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Chapter 5:
Insurance for Florida Community Associations
4 CE Hours
By: Deborah Converse, MA, NBCT
Objectives
Identify the role of the community association manager related to
association insurance coverage.
List and explain the Florida Statutes and Administrative Codes that
govern community association insurance coverage.
Dene the types of insurance coverage for Florida community
associations.
Identify the coverage provided by the National Flood Insurance
Program (NFIP) and the role of the Federal Emergency
Management Administration (FEMA).
List the eligibility requirements and coverage in the Residential
Condominium Building Association Property (RCBAP).
Explain the purpose of “director and ofcer” (D&O) insurance
coverage for community associations.
Identify common exclusions to the “master” policy.
Dene delity insurance coverage protections for community
associations.
List the requirements for windstorm and hurricane insurance.
Identify the purpose of coverage provided by an umbrella policy.
Explain ve ways to manage risk in a community association.
Overview
This course provides a review of the types of insurance coverage
that Florida community associations should consider when acquiring
insurance. It also provides an overview of relevant Florida State
Statutes and Administrative Codes that govern community association
insurance coverage.
Introduction
An effective community association manager (CAM) must
have current knowledge of insurance issues that impact his/her
condominium or homeowners’ association. This includes having
a comprehensive master policy, property insurance coverage for
replacement value, general liability, boiler/mechanical, casualty,
director and ofcer, and delity bonds - to name a few. In addition,
the CAM must regularly review the Florida State Statutes and
Administrative Codes that may be amended each year during Florida
Legislative sessions.
The experienced CAM understands that effective maintenance can
improve the function and life of equipment and materials in the
common areas and will help prevent property damage and loss.
In addition to understanding insurance policies and forms,
responsibilities include assisting with budgeting, controlling and
dispersing funds, enforcing rules, preparing documents in a timely
manner, coordination maintenance and staff duties, notice meeting
coordination, emergency preparation, and recovery if disaster strikes.
Glossary
The following denitions are from A.M. Best (2017), unless otherwise
noted:
Casualty: Relates to liability or loss resulting from an accident.
Casualty insurance: Insurance that is primarily concerned with losses
caused by injuries to persons and legal liability imposed upon the
insured for such injury or for damage to property. Casualty insurance
protects the association through liability coverage for negligent acts,
crime, or omissions if someone is injured, or has damage to their
property and les a lawsuit. It also includes such diverse forms as
plate glass, insurance against crime, such as comprehensive or all-risk
coverage - comprehensive or all-risk coverage is sometimes called
extended coverage or special form coverage. “All risk” is insurance
coverage for all types of physical property loss, though there may
be specic exclusions in all policies. Fire, theft and vandalism are
normally included in an all risk or a comprehensive policy.
Coverage: The scope of protection provided under an insurance
policy. In property insurance, coverage lists perils that are insured
against, properties covered, locations covered, individuals insured, and
the limits of indemnication.
Damages for tort liability (Quizlet, 2017):
1. Compensatory: Money paid to injured party, pays actual
damages, monetary payments for medical expenses for example.
2. General: Pays for non-economic losses such as pain and suffering.
3. Punitive: Court awards for money to punish individuals or group
due to actions that caused harm. This type is thought to be greater
than simple negligence.
Development to policyholder surplus (IRIS): The ratio that
measures reserve deciency or redundancy in relation to policyholder
surplus. This ratio reects the degree to which year-end surplus was
either overstated (+) or understated (-) in each of the past several
years, if original reserves had been restated to reect subsequent
development through year end.
Estoppels (Merriam-Webster, 2017): A legal restraint preventing a
person from contradicting his own previous statement.
Exclusions: Items and/or conditions that are not covered by the
general insurance contract.
General liability insurance: Insurance designed to protect business
owners and operators from a wide variety of liability exposures.
Exposures could include liability arising from accidents resulting from
the insured’s premises or operations, products sold by the insured,
operations completed by the insured, and contractual liability.
