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How To Buy Condo Association Insurance

  
  

condo association insurancePurchasing condo association insurance is one of the most important buying decisions the board will make. The decision addresses risk management and must meet or exceed any insurance requirements mandated by the state and the HOA's governing documents.

Step #1: Start Early. Begin the process at least 90 to 120 days prior to the renewal date by ordering updated loss histories from all insurance carriers who have provided coverage for the Condo Association for the past three to five years. While requesting the loss history, don't forget to confirm with the current agent/broker his opinion as to whether the current insurance carrier will be offering a renewal.

Step #2: Check Loss History Accuracy. Losses can be miscoded (like "Mold Claim," when it wasn't), or a loss that should have been attributed to a different insured or a loss that continues to appear on the loss history even though the insurance carrier successfully subrogated against the negligent party (got repaid). It's also possible your carrier's version of your loss history doesn't really reflect today's condition of the property. If your HOA has taken steps to improve the property since the losses occurred, write a narrative about those steps taken and attach it to the loss history. If a particular problem has since been corrected, make sure the carrier knows it.

Step #3: Assemble a Complete Bid Package. Preparing a complete bid specification will make the evaluation process easier. The bid package should include:

  1. Brief description of the property including the number of units, year built, type of construction, overview of amenities (pools, spas, etc.) and any other structural improvements the HOA may have an insurable interest in;

     

  2. Copies of the governing documents;

     

  3. Copy of the site plan;

     

  4. Current three year loss history on the prior carrier's letterhead;

     

  5. Copies of the declarations page from the current year;

     

  6. Copies of the HOA's most current financial statement and budget; and

     

  7. Current appraisal (if available).

Steps #4: Assign the Markets. An condo association insurance carrier will only release a premium quote to one agent. If more than one agent wants to use the same insurance carrier, you'll have to assign which person will access that market on your behalf.

Step #5: Evaluate the Insurers. While there are five well-known insurance rating organizations, most HOAs rely on AM Best. The letter grade ratings (A through F) and financial size categories (Roman numeral I through XV) can give you a quick barometer of a carrier's health. In addition to the financial ratings, the board will want to consider the carrier's experience with HOAs. A carrier who is new to the homeowner association market is probably not a good fit.

STEP #6: Is the Agent Qualified? Consider years of experience insuring Condo Associations and HOAs and involvement in industry trade organizations like California Association of Community Managers (CACM), Oregon Washington Community Association Managers (OWCAM) and Community Associations Institute (CAI). The agent/broker professional designations should include CPCU (Chartered Property and Casualty Underwriter), ARM (Associate in Risk Management), CIC. (Certified Insurance Counselor), and CIRMS (Community Insurance and Risk Management Specialist).

STEP #7: Use a Spreadsheet. Even the most experience risk manager will create a "line by line" comparison of the coverages and benefits being offered by the various companies offering a proposal. A visual representation of this type will easily illustrate the merits or deficiencies provided by one proposal over another and will tell you if a certain proposal is competitively priced only because the agent/broker has omitted an important insurance coverage.

STEP #8: Let Price Be the Last Consideration. Price is important but don't fall into the trap of going to the "bottom line" first. If you do, you may forget the number one goal of buying insurance: protecting the HOA's assets. Be certain that you're getting what you need before signing the check.

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Do Condo Units Need Insurance With An Association Master Policy?

  
  

Because it can be more efficient or economical, your condo association may insure all the building and common elements under a single package policy, commonly called an condo association insurance policy or condo association master insurance policy. The three typical ways to provide coverage, all through a condo association insurance policy:

  1. Insures the basic condo association building(s) (walls, roof, floors, elevators) but leaves the condo owner the responsibility of insuring condo unit's appliances, carpeting, cabinets, wall coverings, and other items in your condo unit, and in some instances the interior walls.
  2. Insures both the basic building(s) and the items within your condo unit other than personal property.
  3. Insures both basic condo assocaition building(s) and includes unit owner fixtures and improvements.

When the condo association insures the structure, a condo insurance policy is normally written to cover the condo unit owner for.

  • Items not covered by the condo association insurance  policy that may be your condo insurance responsibility.
  • The value of building additions or alterations made by you, at your expense.
  • Value added (If you've put in a better quality carpet than was originally there, for example, this coverage would make up the difference in case of loss).
  • Damage to your condo unit not compensated because of the condo association policy deductible.

Condo Association building coverage is one of the more complex parts of insuring a condo association.

In other instances, the condo association does not insure the structure. In this situation, a condo insurance policy would be written for the condo unit owner, just as it would be for an insured person with a conventional home.

Remember, however, that conditions in condo association bylaws and other governing regulations may vary widely. Be certain that your condo insurance policy covers any potential gaps in the condo association insurance policy.

