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Management Company Response on Insurance Issue
Continental Group Property Management issued a response to the article that appeared in the Sun-Sentinel entitled "Property Managers Make Money Off Condo's Insurance". I commented on the article in the post entitled More on Conflicts of Interest: Management Company Commissions?
The letter explains the relationship between Continental and First Service Financial (FFI). Its CEO notes that Continental's clients saved $1.5 million in insurance premiums in the past 12 months alone and stressed that the relationship between the companies is disclosed.
You can read the letter by clicking HERE.
Flood Insurance: Be Alert to FEMA Map Changes
Flood Insurance is required to secure financing, from a federally regulated or federally insured lender, to buy, build, or improve structures in Special Flood Hazard Areas (SFHA's).
- If your property is higher than the Base Flood Elevation, then you may request a Letter of Map Amendment (LOMA) or a Letter of Map Revision (LOM-R) by submitting an elevation certificate to FEMA. If the re-designation is granted, your lender may choose not to require Flood Insurance.
- If you were required to get insurance by a lender and then your property is re-designated by FEMA, you may request a refund of the premium paid for flood insurance coverage. Conversely, flood insurance may be required if your property is reclassified as a SFHA.
- Regardless of map changes, lenders do not have to waive flood insurance requirements and may decide that flood insurance coverage is still required as a condition of the mortgage or other financing.
Community associations throughout the State have been approached by companies that study the topography and/or other features of their development in order to prepare data for use by the Federal Emergency Management Agency (FEMA) to determine whether the community's flood hazard assessment is correct. As a direct result of these efforts, several communities have been reclassified from Special Flood Hazard Areas (SFHA) into areas of "moderate" or "minimal" flood risk. Some Boards engaged these services with the goal of eliminating the cost of flood insurance from the association's annual budget.
CBS4 (Miami) recently ran a story about the FEMA mapping system. It found that the National Flood Insurance Program became $18.7 billion dollars in debt after hurricanes Katrina, Rita and Wilma. The television report indicated that FEMA executives intend to pay off some of this debt by changing flood maps and increasing the number of properties that require insurance. Miami-Dade maps were just released and revised Broward maps are due out next year.
Community association boards should discuss these requirements, and their options, with both counsel and insurance advisers. According to statistics published by FEMA, up to 25% of flood losses happen outside of special flood zones. Dropping master coverage may impact individual owners if their lenders require coverage. In the long run it may, in fact, cost each owner more without the master policy.
More on Conflicts of Interest: Management Company Commissions?
Conflicts of interest, or at least claims of conflict of Interest are in the news lately. The Sun-Sentinel ran an article entitled "Property Managers Make Money Off Condo's Insurance" on Sunday. It says some of the property management companies are affiliated with insurance agencies that procure property insurance. If the board of directors selects the products or insurance package recommended by the management company, in some cases the agency will share the commission. Commissions can run into the tens of thousands of dollars per policy. Critics argue that this financial incentive skews management's recommendations. Community association board members often look to and rely upon the expertise of their managers/management companies when making significant decisions.
The Department of Financial Services, Division of Agent and Agency Services is considering rules prohibiting "unlawful inducements" in connection with property insurance. The rule, if adopted, would prohibit:
- Paying, crediting, allowing, or giving, or offering to pay, credit, allow, or give, directly or indirectly, an inducement to the purchase of insurance.
- Facilitating any discount, reduction, credit, or paying any portion of any premium, fee or cost of underwriting, policy fee, or claim cost.
- Facilitating any discount, reduction, credit, or paying any fee or portion of the cost of an inspection, inspection report, appraisal, or survey, including wind inspection.
- Bringing about any discount, reduction, credit, or paying any portion of the premium or any portion of the cost of premium financing.
- Making possible any lowered, credited, or discounted commission.
- Providing membership in any organization, society, association, guild, union, alliance or club at a discount, reduced rate, or at no cost.
- Making or offering to make a charitable or other tax-deductible contribution on behalf of the purchaser.
- Providing or offering stocks, bonds, securities, property, or any dividend or profit accruing or to accrue thereon.
- Providing or offering employment in exchange for the purchase of insurance.
Some of these are obviously problematic, but "business as usual" in many industries.
Is it wrong to contribute to charities or non-profit organizations when your client supports those efforts? Is it wrong to obtain discounts on behalf of your clients? Isn't that one of the factors that plays a part in deciding which agent (or any service provider for that matter) to use? If the agent has access to discounts that are not available to other agents, doesn't that benefit the association? Same with reducing the commission - the premium goes down if the agent will agree to accept less of a commission from the insurance carrier. How does that harm the association?
On the other hand, do the board members (and unit or home owners) know of this financial incentive? Are they able to compare 'apples to apples' quotes for products and services? Do they know they have options when it comes to financing insurance premiums? Is the association getting the best rate for the financing?