Liability: Any legally enforceable obligation.
Liability insurance: Insurance that pays and renders service on
behalf of an insured for loss arising out of his responsibility, due
to negligence, to others imposed by law or assumed by contract.
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Liability insurance provides coverage for damage or injuries caused by
negligence or other human acts.
Loss valuation (Quizlet, 2017): The process of determining the value
of the loss.
Replacement cost: Today’s cost to fully replace the lost or damaged
property with like kind or quality property “without deduction for
depreciation”.
Actual cash value (ACV): Cost of replacing damaged or destroyed
property with comparable new property, minus depreciation and
obsolescence.
Functional replacement cost: Cost to repair or replace with
functionally equivalent materials.
Market value: The price a buyer would pay and a seller would accept
in a competitive market.
Agreed value: The value of the described property agreed on by both
insurer and insured.
Stated amount: An amendment to the valuation provision of a policy
that provides a stated maximum amount for payment of any loss.
Valued policy: Valued policy is an exception to the principle of
indemnity. Under this provision, the insurer is liable for the full
amount of damages up to the policy value.
Named perils: Perils specically covered under the insured’s property.
Occurrence: An event that results in an insured loss. In some lines
of business, such as liability, an occurrence is distinguished from an
accident in that the loss doesn’t have to be sudden and fortuitous,
and can result from continuous or repeated exposure which results in
bodily injury or property damage, neither expected nor intended by the
insured.
Partial vs. total loss (Quizlet, 2017)
Determining whether a loss is a partial or total loss is critical in the
claim settlement process.
Total loss: A total loss is one where the damage is so extensive
that it would cost more to repair or replace than the normal market
value of the undamaged home.
Partial loss: Any loss that is not determined to be a total loss.
Perils (Quizlet, 2017): The causes of a loss. Common causes of loss
include re, wind & lightning. A policy can be written in one of two
forms:
1. Specied (named): Perils covered specically listed in policy.
2. Open peril (all risk): Specically lists exclusions; everything else
is covered.
Property insurance: Property insurance is a policy that provides
coverage for loss of the structure and contents, due to damage or theft.
Fire, ood, and windstorm insurance are the major components of this
type.
Replacement cost: The dollar amount needed to replace damaged
personal property or dwelling property without deducting for
depreciation, but limited by the maximum dollar amount shown on the
declarations page of the policy.
Reserve: An amount representing actual or potential liabilities kept by
an insurer to cover debts to policyholders. A reserve is usually treated
as a liability.
Risk management: Management of the pure risks to which a
company might be subject. It involves analyzing all exposures to the
possibility of loss and determining how to handle these exposures
through practices such as avoiding the risk, retaining the risk, reducing
the risk, or transferring the risk, usually by insurance.
Self-insurance: Self-insurance includes any plan, fund, or program
which is communicated, or the benets of which are described
in writing, to employees and which has heretofore been - or is
hereafter established - by or on behalf of any individual, partnership,
association, corporation, trustee, governmental unit, employer, or
employee organization, or any other organized group, for the purpose
of providing for employees or their beneciaries through such
individual, partnership, association, corporation, trustee, governmental
unit, employer, or employee organization, or any other group, benets
in the event of sickness, accident, disability, or death. Self-insurance
does not include:
1. Any plan with respect to which benets are insured or reinsured
by an insurance company or are provided by a health maintenance
organization;
2. Any plan covering fewer than 10 employees in this state;
3. Any plan established and maintained as a pension or prot-sharing
plan for the exclusive benet of employees and their beneciaries;
4. Any plan established and maintained for the purpose of complying
with any workers’ compensation law;
5. Any plan administered by or for the federal government;
6. Any plan with respect to payments by an employer continuing an
employee’s regular compensation, or part thereof, during an illness
or disability;
7. Any plan which is primarily for the purpose of providing rst aid
care and treatment, at a dispensary of an employer, for injury or
sickness of employees while engaged in their employment;
8. Any plan established and maintained for the purpose of providing
malpractice coverage or professional liability coverage (FL.SS.
