Condominium Insurance Explained

Why are insurance audits important?

"In my years of reviewing policies, I continue to discover that Associations are overpaying for unnecessary coverage or have missing credits or worse, they are under-insured which can be a problem when filing a claim."

COMMON ISSUES DISCOVERED:

Association is missing Wind Mitigation Credits, so they are not getting the appropriate discounts.
The Appraisal is the basis for the price of the property insurance policy. In the last five years, the legislature in Tallahassee has changed what has to be included in an Appraisal several times. One year AC condenser units were included, next year not included and so forth. So, the same appraisal done by the same appraisal firm, could have very different values from one year to the next due to changes in the law, not due to traditional cost drivers such as labor and materials and gasoline. I was asked to review an appraisal from a condo association whose property insurance policy had increased from $200,000 to $450,000 over ten years. I suggested the property obtain a new appraisal. Six weeks later, the Association received a $50,000 refund check.
Optional versus Mandatory Coverage. Sometimes Boards are not aware that some of their policies per their docs and FL Statutes are optional. Or in their mandatory policies, they have optional coverage such as increased mold coverage. Umbrella or Ordinance and Law coverage. Some boards have a comfortable budget and absolutely want to cover 100%, whereas other Boards have tight budgets with high delinquencies and can only afford the bare bones. In all these cases, the Board should make sure they were given their options and should not let the Insurance Agent or the Property Manager decide for them.
Does the Board understand all of their policies? I have found Associations overpaying because they have insurance they do not need, i.e. terrorism, too much Umbrella, etc.

Sean Virtue can be contacted at svirtue@mackinsurance.com or toll free 855-84-CONDO .

Types of Condo/HOA Insurance

*usually mandatory

Personal Home - all personal property. The owner is responsible for everything in the home starting the dry wall, the Association is responsible for common elements and the building from the dry wall out.
*Property - covers the physical structures up to the drywall
Flood Insurance
Wind
Crime
*Directors & Officers
*General Liability
Umbrella
DIC (Differences in Condition)
Equipment Breakdown
Glass
Worker's Comp

For Definitions of the above,CLICK HERE

How do I know which types of insurance my Association must have?

Mandatory insurance for COA/HOA's depends on the value, location and history of the Property. Also, every Association creates their "laws" in the Docs at their inception. These documents lay out which policies are mandatory.

Why does a Board have to get Insurance?

1. Because of the Florida statutes: Chapter 718 requires that all Florida condos to carry property insurance and a Crime Bond.

2. Because of the Governing Docs: Condo docs usually require the Association to purchase Property, Liability (commercial General Liability), Directors & Officers, and a crime bond. Association docs vary. A Board has a fiduciary responsibility to purchase adequate insurance coverage to protect the membership. I have seen breach of fiduciary claims made against boards for not maintaining the right amount of insurance or purchasing the right type of insurance.

3. For the Service itself. A board purchases Insurance for the benefit of the service itself in case of a loss.

4. For the certificate of Insurance: This certificate is required for any financed real estate transaction. If Insurance on the certificate lapses, no bank will transact with any unit in the association.

As Hurricane Irene is barreling up the Eastern seaboard, here are additional checklists and red flags from an insurance perspective.

Whether you live in a co-op, a condo, a homeowner's association's or own your home, here are a few fundamental suggestions to minimize issues in case of a loss (damage). At a minimum, know who is insuring you, when the policy expires (in case it happens during the storm) and how to submit a claim. A thought-out Standard Operating Procedure (SOP) to deal with the Storm keeps the community organized.

The Red Cross' motto is: 1) Get a Kit, 2) Make a plan and 3) Stay informed. See Useful links section below.
Sean's Pre & Post Storm Tips from an Insurance Perspective:

1. An Association (Building Owner/Manager/Co-Op Board) should know WHO is insuring them for Wind/Hail: A hard copy of the insurance policy providing Wind coverage should be on-hand. If not on-site with a board member, the Board should request a copy from the insurance agent.

Request a precise inquiry with the agent for these documents: "PLEASE PROVIDE US WITH A COPY OF OUR INSURANCE POLICY DECLARATION PAGES THAT
PROVIDES WIND/HAIL AND FLOOD COVERAGE." At this point, it is your insurance agent's responsibility to send over the correct policies.

2. KNOW the policy renewal date, especially be aware if it is when the storm hits.

3. UNDERSTAND how to submit a claim. Every major agency has a Claims Department which they will have to contact to start the claims process. Contact the insurance agent or agency and inquire about how to file a claim (before the storm). Some agencies require a faxed incident report and some will take a claim by email. Bear in mind that after a storm, the agency will probably be swamped with contacts from other customers who also suffered damage. Find out if your insurance company accepts claims directly and/or has a claims hot-line.

4. ASSIGN responsibilities for after the storm. Different areas of responsibilities should be assigned to volunteers who will implement their area of responsibility detailed in the Action Plan.

5. If you live in a community, IDENTIFY a volunteer (or employee) to act as a Claim Liaison on behalf of the community after the storm. The Association should appoint a volunteer (board member, unit owner or property manager) to be the point-of-contact for all claims-related information. This person will receive many inquiries after the storm from residents and will coordinate appointments with the insurance company adjuster and contractors for repairs. There may be confusion after a loss; multiple people dealing with a single issue may distract rather than help.

