“Condominium Association Insurance Best Practices” – FLCAJ
While every condominium association is unique, there is a common thread that runs through every condominium community in the state of Florida, and that is property insurance. Typically property insurance is one of the largest, if not the largest, line items in a condominium association’s budget, and it has been a growing expense over the last several years. Condominium association board members and managers should be aware that there are specific statutory requirements imposed upon condominium associations with respect to both maintaining property insurance on the condominium property and placing such insurance. In addition to the general obligation to obtain property insurance, there are several nuances and potential traps in the Condominium Act that condominium associations should be aware of.
With respect to a condominium association’s property insurance obligations, Section 718.111(11), Florida Statutes, addresses the association’s duty to obtain and maintain property insurance on the condominium, and the statute includes specific requirements for the extent of the coverage and the manner in which coverage is obtained.
With regard to the extent of coverage, the Condominium Act states that every condominium association must have “adequate property insurance” as determined by the Act, regardless of any requirements in the declaration of condominium. The statute further provides that “adequate insurance coverage” means full insurable value, replacement cost, or similar coverage. The statute goes on to state that the amount of adequate coverage may be based on the replacement cost of the property to be insured as determined by an independent insurance appraisal. The replacement cost value must be determined by an appraisal, or updated appraisal, at least once every three years.
This leads to the first potential trap for condominium associations: the amount of insurance coverage. Whether full insurable value, replacement cost, or similar coverage, the value must be based on a current independent insurance appraisal. This appraisal must be no more than three years old and must be updated at least every three years. Accordingly, every condominium association should be cognizant of the date of its most recent insurance appraisal and have a plan in place for keeping it current so that timely and adequate property insurance may continue to be obtained for the condominium.
In addition to correctly determining the amount of adequate property insurance coverage, the condominium association must also purchase a policy with appropriate deductibles. The Condominium Act specifically states that policies may include deductibles, as determined by the board of directors.
Deductibles for property insurance policies, particularly concerning hurricane coverage, can be significant and often are based on a percentage of the value of the insured property. For condominium buildings this can amount to hundreds of thousands, if not millions, of dollars. While the board has the authority to determine the deductible, such authority is not unlimited.
Specifically, the statute states that the deductible selected by the board must be consistent with industry standards and the prevailing practice for communities of similar size, age, construction, and location. Condominium associations should therefore discuss deductible options with their insurance professionals to ensure that the deductibles selected are consistent with accepted practice for the locale. In determining the amount of the deductible, the board may consider available funds, including reserve accounts and assessment authority.
The statute requires that when the board establishes the amount of the deductible, it must do so at a board meeting noticed pursuant to Section 718.112(2)(e), Florida Statutes, which requires mailed, delivered, or emailed notice to the members at least 14days in advance of the meeting, the same notice requirements used for special assessment or budget meetings.
Other than the ongoing routine maintenance of the condominium property, ensuring that appropriate property insurance policies are in place may be the most important function of a condominium association. Ensuring not only that the property insurance policies provide appropriate coverage, but also that they are adopted in a procedurally correct manner consistent with the Condominium Act, is equally important. Every condominium association should review its processes to confirm that it has an up-to-date insurance appraisal for the condominium property and should review its practices for adopting deductibles to ensure that the deductibles are approved at a properly noticed board meeting. Taking these steps early and establishing consistent procedures ensures that a condominium association maintains the proper insurance policies necessary to protect the property.
Robert Caves dedicates his practice to representing community associations primarily as general counsel to condominium, cooperative, and homeowners’ associations. In addition to representing associations in day-to-day legal matters, Rob has developed a focus on addressing telecommunication issues facing associations. Following his graduation from law school, Mr. Caves served as a staff attorney for the First District Court of Appeal in Tallahassee. Mr. Caves is also one of only 190 attorneys statewide who is a board-certified specialist in condominium and planned development law.
