, “Shareholders” or “Members”) own a share of the corporation and are assigned the exclusive use right to one unit. Thus, the “cooperative parcel” is defined as the share or other evidence of the ownership interest in the corporation (such as a membership certificate, stock certificate or the like) along with the Proprietary Lease, Occupancy Agreement or other muniment of title or possession to the unit itself.

The insurance products designed for condominium properties may not be “adequate” for cooperative properties, as the coverage required for a cooperative is dictated by the governing documents of the Cooperative Association. The Proprietary Lease (or Occupancy Agreement), Bylaws and other governing documents should clearly delineate the responsibilities associated with maintenance and insurance of the cooperative property, allocating certain portions of the property to the Association and others to the Shareholders. While the insurance industry appears to address the differences between various types of properties it is abundantly clear that many association leaders are not aware of the differences, nor able to ensure the policies they purchased are “adequate”, leaving themselves exposed to liability for damages in the event of uninsured losses.

Cooperative Association Boards are encouraged to undertake a comprehensive review of their insurance policies and the coverage afforded by each policy. Consult with counsel to determine whether amendments to the governing documents or changes in coverage are necessary or advisable under the circumstances. 

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