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What Will the Damage Cost?

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A well-designed disaster plan will include safeguards against future risk which are designed to minimize economic and property loss, as well as the loss of human life.

It is dangerous to ever become complacent about hurricanes when you live or own property in Florida. Knowing that disasters can occur and being prepared to deal with them will certainly minimize damages and promote a speedy recovery.

Disaster planning and recovery are two areas where communities should not attempt to go it alone. There are experts in all areas related to disaster planning and recovery who have the knowledge and experience needed to help you make the right decisions for your community. Unfortunately, there are countless stories of associations that misunderstood the perils of a disaster and its aftermath and paid the consequences for years to come.

Here are some helpful tips from other community association industry professionals to assist in developing your association’s customized disaster plan.

Adequate Insurance

Adequate property insurance must be based on the replacement cost of the property as determined by an independent insurance appraisal. Statutory mandates, along with provisions of the governing documents, determine the extent of the association’s insurance coverage responsibilities as well as those of the individual unit owners.

In addition to basic coverage, some major sources of economic loss, such as landscaping, fencing, screening, exterior building paint, building foundations, walkways, pools, tennis courts, and satellite dishes, are not normally covered by insurance. Some areas of potential loss can be covered for additional premiums including coverage for displacement from the property as previously discussed.

One of the most important types of coverage exclusions every board needs to discuss with its insurance agent is “ordinance or law” exclusion.

Ordinance or law exclusion states that the insurer will not pay for losses or damages caused directly or indirectly by the enforcement of any ordinance or law (1) regulating the construction, use or repair of the property; or (2) requiring the tearing down of any property, including the cost of removing debris. This exclusion is designed to address building codes that may require more expensive reconstruction material, installation, design or methods than those which were originally used in the existing building. It may also apply to environmental laws that require elaborate and expensive decontamination processes, or upgraded construction practices in hurricane and flood zones.

For example, following Hurricane Andrew, a Miami-Dade County ordinance required that a number of buildings considered to be damaged by 50% or more could be restored only if they were elevated to a specific height above sea level. Under such circumstances, the cost of elevation plus repair of the damage generally would exceed the limit of building insurance, unless there was coverage provided under the rider to the base policy.

Many communities were left waterlogged by the hurricanes of 2004 and 2005 only to discover that their basic policies did not cover water damage from flooding. Under a typical master flood policy, the entire building is covered under one policy, including both the common elements and the individual units.

In the Florida Panhandle after events such as Hurricane Opal and the BP Oil spill, the greatest monetary loss was not because of damaged property, but from lost rental income. Business interruption insurance is essential for owners or managers who rely upon vacation rentals for their livelihood.

Managers need to ensure that their business interruption coverage is not just for the premises where they maintain their offices, but also for the communities where they manage rental units.

Many homeowners failed to maintain coverage for their personal effects and improvements within their homes.

It is recommended that homeowners residing in shared ownership communities maintain homeowner coverage with at least these 4 endorsements:


  1. Loss Assessment Coverage
    Protects against special assessments levied by boards to cover losses from covered peril, when the primary coverage is inadequate.
  2. Water Seepage Coverage
    Covers water damage from wind driven rain or water entering from a source other than an opening in the building (e.g., through stucco or around window frames).
  3. Additions, Alterations Improvements and Betterments Coverage
    Covers upgrades, as well as real property added by the unit owner. This endorsement is often available with all risk coverage, without a water seepage exclusion.
  4. Insurance + Reserves
    Even assuming that one maintains adequate coverage, there is a risk that not every insurer will survive extraordinary claims. Hurricane Wilma’s widespread impact brought many insurance companies to their knees with some going out of business and the Florida Insurance Guaranty Association (FIGA) dealing with the messy aftermath. Careful consideration must be given to the financial strength and rating of the insurer as well as their consumer practices over the years. Keep in mind that the lowest quote is not always the most secure coverage.Communities who maintain reserves for contingencies, deductibles and other uninsured losses fare the best post-disaster.

Pre-Negotiated Service Contracts

Boards who enter into pre-negotiated contracts specifically designed to deal with the aftermath of a disaster often have the peace of mind that they have a set price and a designated contractor at their disposal.

These kinds of service contracts include:

  • Emergency service contracts which provide “drying out” or “shoring up” the premises.
  • Debris removal
  • Security services
  • Extraordinary management services.