624.031,2016).
Subrogation (Quizlet, 2017): According to the terms of property
and casualty contracts, the insureds are required to assign their rights
to recovery after a loss to the insurance company. Insurers then have
legal right to recover the amount paid for the loss from the at-fault
party and take any further legal action necessary. The deductible is
returned to the insured when or if the loss payment is recovered.
Tort (Cornell, 2017): A tort is an act or omission that gives rise to
injury or harm to another and amounts to a civil wrong for which
courts impose liability. In the context of torts, “injury” describes the
invasion of any legal right, whereas “harm” describes a loss
or detriment in fact that an individual suffers.
Umbrella policy: Coverage for losses above the limit of an underlying
policy or policies such as homeowners and auto insurance. While it
applies to losses over the dollar amount in the underlying policies,
terms of coverage are sometimes broader than those of underlying
policies.
2016 Florida Statutes Chapter 468 Title XXXII, Part VIII: Community Association Management
It is important to begin with some basic denitions of community
associations and the role of the community association manager, as
dened by the Florida Statutes and Administrative Code.
Florida Statutes Chapter 468, Part VIII: Community Association
Management (2016c)
468.431. Denitions. As used in this part:
1. “Community association” means a residential homeowners’
association in which membership is a condition of ownership of
a unit in a planned unit development, or of a lot for a home or a
mobile home, or of a townhouse, villa, condominium, cooperative,
or other residential unit which is part of a residential development
scheme and which is authorized to impose a fee which may
become a lien on the parcel. Each of these types have different
insurance needs and are guided by different Fl. Statutes.
2. “Community association management” means any of the following
practices requiring substantial specialized knowledge, judgment,
and managerial skill when done for remuneration and when the
association or associations served contain more than 10 units
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or have an annual budget or budgets in excess of $100,000:
controlling or disbursing funds of a community association,
preparing budgets or other nancial documents for a community
association, assisting in the noticing or conduct of community
association meetings, determining the number of days required
for statutory notices, determining amounts due to the association,
collecting amounts due to the association before the ling of a civil
action, calculating the votes required for a quorum or to approve
a proposition or amendment, completing forms related to the
management of a community association that have been created by
statute or by a state agency, drafting meeting notices and agendas,
calculating and preparing certicates of assessment and estoppel
certicates, responding to requests for certicates of assessment
and estoppel certicates, negotiating monetary or performance
terms of a contract subject to approval by an association, drafting
prearbitration demands, coordinating or performing maintenance
for real or personal property and other related routine services
involved in the operation of a community association, and
complying with the association’s governing documents and the
requirements of law as necessary to perform such practices. A
person who performs clerical or ministerial functions under the
direct supervision and control of a licensed manager or who is
charged only with performing the maintenance of a community
association and who does not assist in any of the management
services described in this subsection is not required to be licensed
under this part.
The professional community association manager: Practice standards and professional
conduct
2016 Florida Statute Chapter Title XXXII 468.4334: Professional
practice standards; liability
1. A community association manager or a community association
management rm is deemed to act as agent on behalf of a
community association as principal within the scope of authority
authorized by a written contract or under this chapter. A
community association manager and a community association
management rm shall discharge duties performed on behalf of
the association as authorized by this chapter loyally, skillfully, and
diligently; dealing honestly and fairly; in good faith; with care and
full disclosure to the community association; accounting for all
funds; and not charging unreasonable or excessive fees.
2a. A contract between a community association and a community
association manager or a contract between a community
association and a community association management rm may
provide that the community association indemnies and holds
harmless the community association manager and the community
association management rm for ordinary negligence resulting
from the manager or management rm’s act or omission that is the
result of an instruction or direction of the community association.
This paragraph does not preclude any other negotiated indemnity
or hold harmless provision.
b. Indemnication under paragraph (a) may not cover any act
or omission that violates a criminal law; derives an improper
personal benet, either directly or indirectly; is grossly negligent;
or is reckless, is in bad faith, is with malicious purpose, or is in a
manner exhibiting wanton and willful disregard of human rights,
safety, or property.