What is a condo association master insurance policy?

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Ensure D&O Insurance Covers HOA & Condo Association Employees

  
  

It is common to see that the association manager has been left off the D&O coverage in a condo association insurance or HOA insurance policy. On most condo association insurance policies, this is not fixed by a typical additional insured endorsement as it is with general liability coverage. They normally charge extra premium and ask additional questions about the association manager to allow for the D&O coverage. This is important coverage because an error of communication can create a situation where this type of suit can happen.

An example of this is when the board has put condo rules in place where late pays will not be tolerated. If you have been late two months in a row, they will begin legal proceedings against the owner. If, for example, the first month the owner pays late by a few days and the next month he is accidentally left on the list of delinquent owners, the board will file suit against the owner. The owner will counter-sue for defamation of character. Without the condo association manager being named to the D&O coverage, there will be no condo association insurance or HOA insurance coverage for the claim.

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Do You Have a Good Condo Association Insurance Agent?

  
  

Are you comfortable with your condo association insurance agent? This is one that is over looked the most. Did you know that you can keep the same condo association insurance company but change agents? This can be done pretty easily without lapse in condo association insurance coverage, without payment interruption. If you believe you condo association insurance agent is not answering your questions or you feel that is not an "expert" and would like an condo association insurance agent that devotes all his time to Condominium Association Insurance, Homeowner Association Insurance, HOA Insurance and Timeshare Association Insurance then by all means make a change. Some of the money that you pay goes to the condo association insurance agent and if he is not doing a good job or if you feel uncomfortable make a change immediately.

What is an association master insurance policy?

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Condo Associations and Windstorm Insurance

  
  

Even if association storm-proofs units, Florida requires purchasing policies

The standoff over whether to purchase windstorm insurance brewed for several years at Greenbriar Condominiums in Boca Raton.  Board member Walker Crewson argued that Florida law required the association to have it. But his fellow directors declined to purchase it because the association had invested heavily in storm-proofing the property and had windstorm coverage for the clubhouse.

They said Greenbriar's governing documents did not require windstorm insurance unless three-quarters of the 24 units voted in favor of it, and if Crewson was right, each owner would pay a lot more.

"It was hard. I didn't want to make enemies of my neighbors," said Crewson. On the other hand, if the condo did not have windstorm insurance, it could face up to $5,000 per violation. If the Florida Department of Business and Professional Regulation needed to enforce the order in court, there also could be court costs. Plus, in the end, the agency would require the association to obtain condo association insurance.

After years of debate, Crewson and another unit owner contacted the state. Here is what they learned:

1. Florida law requires all condo associations to buy windstorm insurance. And state law supersedes conflicting condo law. Crewson's fellow board members believed the association had met the law's intent by having other forms of insurance - flood, liability, etc. - and by having spent more than $200,000 on storm-proofing the building and units, including installing impact glass, wind-proof garage doors and strapping down rooftop air-conditioner equipment. But the DBPR, which oversees condo associations, let Greenbriar know it was indeed in violation.

Greenbriar, which lies on the west side of State Road A1A, now is in compliance, say directors.

2. There are no exceptions to the windstorm insurance requirement.

But associations may obtain condo association insurance through a self-insurance fund or through a group policy as approved by the Office of Insurance Regulation, said a DBPR spokesperson.

"But the law is not fair," said Greenbriar vice president Arnold Cohen. "If a condo can prove it has storm-proofed its property, it should be able to decide for itself whether windstorm is needed."

Cohen says each unit owner was assessed approximately $8,300 to storm-proof the buildings and now must pay an additional $1,600 to cover higher insurance bills.

"This law is putting a lot of pressure on people who don't have that kind of money to shell out," said Dick Verro, president of Greenbriar.

Cohen and Verro want lawmakers to consider an opt-out provision for condos built or retrofitted to withstand a major hurricane.

It may be a tough sell.

"I don't think there is much appetite to change the law. Mitigation is no guarantee that you won't be damaged. And let's face it, if we get a Category 4 or 5 hurricane, there will be some damage," said State Rep. Ellyn Bogdanoff, R-Fort Lauderdale Is your Fort Lauderdale restaurant clean? - Click Here., whose office was called by Cohen for possible help.

Bogdanoff says the purpose of the law is to make sure unit owners are able to move back home as soon as possible after a destructive storm. "We also enacted legislation in 2007 to reduce windstorm insurance costs," she said.

3. Florida law requires all condo unit owners to insure their interiors.

Bogdanoff said that is likely to change in the 2009 legislative session because lawmakers' intent simply was to delineate what the association was responsible for. And that includes the exterior, up to the drywall.

"I have submitted the language to reverse the requirement for unit owners to purchase individual policies," she said.