“Insurance Trustee” Provisions

Generally found within the insurance section of the documents, these provisions require that the proceeds of insurance settlements be paid to a third party for disbursement at the instruction of the association’s engineer. When such a provision exists, insurers will not pay proceeds to the association until a trustee is designated. This can critically delay the receipt of funds necessary for disaster response as well as add an unnecessary cost to the association to pay for the Insurance Trustee. It is preferable for the board to act as a “trustee” with disbursements being authorized only when approved in advance by an independent engineer or construction manager employed by the association.

Emergency Powers

State laws and document restrictions designed to ensure owner access to information and input in the decisionmaking process previously impeded disaster recovery for condominium associations. Fortunately, the Condominium Act and the statutes for homeowner associations and cooperatives have been changed to provide emergency powers. Check with your counsel to better understand these statutes.

Even with the acquisition of emergency powers, your association’s governing documents should be reviewed and amended to remove any unnecessary barriers to recovery.

Reconstruction vs. Termination

The unit owners at one South Miami-Dade County condominium destroyed by Hurricane Andrew were shocked to learn of a provision in their declaration of condominium which provided for automatic termination when damage exceeded fifty (50%) percent or more of the condominium, unless a majority of the total voting interests voted within sixty days to rebuild. Since the unit owners had scattered all across the country, the association had to seek court relief to prevent the activation of the provision. It is preferable for the documents to require a vote of the owners to terminate the condominium, not to rebuild it. That said, The Condominium Act was amended subsequent to the hurricanes of 2004 and 2005 to provide a method for terminating condominiums in the event of economic waste, disrepair of the property and when continued operation of the condominium is made impossible by law or regulation.

Survey the Property and Identify Areas Needing Priority Attention

Depending upon the nature and extent of the damage, it may be necessary to evacuate the premises or shore-up the structure. In some cases, it may be necessary to hire security personnel to protect against vandalism, theft and other criminal activities. In the case of widespread disaster, unit owners will not be able to depend upon local law enforcement agencies whose attention might be diverted to higher priority matters. Arrangements for security, debris cleanup and emergency repairs should be made as part of a disaster plan, not after the fact, when it will be difficult, if not impossible, to find help.

Beware the Quick Fix

Within hours of any disaster, the affected community will be besieged by companies and individuals looking for work and/or offering disaster recovery services. Some of these folks may have come to the disaster area from other states and many may be unlicensed and uninsured. Interspersed among the new arrivals will be the con men and profiteers who prey upon the misfortune of others. While still reeling from the shock of the disaster, it is often very tempting to sign the first contract presented to you. Resist that urge as experience has shown that these quick solutions are formulas for disasters of greater magnitude than those already suffered.

The old adage that “haste makes waste” truly applies in these situations. The best advice is to stick to your disaster plan which, hopefully, will include a plan that anticipates the five (5) phases of reconstruction:

  1. Project planning/scheduling
  2. Construction bidding
  3. Contract negotiations
  4. Construction/rehabilitation
  5. Project completion/close out

There are intervening steps you should take which may require contracts of short duration and for specific purposes. For instance, your immediate need in the aftermath of a windstorm is usually to cover your structures with a tarpaulin to protect further water intrusion and exposure to the elements. Interim contracts should be reviewed by your association attorney to ensure that proper precautions are taken. All reconstruction contracts need to be carefully reviewed and negotiated by your legal counsel to ensure that the association’s interests are protected.

Avoiding the Pitfalls of Disaster Recovery

Common pitfalls that plague associations following a hurricane strike include:

