Guidelines for condo insurance
Today's topic: insurance requirements for condominium associations. The Florida condominium law simply provides that an association must maintain "adequate" insurance. The law does not define what "adequate" means, nor generally the required types of insurance which an association may carry. In my opinion, it is important for the declaration of condominium to specifically guide the board on what type of insurance requirements apply to the association. The following is a list of the different types of insurance coverage generally applicable to condominium associations.
• Casualty insurance: This is the insurance policy that pays to reconstruct the property after a calamity such as a fire, tornado or hurricane. State law mandates the condominium association's insurance of the structures. The statute should be carefully consulted for an understanding of exactly how the line is divided between the association's insurance obligations and the obligations of the individual unit owner. Contrary to popular belief, insurance and maintenance obligations may be entirely different for the same item. For example, most documents require the unit owner to maintain interior doors, while state law requires that they are to be insured by the association. Often, older condominium documents will impose stricter insurance requirements than what is generally available in the market. For example, while many documents require full replacement cost insurance, most associations now place insurance which contains a deductible. A well-written set of documents also will discuss how deductible expenses are allocated in the event of an uninsured or under-insured loss.
• Flood insurance: Many condominium associations carry a master policy of flood insurance. For communities located in federally designated flood hazard areas, mortgages will not be written unless adequate flood insurance is in place. The condominium statute states that an association "may" carry flood insurance. As stated in my Sept. 9, 2004, column, I believe that flood insurance is legally required under the auspices of "adequate insurance" in many situations, and is a good idea in every case. In any event, the declaration of condominium should contain clear guidance on this point.
• Liability insurance: The general liability insurance policy is the insurance the association buys for most types of personal injury claims. For example, if someone trips on the property and files a suit, the general liability policy is the insurance that provides protection. I recommend that the declaration specifically require the board to obtain liability insurance. Many older documents require minimal amounts of insurance (such as $300,000), which is no longer commensurate with modern day risks.
• Workers' compensation: Unless the association employs four or more employees, workers' compensation is not legally required. However, many associations which do not employ four or more people still purchase a "minimum premium policy." The purpose of the minimum premium policy is to provide stop-gap protection in the event an uninsured worker is injured on association premises. The benefit of workers' compensation is that it is the exclusive remedy for injured workers, meaning they cannot sue, but are entitled to a legally stipulated schedule of benefits to compensate them for their injuries. This should again be addressed in the declaration of condominium.
• Fidelity bonding: Sometimes called "crime coverage," "employee dishonesty coverage," or "fidelity bonding," this type of insurance is basically designed to protect against theft or embezzlement by employees, directors, management personnel, or others who might have access to association funds. It is important to understand that a management company having its own fidelity bond may not be sufficient to protect an individual association. For condominiums, there is a statutory requirement that the minimum amount of the fidelity bond be equal to the maximum amount of money that could be stolen (i.e., the maximum amount of money on deposit in all association accounts at any given time). Since this is a fluctuating number, the association should make certain that adequate coverage is in place, particularly in situations where large amounts of money may be at hand due to a special assessment. Although the law sets the minimum amount of coverage required, I think it is a good idea for the documents to contain a specific obligation for fidelity bonding, so that the layman board member who may not read the law will know from reading his or her documents that the bond is required.
• Directors and officers liability insurance: Usually called D&O insurance or E&O (errors and omissions) insurance, this is one of the most important policies for the association. The purpose of the D&O policy is to provide coverage in a defense (a lawyer) if a suit is brought against the association (other than for personal injury) or its directors. I do not believe anyone in her right mind would serve on an association board that did not have D&O coverage, and I strongly believe it should be mandated through the declaration of condominium, not a permissive decision to be made from time to time by the board of directors or property manager.
Next week, we will take a look at insurance issues applicable to homeowners' associations, and if space permits, discuss the provisions regarding repair of property after casualty.
FREE COURSE TO BE HELD IN FORT MYERS
A free course on Florida condominium association operations will be held from 9 a.m. to noon Wednesday, Oct. 26, at Seven Lakes Condominium Association, 1965 Seven Lakes Blvd., Fort Myers. The course will be taught by Community Associations Institute, the designated condominium and cooperative educational provider of the Florida Department of Professional and Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes.
The course focuses on the core responsibilities of associations, including self-management, the bidding process for outside service providers, maintenance issues, accounting and legal services, and how to plan for and conduct board meetings. The course is designed for board members and unit owners. This course does not count for manager CEUs for community association managers.
Registration is not required, but space is limited. To reserve a space, please call Laura Hagan at (727) 525-0962 or e-mail FLeducation@caionline.org. Course seating may be limited to one owner occupant per condominium unit based on space availability. To see a complete list of classes in Southwest Florida, visit www.caionline.org/florida.