CONDO COVERAGE AND STATUTES
Since many associations have varying levels of insurance knowledge, interpretation of condominium policies can sometimes be confusing. While an agent may provide a detailed presentation and explain everything thoroughly, the board can not be expected to fully comprehend every item that was discussed. The following is an overview of condominium insurance components for your review and consideration. This was taken from Florida Underwriter magazine dated September 2008. While this is not a complete assessment of each policy’s role, it does give you a basic overview of which policies your association should be carrying and what coverages those policies provide. We have also included links to Florida Condominium Statute 718 as well several insurance related links that can be found under our Links section. For more specific details on the coverages listed below, we recommend you set up an appointment with your agent for a comprehensive review. Florida Condominium Act Chapter 718 Statute: Click Here
Property Insurance Items that need to be considered: Property Value - appraisals
- Replacement Coverage – actual cash value, full replacement cost, or guaranteed replacement cost.
- Building ordinance (critical for older buildings).
- Loss of use or extra expense coverage.
- Flood and windstorm.
- Boiler/Machinery and mechanical breakdown.
- Special form (all-risk); broad form, basic form.
- Out Buildings (examples, clubhouse, guard house), Inland Marine and other coverages unique to the association.
General Liability Important points:
- Determine if the definition of “insured” includes the community manager. Many associations hire community managers and most of the associations agree to “indemnify” the managers.
- Personal injury coverage should be included. Anyone who lives in the world of community associations knows that the issues of defamation, invasion of privacy and wrongful eviction offense become issues much more than we would hope.
- While most associations do not have employees, workers’ compensation exposure must also be considered. Similarly, most associations do not have auto exposure, but this is another risk that must be evaluated.
- Policy should include, if appropriate, Host Liquor Liability, Non-Owned/Hired Auto, and Fire Legal Liability.
Directors & Officers Insurance
D&O coverages vary greatly from one carrier to another. It appears that most D&O endorsements in package policies do not provide adequate coverage for today’s community associations. A comprehensive D&O policy should cover the following:
- Defense of monetary and non-monetary claims.
- Defense of failure to maintain or to obtain insurance.
- Defense of third-party contracts.
- Full prior acts coverage.
- Definition of insurance includes:
- Past, present, and future directors and officers; committee members; volunteers; employees, including leased employees; independent contractors; spouses; and domestic partners.
- Discrimination coverage, including third-party discrimination
- Personal Injury Coverage, including defamation, wrongful eviction, and invasion of right of privacy.
- Employment practices coverage
- Property manager included within definition of insured
- Consent to settle clause, preferably with soft-hammer clause.
The exclusions in a D&O policy create a gap in coverage in the event that the association has employees and provides a “defined benefits plan”, sometimes referred to as the ERISA exclusion. This gap is filled with somewhat misleadingly titled policy known as a “fiduciary” policy. As we know, the key duty of the board is fiduciary policy. However, a fiduciary policy is really for the purpose of filling the gap of the referenced exclusion.
Fidelity and Crime Insurance
This is a first-party coverage and what is being insured is what the association “owns” In this regard, accounting must be done to determine what the association has in all accounts and investments. The association should also be cognizant of windfall deposits such as insurance proceeds and the collection of special assessments that go beyond the normal fee accumulation of associations. The best fidelity/crime policies contain the following coverages:
- Employee theft
- Forgery or alteration
- Inside the premises – theft of money and securities
- Inside the premises – robbery or safe burglary of other property
- Outside the premises
- Computer fraud
- Funds transfer fraud
Umbrella Liability Insurance
The umbrella liability policy is becoming much more important as our society becomes more litigious. There are a couple of keys to the umbrella coverage.
- 1. What limits are sufficient?
- 2. What is the umbrella policy actually coverage?
Many people do not look closely at the coverage because they are convinced that the umbrella policy will never be triggered. What one must also keep in mind is that limits in and of themselves are not sufficient. Most umbrella policies are “following-form” policies, meaning they follow the terms and conditions of the underlying scheduled policies. If those policies do not provide adequate coverage, then the umbrella is just proving higher limits of inadequate coverage. In addition, umbrella policies also include their own exclusions that may be in addition to the underlying policies. Specifically, be cautious that they do not exclude D&O, Employment Practices Liability, or coverage for managers