The Florida Administrative Code: Professional conduct
As stated in the denition of community association management,
the duties of a CAM require a substantial amount of specialized
knowledge, judgment, and managerial skill. To underscore the
importance of this role of a community association manger, it
is important to include information about professional conduct.
The duties of the CAM to assist the board in order to identify
insurance needs, assess value, review quotes, select adequate
coverage, and submit claims for reimbursement, demand the highest
level knowledge, judgment and managerial skills. The Florida
Administrative Code provides the following standards for professional
conduct.
61E14-2.001: Standards of Professional Conduct.
Licensees shall adhere to the following provisions, standards of
professional conduct, and such provisions and standards shall be
deemed automatically incorporated, as duties of all licensees, into any
written or oral agreement for the rendition of community association
management services.
1. Denitions. As used in this rule, the following denitions apply:
a. “Licensee” means a person licensed pursuant to Sections
468.432(1) and (2), F.S.
b. “Community Association Management Services” means
performing any of the practices requiring specialized
knowledge, judgment, and management skill as dened in
Section 468.431(2), F.S.
c. “Funds” as used in this rule includes money and negotiable
instruments including checks, notes and securities.
2. Professional Standards. During the performance of community
association management services, a licensee shall do the
following:
a. Comply with the requirements of the governing documents by
which a community association is created or operated.
b. Only deposit or disburse funds received by the community
association manager or management rm on behalf of the
association for the specic purpose or purposes designated by
the board of directors, community association management
contract or the governing documents of the association.
c. Perform all community association management services
required by the licensee’s contract to professional standards
and to the standards established by Section 468.4334(1), F.S.
d. In the event of a potential conict of interest, provide full
disclosure to the association and obtain authorization or
approval.
e. Respond to, or refer to the appropriate responsible party,
a Notice of Violation or any such similar notication from
an agency seeking to impose a regulatory penalty upon the
association within the time frame specied in the notication.
3. Records. During the performance of community association
management services pursuant to a contract with a community
association, a licensee shall not:
a. Withhold possession of the association’s ofcial records, in
violation of Sections 718.111(12), 719.104(2) or 720.303(5),
F.S., or original books, records, accounts, funds, or other
property of a community association when requested by
the association to deliver the same to the association upon
reasonable notice. Reasonable notice shall extend no later
than 10 business days after termination of any management
or employment agreement and receipt of a written request
from the association. The manager may retain those records
necessary for up to 20 days to complete an ending nancial
statement or report. Failure of the association to provide access
or retention of accounting records to prepare the statement or
report shall relieve the manager of any further responsibility
or liability for preparation of the statement or report. The
provisions of this rule apply regardless of any contractual or
other dispute between the licensee and the association.
b. Deny or delay access to association ofcial records to an
owner or his or her authorized representative who is entitled to
access within the time frame and under the procedures set out
in Sections 718.111(12), 719.104(2) or 720.303(5), F.S.
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c. Create false records or alter the ofcial records of an
association in violation of Sections 718.111(12), 719.104(2)
or 720.303(4), F.S., or of the licensee except in such cases
where an alteration is permitted by law (e.g., the correction of
minutes per direction given at a meeting at which the minutes
are submitted for approval).
d. Fail to maintain the records for a community association
manager or management rm or the ofcial records of any
applicable association, as required by Sections 718.111(12),
719.104(2) or 720. 303(4), F.S.
Determining a community association’s insurance needs: Getting started
Begin by reviewing Florida’s State Statutes and its Administrative
Code to determine insurance guidelines for community associations,
for condominiums, and for other homeowners’ associations (HOAs).
These statutes can be confusing, and the information regarding
community association management is contained in numerous
chapters. (These chapters will be further covered in this course.)