However, Rep. Julio Robaina, R-Miami, who pushed for the mandate to be removed, warned "If you go bare like that, you should know that you will be responsible for everything inside your unit."

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HOA Should Buy Flood Insurance

  
  

Question: I have recently been elected to the board at our condo association, The previous board was informed that because of a revision by FEMA in May of 2007, we now have 5-6 Buildings located in an AE flood zone. Some of our residents found out about this when we were notified by lenders (banks) that, because we had a mortgage, we were required to have flood insurance. Our board refuses to help by saying that we should pay off our mortgage, and it was not a concern for them and they didn't have to provide insurance. I informed the board that I wanted it on record that they were liable if in fact any buildings in this zone were damaged. Because I needed insurance for the bank, I was required to pay for a Flood Elevation Certificate for my building, which is 12 units, and then purchase an insurance policy. My question is, should the association pay for flood elevation certificates? What is the liability of the board and the association on providing insurance for the buildings in the flood zone? Please note an AE flood zone is based on the fact there could be a flood one time in 100 years. I believe that the association is at risk.

Answer: The Condominium Act requires a unit owner-controlled association to use its best efforts to obtain and maintain adequate insurance to protect the association, the association property, the common elements and the condominium property required to be insured by the act. An argument could have been made that this includes the obligation to obtain flood insurance for condominiums in a flood zone. Under the FEMA guidelines, the association is the correct party for acquiring flood insurance, not the individual unit owners. I have personal knowledge of a condominium in the Florida Panhandle which was washed away by an hurricane; there was no flood insurance. The board didn't want to spend the money. While there is case law holding that the board is not liable for the exercise of its business judgment, so long as the individual board members are not guilty of self-dealing, the absence of flood insurance will impact the ability of individual unit owners to obtain financing on their units. Personally, I feel the board is not acting in the best interests of the unit owners.

Q: We enjoy your weekly column and hope you can give us an opinion on the duties of our board of directors. First, some background: We are a small (37 lots) association with a three-member board. The president has been in place for the last four years. She has determined that she is the treasurer as well as the president. Several of the homeowners feel that this is not the best business decision and does not provide the necessary checks and balances for sound business practices. We would like to bring this up at our annual meeting, but before we can bring it up, we would like to present some reasoning for a change. What is your opinion of this practice?

A: While not favored, without a provision in the articles of incorporation or the bylaws prohibiting same, the president can serve as a dual office holder (e.g., president and secretary, president and treasurer). This is expressly provided for in the Not-for-profit Corporate Act (Chapter 617, Florida Statutes).

Q: Where would it say what the exemptions are, since our declaration that refers to mortgagees being involved in any declaration changes only says "No amendment shall be passed which shall materially affect the rights or interests of any mortgagee without the written prior consent of such mortgagee."

A: The Condominium Act provides that, as to any mortgage recorded AFTER Oct. 1, 2007, the requirement of mortgagee consent only applies to amendments which change the proportionate share of ownership and sharing of the common expenses, and amendments which permit time sharing in a condominium which previously did not, and amendments which adversely affect the rights and interests of unit mortgagees.

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Condo Association Insurance - Liability Areas

  
  

Community associations are non-profit organizations created to manage the community for its members. A board of directors is elected by the members to provide this management through the collection of dues, enforcement of deed restrictions, and other duties necessary to provide association services and protect property values. Despite an association's role as a non-profit organization and the board's volunteer status, management of an association includes legally-accountable duties and responsibilities.

The normal operation of a community association exposes it to risk of accidental loss. There are five basic types of loss faced by an association:

Property-buildings, land, inventory of equipment, supplies, furniture, signs, outdoor property and records

Commercial General Liability-third party property damage, bodily injury, or personal injury due to negligence

Income-loss of dues, maintenance fees

Workers Compensation-actions taken by an employee of the association resulting in bodily injury or uninsured/underinsured subcontractors hired by an association

Directors and Officers-providing coverage for "wrongful acts" by D&O's.

Despite these risks, a condo association's board of directors can take certain actions to minimize the exposure to loss through:

Reserve studies that will provide them with exact replacement cost values for all property, examining financial statements, maintaining accurate records, routinely inspecting property to ensure safety and maintenance issues, and hiring a professional manager and other industry experts.

Analysis of association policies and procedures to identify unsafe practices, which if changed, can reduce exposure and loss.

Transfer their risk for service-related tasks by hiring reputable, fully insured contractors for certain projects. While implementation of safety controls can reduce risk procedurally, an association may find that risk is best limited through financing.

Despite careful planning and management, associations must prepare for inevitable losses. Risk management can be either self-financed or transferred to a third party:

Self-financed-an association can finance risk by maintaining a reserve account to pay for damages or loss suffered or caused by the association and its employees.

Transferred to Third Party-an association can transfer the financial burden of damage and loss to an insurance company through purchase of a commercial insurance policy(s).

