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

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The 11th Circuit Court of Appeal recently affirmed that decision in an unpublished opinion issued on May 20, 2010.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

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