Disclosure here is key. Board members need to ask those tough questions and carefully review different proposals. Insurance is a major part of an association's budget. If the board is not sure, hiring a consultant to compare packages and prices is well worth the expense - it could even save your association money in the long run if there are changes in coverage necessary or appropriate under the circumstances.
FIGA Coverage Limits: Check Your Policies to Maximize Coverage
Are you completely familiar with the insurance coverage available to your association? Will you have FIGA coverage in the event your insurance carrier becomes insolvent?
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The Florida Insurance Guarantee Association (FIGA) was created to ease the burden on policyholders with claims when an insurance carrier becomes insolvent. FIGA coverage is limited to licensed insurers in the State of Florida, otherwise referred to as admitted carriers. When an admitted insurance company becomes insolvent, the FIGA pays eligible claims. However there is no FIGA coverage for non-admitted or unlicensed products, such as surplus lines or is a self-insurer covered in the non-admitted market.
While FIGA steps into the shoes of the dissolved carrier, payment limits are established by statute, not the original policy. The way the policy is written for a multi-building association is important - very important as demonstrated by the recent ruling in Florida Insurance Guarantee Association v. B.T. of Sunrise Condominium Association, Inc. The ruling is hot off the press and therefore subject to rehearing upon proper Motion.
There are seven (7) buildings within the B.T. of Sunrise Community. All of them were damaged by Hurricane Wilma. The association filed its insurance claim with the carrier, Southern Family. Southern Family assigned one claim number to the entire claim and paid for certain damages before it went insolvent.
The association was not satisfied with the amount paid by Southern Family and therefore requested supplemental payments from FIGA. FIGA issued a check for what it believed was its statutory limit: $300,000 minus $100 for the FIGA deductible. The association then challenged FIGA's finding - there were seven (7) buildings, each listed separately, each covered for a specific amount and each had a specific premium payment based on the coverage amount. Why would FIGA only pay for one claim? The association argued FIGA should pay for seven (7) claims.
That issue was decided in the association's favor at the trial level. FIGA appealed and the Fourth District likewise ruled in favor of the association. FIGA will now have to participate in the appraisal process with respect to each building - with separate limits of coverage for each building.
Please review your policies and declaration pages carefully, then discuss this issue with your insurance professional. Make sure your community has the maximum benefit fromFIGA coverage.
Flood vs. Property Insurance: Do You Understand Which Covers What? Free Webinar
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)
D&O Coverage Exclusions Revisited / Eastpointe Case Upheld
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.
Condo Master Insurance Policy Is Not Optional
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.
NFIP: National Flood Insurance Program Lapses
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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.
Will Your Insurance Carrier Have the Ability to Pay Claims?
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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:
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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.
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Solvency regulation is designed to reduce financial risks for the policyholder by proactive early detection of potential insurer distresses; and
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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.
Insider's Analysis of the 2009 Legislative Session Webinar
Close to 200 Community Leaders and Professional Property Managers participated in the first of a series of webinars presented by Becker & Poliakoff, P.A.
On Wednesday, May 28, 2009, CALL presented a webinar explaining legislative activities during the 2009 legislative session. Co-executive directors Yeline Goin and David Muller were active in Tallahassee and throughout the State of Florida during the latest legislative session, advocating for the interests of Florida Community Associations.
Attorney Yeline Goin started the session with an in-depth explanation of the impact of SB 714, which was sent to the Governor on May 18th. Governor Crist has 15 days to sign or veto the bill before it becomes law. Ms. Goin alerted the participants to lobbying efforts encouraging a Governor's veto.
SB 714 impacts insurance obligations of condominium associations and condominium owners, addresses eligibility for service on a board of directors of a condominium association, as well as fire and life safety issues. Please click here for more information about the Bill.
Attorney David Muller explained changes resulting from SB 2080 which would prohibit Community Associations from enforcing deed restrictions that preclude xeriscaping. Becker & Poliakoff previously provided its clientele with the University of Florida's recommendations for 'Florida-friendly' landscaping in its Community Update publication.
Mr. Muller alerted the participants to increased filing fees for foreclosure lawsuits, explained changes to Chapter 617, Florida Statutes that would result from SB 2330 and impacts from HB 1495. He noted that despite reports from other sources, HB 1495 does not include a condominium mitigation loan program that was initially contemplated by the legislature.
Mr. Muller advised the participants of CALL's continuing effort for legislative changes necessary to improve Community Association financial problems, particularly with regard to the financial responsibilities of lenders and investor-owners.
To View Becker & Poliakoff’s Insider's Analysis of the 2009 Legislative Session - New Laws Affecting Community Associations go to:
http://events.vcall.com/VCall/ReplayLogin.aspx?room=2146003612