As most associations operate with limited funding and reserves, purchase of an insurance policy can provide the greatest risk protection at limited cost. Often, most associations' governing documents require the purchase of certain insurance coverage. Federal regulations, state laws, and local ordinances can also establish insurance requirements for a community association. It is important for the board of directors to  understand the coverage required and to assess the exposure of the association in order to determine the proper insurance policies as reflected above.

It is also recommended that a board develop a bid request form in order to review bids uniformly. Determining what insurance policies to purchase and from whom is an important and necessary duty for protecting the association and its assets.

Source: Association Times

What is an Association Master Insurance Policy?

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Why Review Your Condo Association Insurance?

  
  

All too, often some accident or casualty occurs, a claim is submitted to the Condo Associations insurance agent for forwarding to the carrier, and a response is received informing the Board and its Manager that this is not covered, or some obtusely worded exclusion applies.  Likewise, all too often these letters go on for pages quoting provisions from the policy which, in all candor, even we lawyers are hard pressed to follow.  Considering recent trends in court decisions holding Condo Associations liable not just to third parties, but to unit owners upon ever expanding bases, this presents a particularly troublesome issue.  And the problem can be particularly acute where a Unit Owner suffers property damage as a result of some negligence on the part of the Condo Association.

            One situation we faced involved a claim of smoke damage.  As part of its winterization of a predominantly second home, summer condominium complex, the Association capped the fireplace flues - that is, they sealed them with plastic, Unfortunately they failed to inform the owners of this and someone came down for a nice winter weekend, lit the fire in the fireplace, layed back on the couch with a fine brandy and a good book, only to have smoke pour back into the unit.

            The Condo Association filed a claim under its master casualty policy.  However, as in common, it excluded the personal property of the Unit Owner and, as is becoming common, it continued a large deductible.  As is equally often common the Unit Owner had no Condominium Owners Policy (an HO-6) and, thus, demanded that the Association pay for the cost of cleaning his expensive living room furniture, drapes, etc. 

            The Insurer took the position that since the Unit Owner was a named insured under the policy, a claim could not be made under the liability portion of the policy.  Rather, the Association could only collect under the casualty loss portion.  However, that only covered the Unit and not the Unit Owners personal property and was, as mentioned,  subject to substantial deductible.

            Fortunately, in that situation we were able to negotiate a resolution with the Insurer.  However, another similar situation has arisen with another of our clients and this time the Insurer isnt flinching yet.

            All this points to the need by Boards and their Managers to carefully review insurance proposals.  It also, unfortunately really points to the need to bring in qualified, independent insurance advisors to develop specifications for the Associations insurance needs and/or for the Association to have its counsel thoroughly review policies.  Many insurance policies, though seeming the same on the surface, are materially different when their terms are peeled back.  Facing this problem after a loss is not a pleasant experience. Rather, making the extra effort in obtaining the policies can avoid unpleasant surprises.

Source: Marcus, Errico, Emmer & Brooks, P.C.

What is an HOA Master Insurance Policy?

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Steps to buying HOA Insurance or Condo Association Insurance

  
  

HOA or Condo Association insurance is provided by the board of directors. This is known as a Master Insurance Policy to cover all common areas of the HOA or Condo Association's property.

  • Survey all areas to be covered under the homeowners association insurance policy. As a precautionary measure, explain to all association members exactly what grounds are covered under the HOA and what is covered under homeowners insurance. The standard HOA policies cover damage caused by wind, fire, rain, flood and lightning.
  • Consult an agent who specializes in HOA insurance or condo association insurance. An agent will guide you in the right direction, explain what is covered and advise what coverage limits would be appropriate for your housing plan. In addition to structure coverage, the HOA insurance policy also covers employee dishonesty, theft errors and omissions.
  • Calculate each portion to be covered under HOA insurance and how much it would cost to replace that portion of all the buildings and property maintenance. Establish a reserve for funding when it comes time to replace roofs, gutters and downspouts, pool/spa maintenance and concrete repair. Whether short term or long term, there are always maintenance and repairs that need to be done. Ensure you have adequate funds to cover these. If there is not enough funding available, it could result in lawsuits from the homeowners for negligence or injury. Funds are normally established by homeowners paying the homeowners association fees.
  • Ask insurance agents what types of insurance other homeowners associations of similar size and shape to yours typically buy and what is recommended for your particular homeowners association.
  • Talk with the officers of your homeowners association to get their views of what types of insurance are needed. No one knows your homeowners group better than the officers and those who live there.
  • Identify all board of directors as employees for the HOA insurance only. This way they are covered under the theft and dishonesty portions of the HOA.

What is a condo association master insurance policy?

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What is a Condo Association Master Insurance Policy?

  
  

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