6. LIST who is currently living in the community. A community (or Association) wide master resident list should be maintained and verified to determine if there are residents with special needs (especially medical) and which units are empty. A master pet list could also help animal owners in case animals get lost during the storm.

7. PAY ATTENTION to Hurricane Warnings: Keep informed by monitoring the news. A Hurricane Watch means the storm is 48 hours away: Be ready to act. A Hurricane Warning means it's less than 36 hours from hitting - Be ready to evacuate if ordered by authorities.

8. POST HURRICANE CHECK LIST: An action plan should in place to secure the property and well -being of residents, including several options depending on damage caused by the storm (electricity & phones working or not). Identify a crisis management center where residents can come to find out any information or consult with the board. Include an Action List with a list of pre-approved contractors/vendors who can assist with repair estimates and damage remediation. In addition, a list and maps of local hospitals and shelters is a pro active move for the community in case of medical emergency or phone lines are down.

9. CONFIRM unit owners' personal property has been removed from outdoor areas. A team of volunteers should survey the community and ensure that all deck furniture and other items that could damage the buildings or vehicles have been secured by unit owners. If ordered to evacuate by authorities, a team of volunteers should help authorities determine that all residents have departed (including pets).
Red Flags:

1) One of the most common issues during the claims process is determining preexisting damage vs. storm related damage. If you were in the process of preparing damage to your property, document the status by taking pictures.

2) Don't rush into giving away a percentage of your claim! Documenting and verifying your loss is call "adjusting your claim", this service is included in the premium. If you suffered damage, contact your insurance agent immediately after a storm. If any third party offers to "help" you process a claim for compensation, they are actually offering a service you paid for in your premium.

WHAT IS BINDING AN INSURANCE POLICY?

When an insurance company accepts your money and promises to pay for a covered loss, they can't take that back (yes, there are exceptions).

That point of 'no return' in the insurance industry is called 'binding a policy." The agent requests a binder and the insurance company issues the binder.

WHAT IS A BINDER?

For the first 30 days of the policy period, the insurance company assigns the file a temporary # and reserves the right to inspect the property to verify that the information on the application matches up to the reality on the ground. If it doesn't, if takes in the new info (such as wrong kind of roof covering)and re-prices the policy or even cancel it.

WHAT IS BINDING SUSPENSION?

A binding suspension is when an insurance company stops accepting new policy applications for obvious reason: When a storms trajectory is heading towards Florida, Insurance companies go on high alert. As soon as it is confirmed that the storm may even touch Florida, Binding is suspended. This means if you were looking to renew your Property Insurance at the time a hurricane is on its way or hitting, Insurance companies will not accept new business. The Association may renew with the current insurance en force, but getting quotes during this time is not possible.

Why agree to pay $10M for a high-rise on the beach in exchange for $50K in premium just before a storm hits them?

IF NO CHANGE TO OUR POLICY/AGENT DO WE CARE?

Binding suspensions have no effect on policies that are simply renewing with the same company and the same agent.

WHAT IF WE ARE THINKING OF CHANGING AGENTS OR INSURANCE COMPANIES?

Binding suspensions can be a problem if the board is trying to transition to another agent or switching property insurance carriers. In either case, the carrier will consider the transaction "new business" and not accept application paperwork during binding suspension.

BE PREPARED. KNOW THE RENEWAL DATE OF YOUR PROPERTY INSURANCE IF IT FALLS DURING HURRICANE SEASON. MAKE SURE POLICY IS PAID FOR AND BOUND BEFORE THE STORM. ALSO ENSURE YOU HAVE THE FAX AND EMAIL CONTACT INFO ON WHERE TO REPORT A CLAIM. That means the only way to maintain coverage is to stay with the current agent and current carrier as a renewal. If the policy renews at the same time the forecasters are predicting landfall, I highly suggest you contact your agent and verify coverage by asking for an email (aka written) confirmation the policy is bound. That will avoid any doubt you are covered in case of a loss.

In order to obtain a quote for property coverage, there are necessary documents that should be kept on file with the Association at all times, your property manager should have the Association's "insurance binder" on hand comprising of all the Association's Insurance Policies and information.

The Binder should include:
· An Insurance Replacement Cost Value Appraisal that will be less than 18 months old at the time of application for insurance. If you are simply renewing your current policy, your appraisal may not be more than 36 months at renewal.
· Wind mitigation forms. These forms are valid for 5 years and must be used for all property applications to receive premium savings on residential buildings.
· Current Policy declaration pages to review your current coverage, ensure that all possible credits have been applied to the premium and that the policy is configured correctly.
· Current Budget
· A master Certificate of insurance which lists all policies and insurance companies purchased with your current agent.

What do Condo Association Quotes look like?
Commercial insurance agents present their quotes in a booklet which has a separate page for each policy, who is offering it and what it covers and, in the back, a premium summary page has a table which lists all the policies being offered and a total. The Association should keep a booklet each year for their records.