Seeking Proper Insurance Coverage

By Linda Johnson, CAM / Published October 2021

Statute 718.111(11) requires that condominium associations protect the safety, health, and welfare of the people of the State of Florida and ensures consistency in the provision of insurance coverage to condominiums and their unit owners. This subsection applies to every residential condominium in the state, regardless of the date of its declaration of condominium. Most people knowledgeable in condominium law construe this to mean all of the real property in the condominium association. To avoid potential allegations of insufficient coverage and to ensure that the association can stay financially afloat in the wake of significant damage, associations should acquire policies that insure the entirety of the association’s real property (immovable property), including its common elements, limited common elements, and units—anything that would remain if the buildings were turned upside down—and should ensure that those policies do not exclude or except damage caused by any likely cause. Some insurance companies attempt to sell the highest quantity and highest-priced insurance that they can and write their policies advantageously so they can pay out as little as possible to their insureds. 

     One of the main ways some insurance companies avoid paying out on their policies is by creating exceptions or exclusions in their policies, stating that they will pay if something is damaged, unless or except it is damaged in a certain way. There is no one-size-fits-all list of causes an association should make sure it is covered against. For example, an association in the Midwest does not need to have an insurance policy that covers volcanic eruption damages. However, a South Florida association should have a policy protecting it against windstorm and flood.

     To ensure that you are obtaining the proper coverage for a property, the following are the steps you should take. First make sure that you have a current appraisal done on the property. This cannot be older than three years. The appraisal of a building and its contents gives an estimated amount of what your association will need to rebuild the property if anything should happen. This will help you get the appropriate coverage for the building and make sure that you’re NOT underinsured. Statute 718.111(a) says

        Adequate property insurance, regardless of any requirement in the declaration of condominium for coverage by the association for full insurable value, replacement cost, or similar coverage, must be based on the replacement cost of the property to be insured as determined by an independent insurance appraisal or update of a prior appraisal. The replacement cost must be determined at least every 36 months. 

     Unfortunately, this is not always done as required, and this sometime leads to associations being underinsured or overinsured. Just as a homeowner would ensure that their homeowner’s insurance listed the right address and stated it covered the entire plot constituting the homeowner’s land, an association should ensure that its insurance policy contains an accurate listing of the association’s property and covers all of the buildings and improvements within the association, including common elements, limited common elements, and the units. The association should look at any distinctions in its policy related to the cause of damage. Associations should have insurance to cover damage resulting from any possible weather or natural phenomenon (including lightning, flooding, excessive wind, etc.) and damage caused by any individual/individuals. 

     An association should review its policy to avoid a scenario in which it finds itself without coverage because it did not realize its policy covered damage by a negligent individual (such as someone who loses control of their car and crashes it into the association’s building), while it did not cover damage by a criminal act without a police report filed immediately thereafter (such as vandalism to the association’s buildings where the association chose not to notify law enforcement).

     In addition to insuring against damage to an association’s property, an association should purchase insurance to protect itself from alleged misconduct. In addition to the well-known directors & officers (D&O) liability insurance policy that all associations should have, associations should have policies that cover workers’ compensation insurance (even if it does not have its own employees) and fidelity (crime) insurance. Critically, the association’s policies should contain a “defend and indemnify” clause in which the insurance company agrees to pay the costs involved with litigating a dispute about the insured and will indemnify the association for claims made against them covered under its policies. Associations should also ensure that their policies cover not only the cost of property that could be damaged or destroyed but any incidental damages they may incur, such as loss of assessments or fees in the wake of a natural disaster.

     Finally, associations should ensure that their condominium documents do not reduce the coverage that they would other-wise be purchasing. Most insurance policies now stipulate that they will provide coverage to the extent required by the condominium documents, knowing that most condominium documents require far less coverage than what is arguably mandated by the statute. Accordingly, most associations can increase their insurance coverage by simply amending their documents (usually the declaration) to provide that the association will cover all of the real property of the association, including any improvements.

     Reports that can help lower the cost would include the following:

• Have a current wind mitigation inspection on the property done and provide it to your insurance company to receive the appropriate credits on your policies. This inspection consists of an individual coming to inspect the roof and windows to make sure they are up to code and can withstand a hurricane impact. In Florida this is a must, and this will help you to obtain your association credits for the roof with the windstorm policy. Having impact windows throughout the property is always a plus.
• Have a current flood elevation certificate for the property as well. This helps to determine the coverage needed for the flood policy. This sometimes changes when an inspection and evaluation is carried out, and sometimes, the property is no longer in a high flood zone. Look into this and make sure that you have the most current information for the property.

     Although every association hopes not to have to use its insurance policies, they should ensure that if they do need to use them, they have the maximum coverage available.

Linda Johnson, CAM

Owner, LJ Services Group

     Linda started LJ Services Group over 20 years ago as an advocate for the community association management industry. With 20 years of management experience, she improves properties and streamlines operations for efficiency. Linda is hardworking and resourceful, with a friendly and professional demeanor. She is a skilled community manager with a deep understanding of residents’ preferences and business operations requirements and has a successful history of meeting occupancy and payment goals while improving community satisfaction. Linda is knowledgeable about payment collections, maintenance, and documentation. Linda is a hands-on community manager known for excellent public relations and marketing coordination. For more information, call (305) 864-2790 or visit www.ljservicesgroup.com.