For example, Chapter 718 of the Florida Statutes covers
condominiums; Chapter 719 covers cooperatives; 720 covers HOAs,
and; Chapter 721 deals with timeshare and vacation communities.
Chapter 468 also provides direction regarding community association
management; Chapter 624: Insurance Code: Administration and
General Provisions addresses other insurance issues - such as self-
insurance.
When considering insurance requirements, for example, Chapter 718
takes precedence over many declarations in condominium association
documents. This chapter states that associations must adequately
insure property for its value, of which needs to be determined by a
replacement cost appraisal every 36 months. Because Chapter 720
does not cover HOA insurance requirements, the governing documents
of the association guide the board in required insurance issues.
The CAM must have thorough knowledge of the association’s
governing documents as they relate to the Florida Statutes. The CAM
must be able to assist the board in the review of governing documents
and ensure that the association is fullling its responsibility in
implementing these documents’ declarations in accordance with the
law.
CAMs and board members must be clear, for example, about the
areas of the property that are covered by the condominium association
insurance, as well as the boundaries that determine where the unit
property owner’s insurance takes effect.
CAMs and board members must also know the types of insurance
needed based on the unique aspects of the property. For instance,
they may know about property insurance requirements but may not
realize the importance of liability insurance that will cover errors and
omissions by association directors and ofcers, volunteers, or vendors.
The CAM and the board must always consult a licensed insurance
professional who specializes in coverage for their property type and
understands specic ood districts, local geography and risk factors
that may require additional insurance coverage. Different agents may
specialize in commercial residential properties and HOAs that are
high- or low-rise, cooperatives, timeshares, vacation or mobile home
communities, for example.
Each property has different common-area amenities, equipment, and
features which determine the value that must be considered when
making insurance coverage decisions.
A condominium by the ocean would have different common area
coverage needs than for a HOA with one hundred homes, lights, roads,
golf courses and security gates. Pools, hot tubs, re pits, barbeque
grills, tennis courts, tness rooms, golf courses, and playgrounds
that are owned by the association may increase the casualty/liability
risks over associations that do not have those amenities or facilities.
Are there multiple buildings, vehicles, or heavy equipment, off-site
parking, additional phases in development or other common areas that
may present additional safety and security risk issues?
Determining the right amount of property insurance to purchase
requires determining replacement cost in case the property is destroyed
by re, ood, wind, or other disasters. The appraisal should be done
by a licensed contractor, or an architect, to obtain an accurate value
amount. Current building codes may require upgrades to the property,
in the case of the repair or replacement of older buildings, to bring
them up to code. Insurance coverage is available to cover code
upgrades that would be required in case of severe damage that required
a tear down and a rebuilding of the property. That additional cost to
bring the building up to current building code standards should be
reected in the replacement cost appraisal.
Florida Statutes
The Statutes below are from the 2016 edition. Although they have had
annual reviews, there have been no major revisions since 2013 and
2014.
Florida Statute 718.111(2016b)
The insurance section of 718.111 is included as follows:
11. Insurance. In order to protect the safety, health, and welfare
of the people of the State of Florida and to ensure consistency
in the provision of insurance coverage to condominiums and
their unit owners, this subsection applies to every residential
condominium in the state, regardless of the date of its declaration
of condominium. It is the intent of the Legislature to encourage
lower or stable insurance premiums for associations described in
this subsection.
a. Adequate property insurance, regardless of any requirement
in the declaration of condominium for coverage by the
association for full insurable value, replacement cost, or
similar coverage, must be based on the replacement cost of
the property to be insured as determined by an independent
insurance appraisal or update of a prior appraisal. The
replacement cost must be determined at least once every 36
months.
1. An association or group of associations may provide
adequate property insurance through a self-insurance
fund that complies with the requirements of ss. 624.460-
624.488.