  • Disputes frequently emerge between various insurance carriers (flood, windstorm, property) and the Association over the nature and extent of damage, cost of repair or replacement, and/or whether appropriate mitigation efforts were put in place. It is important for the association to timely file its proof of loss. Be aware that if the insurer can prove that the association failed to cooperate, then no payment is due under the policy, regardless of the size of the claim. In addition, if the association commits fraud in the application for insurance or in the presentation of the claim, such act(s) can result in the loss of all coverage, not just the portion upon which the fraudulent claim is based.
  • Making necessary repairs, if required by the insurance contract, even if doing so requires the board to levy a special assessment or borrow money to pay for such repairs, prior to receipt of the insurance proceeds.
  • Claims made by unit owners against their boards over the mismanagement of insurance claims and insurance proceeds. The association owes a fiduciary duty to the owners and their mortgagees to exercise reasonable care in the pursuit of their insurance claims and management of any insurance proceeds received. It is not acceptable for a board to choose to not pursue a legitimate claim and, instead, opt to specially assess the owners for necessary repairs and replacements. A southwest Florida community learned this lesson the hard way when it was sued by its members for not properly pursuing a large insurance claim after Hurricane Wilma.
  • Claims of contractors, subcontractors, materialmen and suppliers, who were not paid by the general contractor, resulting in the Association’s having to pay double because of its failure to comply with Florida’s Construction Lien Law.
  • Suits against contractors and subcontractors over poor quality repairs.

Restoration of the property

Putting Your Professional Team in Place

Once conditions stabilize, the association’s disaster recovery team will be in a position to meet with trained professionals to assess the damage and begin recovery including:

  • Architect/Engineer – Responsible for assessing the damage, preparing plans and specifications in accordance with new building codes, assisting in selection of construction manager and defining other reconstruction requirements.
  • Construction Manager – Oversees selection of general contractor, competitive bidding and administration; directs and coordinates pay requisitions, change orders and all other activities of the parties; and resolves disputes.
  • General Contractor – Employs and supervises laborers, supplies materials and builds project in accordance with architect’s/ engineer’s plans and specifications, under the direction of the construction manager.
  • Attorney – Reviews construction contracts to ensure adequate protection for job performance and warranties, and compliance with applicable lien laws.

Funding Repairs

An association should have several sources of money available to fund repairs after a disaster.

  • A review of your governing documents; particularly, the “repair after casualty” section of the insurance provision to determine the mechanics of the process.
  • Estimates of Costs – Immediately after deciding to rebuild or repair damage to property for which the association is responsible, the association must obtain reliable and detailed estimates of the cost to rebuild or repair.
  • Construction Fund – The construction fund shall be disbursed to pay costs in the manner required by the board of directors of the association upon approval by an architect qualified to practice in Florida and employed by the association to supervise the work.

When the foregoing provisions exist in your documents, contracting for reconstruction prior to obtaining a scope of work will be contrary to both the association’s best interests, and the obligations set forth in the documents. In order to respond to an emergency, the association may need to obtain a shortterm loan.

Without a restriction in the documents, not-for-profit community associations can borrow funds. However, they generally cannot pledge the condominium property as security. Most banks with which the association does business will approve a commercial line of credit secured by the association’s accounts and/or assessment and lien rights. The association also may obtain a Small Business Administration

(SBA) loan that is available to victims of disaster, generally, at lower interest rates. Of course, reserve funds are also a possible source of funds which can be utilized immediately if a state of emergency has been declared or later if approved by a majority of the total voting interests. Many communities have decided to take a revolving line of credit well in advance of storm season so they have necessary funds at their disposal if needed year-round.

Immediately following a disaster, the association must secure the property to mitigate against further damage and arrange for clean up of debris. Most insurers will offer advances for this purpose. As long as the association doesn’t sign any releases or settlements, there is nothing wrong with accepting such advances.

Settling the Insurance Claims

Insurance policies need to be examined to ensure that “proof of loss” forms are filed within the time limit required under the policies. As a general rule, flood policies require that proof of loss be filed within sixty days after the flood.

The adjuster employed by your insurance company is not incentivized to get you the most money possible. His or her job is to ensure that the claim remains as small as possible. For this reason, many associations decide to hire their own Public Adjuster to shepherd their claim through the often convoluted process. In some instances, the assistance of an independent public adjuster may be beneficial when dealing with the nuances of an ambiguous insurance policy.

Most adjusters will work for a fee based upon a percentage of the insurance proceeds. As with other contracts, your association attorney can assist you in navigating the terms and conditions of any contract you are considering with a public adjuster and any others involved in emergency services or repairs. It is important to remember that public adjusters provide a specific set of services to adjust and value a claim. They cannot perform any activities restricted to the practice of law, such as filing a lawsuit to collect monies owed to you if your insurance company denies your claim or decides to greatly undervalue it, evaluating whether a release should be signed in order to recover insurance proceeds, or complying with complex post-loss duties to recover under the policy

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