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7 Easy Steps to Purchasing Condo Association Insurance

    1. Research condo association insurance companies before condo association insurancebuying homeowners association insurance. The loss ratio varies greatly from company to company making the premiums also vary.
    2. Shop around for an independent condo association insurance agent who has extensive knowledge on homeowners association insurance. Some of the larger insurance companies like State Farm and Travelers offer master insurance policies specifically designed for HOAs. Study condo association insurance policies thoroughly. Make sure your policy has fire and hazard, directors and officers liability, employee dishonesty and general liability coverage.
    3. Consult with your condo association insurance agent to see if you need additional coverage such as earthquake, building ordinance or law coverage. Earthquake coverage is only purchased if you live in a region that is likely to have earthquakes. Earthquake insurance is usually 10 percent of your premium. Building ordinance or law coverage is always good to have, as it covers increased construction cost if it is necessary to make building changes due to zone or building laws.
    4. Determine what your insurance premium should be with your agent. Deductibles start at $2,500. Of course the higher the premium, the less the homeowners association will have to come up with out of pocket.
    5. Explain thoroughly to all condo association members in the plan that they must carry homeowners insurance and that the homeowners association insurance does not cover their contents or personal belongings.
    6. Delegate condo board of directors and officers as employees, so they can be covered under the employee dishonesty section of the homeowners association insurance.


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.


Condo Association Insurance Claims - How is Property Valued?

For condo association insurance - in the event of a loss of covered property, the payment of the policyholder will be valued based on:

  • Guaranteed Replacement Cost - replacement cost with no limit and does not state a specific property limit
  • Replacement Cost - payment for the loss is based on the actual replacement and may be limited to stated value
  • Actual Cash Value - loss payments are based on the cost of new product, less depreciation and usage

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?

How Much D&O Insurance Is Needed for Condo Association?

Q: I currently serve on the board of my condominium association and am running to serve for another year. With the new statutes passed last year, for the first time I have been asked to sign a certification form stating that I have read and understand the statutes and declaration of condominium for my community. Also, our condo association attorney informs us that there are new provisions in the Condominium Act that appear to require new duties for association directors. The condo board president tells me that I should not be worried because the condo association carries directors and officers liability insurance. My question is, how much directors and officers liability insurance is enough, and what happens if somebody makes a claim against the directors in excess of the directors and officers liability policy limit? I enjoy serving on the condominium board, but I certainly do not want to put any of my personal assets at risk. N.N. (via e-mail)

A: You are correct that many new provisions were added to the Florida Condominium Act in 2008. It is not clear yet what the legal effect of the changes regarding a director's liability will be. As you probably know since you have served on the condo board previously, directors have always had a fiduciary duty to be reasonably well informed and to investigate and make a good faith evaluation of issues before voting. Directors have also always been required to keep reasonably apprised of association activities. Therefore, from one point of view, nothing has changed with the new statutes except that previously existing fiduciary duties have been expressly codified in the Condominium Act.

The new provisions in the Condominium Act concerning a director's duty of care are basically the same duties that have been found in the Florida corporate statutes for many years. Only time and perhaps some appellate court decisions will tell whether the new certification requirement for condo board directors, or the inclusion of director and officer liability standards in the Condominium Act, change existing condo law.

The answer to your first question is that the condo board should consult with the condo association insurance broker/agent as to the appropriate amount of directors and officers insurance coverage (usually referred to as theD&O policy). A million dollars coverage is probably the bare bones minimum. It is my understanding that coverage of three million, or even five million, can be obtained for a modestly higher premium. Obviously, the size of your association and the nature of your operation has some bearing on risk and the best balance between coverage and cost control.

In answer to your second question, the Florida statutes permit the bylaws of the association to contain comprehensive indemnification provisions which could become extremely important should insurance coverage not be adequate to cover a claim against you arising from board service. You may want to ask the board to check with the association's counsel to ensure that your bylaws contain thorough indemnification provisions. If a claim against a director exceeds the amount of insurance coverage, indemnification means that the entire community essentially acts as your insurer. However, there will likely be no insurance coverage and no right to indemnification in the event criminal action, fraudulent acts, or if willful or reckless misconduct or self-dealing is established.


Condo Association Insurance Rates Drop

The condominium association insurance or HOA insurance sector is particularly vulnerable to insurance premium hikes. Unit owner assessments, the market value of a condo, and other variables are impacted not just by hurricane activity itself, but by the financial aftermath of increasing condominium association insurance premiums. As rates continue to fall, a pessimist would note that we are just one large storm away from a similar reaction by the insurance industry.  2004 & 2005 combined to equal over $100 billion in insurable losses and now rates are quickly approaching 2004 levels. For now, condominium association insurance premiums are falling as unit owners of condominium associations hope for a continued slide in premiums, which is expected as we enter 2008.

Condo Association Insurance - Is Property Valued Right?

If the condo building is not covered for an amount that will adequately replace the building in the event of a total loss, there can be major problems, even if the condo building is not completely destroyed.

By not insuring for the amount the condo building is valued at, you can trigger a condo association policy's co-insurance clause. Co-insurance states that if the insured condo association has not properly valued the replacement cost of the building, the insurance company can reduce a claim settlement to reflect the proportional amount that you insured, and then reduce it further by whatever the penalty is in the contract. An example of how this works is if the actual replacement cost of the building is $1,000 and you only insure it for $800, you have now only insured to 80 percent of the building's value. You now have a $300 loss. They will say that you underinsured by 20 percent, so if there is a 150 percent co-insurance penalty, you will be penalized 30 percent on your claim settlement. They will pay you only $210. Now subtract your deductible and that will be the check that you receive.

On the other side, if the building is overvalued, you may be paying money for condo association insurance coverage that is not necessary, which will end up wasting the condo association's money.

How is a lay condo board supposed to come up with a proper valuation for the cost of rebuilding? Our solution to this problem is to provide the board with a Marshall and Swift replacement cost worksheet so that you can feel comfortable with value used to protect your condo association assets

More about condo association insurance and HOA insurance


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.


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?


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, 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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