2. The association may also provide adequate property
insurance coverage for a group of at least three
communities created and operating under this chapter,
chapter 719, chapter 720, or chapter 721 by obtaining and
maintaining for such communities insurance coverage
sufcient to cover an amount equal to the probable
maximum loss for the communities for a 250-year
windstorm event. Such probable maximum loss must
be determined through the use of a competent model
that has been accepted by the Florida Commission on
Hurricane Loss Projection Methodology. A policy or
program providing such coverage may not be issued or
renewed after July 1, 2008, unless it has been reviewed
and approved by the Ofce of Insurance Regulation.
The review and approval must include approval of the
policy and related forms pursuant to ss. 627.410 and
627.411, approval of the rates pursuant to s. 627.062,
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a determination that the loss model approved by the
commission was accurately and appropriately applied to
the insured structures to determine the 250-year probable
maximum loss, and a determination that complete and
accurate disclosure of all material provisions is provided
to condominium unit owners before execution of the
agreement by a condominium association.
3. When determining the adequate amount of property
insurance coverage, the association may consider
deductibles as determined by this subsection.
b. If an association is a developer-controlled association,
the association shall exercise its best efforts to obtain and
maintain insurance as described in paragraph (a). Failure to
obtain and maintain adequate property insurance during any
period of developer control constitutes a breach of duciary
responsibility by the developer-appointed members of the
board of directors of the association, unless the members
can show that despite such failure, they have made their best
efforts to maintain the required coverage.
c. Policies may include deductibles as determined by the board.
1. The deductibles must be consistent with industry standards
and prevailing practice for communities of similar size and
age, and having similar construction and facilities in the
locale where the condominium property is situated.
2. The deductibles may be based upon available funds,
including reserve accounts, or predetermined assessment
authority at the time the insurance is obtained.
3. The board shall establish the amount of deductibles based
upon the level of available funds and predetermined
assessment authority at a meeting of the board in the
manner set forth in s.718.112(2)(e).
d. An association controlled by unit owners operating as a
residential condominium shall use its best efforts to obtain
and maintain adequate property insurance to protect the
association, the association property, the common elements,
and the condominium property that must be insured by the
association pursuant to this subsection.
e. The declaration of condominium as originally recorded, or
as amended pursuant to procedures provided therein, may
provide that condominium property consisting of freestanding
buildings comprised of no more than one building in or
on such unit need not be insured by the association if the
declaration requires the unit owner to obtain adequate
insurance for the condominium property. An association may
also obtain and maintain liability insurance for directors and
ofcers, insurance for the benet of association employees,
and ood insurance for common elements, association
property, and units.
f. Every property insurance policy issued or renewed on or
after January 1, 2009, for the purpose of protecting the
condominium must provide primary coverage for:
1. All portions of the condominium property as originally
installed or replacement of like kind and quality, in
accordance with the original plans and specications.
2. All alterations or additions made to the condominium
property or association property pursuant to s. 718.113(2).
3. The coverage must exclude all personal property within
the unit or limited common elements, and oor, wall, and
ceiling coverings, electrical xtures, appliances, water
heaters, water lters, built-in cabinets and countertops,
and window treatments, including curtains, drapes, blinds,
hardware, and similar window treatment components, or
replacements of any of the foregoing which are located
within the boundaries of the unit and serve only such
unit. Such property and any insurance thereupon is the
responsibility of the unit owner.
g. A condominium unit owner policy must conform to the
requirements of s. 627.714.
1. All reconstruction work after a property loss must
be undertaken by the association except as otherwise
authorized in this section. A unit owner may undertake
reconstruction work on portions of the unit with the prior
written consent of the board of administration. However,
such work may be conditioned upon the approval of
the repair methods, the qualications of the proposed
contractor, or the contract that is used for that purpose. A
unit owner must obtain all required governmental permits
and approvals before commencing reconstruction.
2. Unit owners are responsible for the cost of reconstruction
of any portions of the condominium property for which the
unit owner is required to carry property insurance, or for
which the unit owner is responsible under paragraph (j),
and the cost of any such reconstruction work undertaken
by the association is chargeable to the unit owner and
enforceable as an assessment and may be collected in
the manner provided for the collection of assessments
pursuant to s. 718.116.
3. A multi-condominium association may elect, by a majority
vote of the collective members of the condominiums
operated by the association, to operate the condominiums
as a single condominium for purposes of insurance
matters, including, but not limited to, the purchase of
the property insurance required by this section and the
apportionment of deductibles and damages in excess
of coverage. The election to aggregate the treatment of
insurance premiums, deductibles, and excess damages
constitutes an amendment to the declaration of all
condominiums operated by the association, and the costs
of insurance must be stated in the association budget. The
amendments must be recorded as required by s. 718.110.
h. The association shall maintain insurance or delity bonding of
all persons who control or disburse funds of the association.
The insurance policy or delity bond must cover the maximum
funds that will be in the custody of the association or its
management agent at any one time. As used in this paragraph,
the term “persons who control or disburse funds of the
association” includes, but is not limited to, those individuals
authorized to sign checks on behalf of the association, and
the president, secretary, and treasurer of the association. The
association shall bear the cost of any such bonding.
i. The association may amend the declaration of condominium
without regard to any requirement for approval by mortgagees
of amendments affecting insurance requirements for the
purpose of conforming the declaration of condominium to the
coverage requirements of this subsection.
j. Any portion of the condominium property that must be
insured by the association against property loss pursuant
to paragraph (f) which is damaged by an insurable event
shall be reconstructed, repaired, or replaced as necessary by
the association as a common expense. In the absence of an
insurable event, the association or the unit owners shall be
responsible for the reconstruction, repair, or replacement as
determined by the maintenance provisions of the declaration or
bylaws. All property insurance deductibles and other damages
in excess of property insurance coverage under the property
insurance policies maintained by the association are a common
expense of the condominium. The Statute goes on to list the
responsibility of individual unit owners at this point.
k. An association may, upon the approval of a majority of
the total voting interests in the association, opt out of the
provisions of paragraph (j) for the allocation of repair or
reconstruction expenses and allocate repair or reconstruction
expenses in the manner provided in the declaration as
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originally recorded or as amended. Such vote may be approved
by the voting interests of the association without regard to any
mortgagee consent requirements.
l. In a multi condominium association that has not consolidated
its nancial operations under subsection (6), any condominium
operated by the association may opt out of the provisions of
paragraph (j) with the approval of a majority of the total voting
interests in that condominium. Such vote may be approved by
the voting interests without regard to any mortgagee consent
requirements.
m. Any association or condominium voting to opt out of the
guidelines for repair or reconstruction expenses as described
in paragraph (j) must record a notice setting forth the date of
the opt-out vote and the page of the ofcial records book on
which the declaration is recorded. The decision to opt out is
effective upon the date of recording of the notice in the public
records by the association. An association that has voted to opt
out of paragraph (j) may reverse that decision by the same vote
required in paragraphs (k) and (l), and notice thereof shall be
recorded in the ofcial records.
o. The provisions of this subsection shall not apply to timeshare
condominium associations. Insurance for timeshare
condominium associations shall be maintained pursuant to s.
721.165.
Discussion
As previously discussed, the 2016 Florida Statute 718.111 covers
property insurance requirements and takes precedence over any written
and recorded condominium documents. Associations sometimes
believe that the current statutes do not apply, and that the statutes from
the recorded date of the documents are in force. Statute 718 explains
that, “this subsection applies to every residential condominium in
the state, regardless of the date of its declaration of condominium.”
However, 718.111 also notes that for insurance policies issued or
renewed after January 1, 2009, the policies must provide primary
coverage for the property as originally installed, in accordance with
the original plans and specications; replacement materials under the
policy can be of like kind and quality.
The primary coverage must also include any alterations or additions
made to the property pursuant to Section 718.113(2). This statute
clearly delineates what is excluded from association insurance
coverage. It is the responsibility of the owner to include portions of the
condominium property in the owners’ property insurance for their unit.
Simply stated: The association’s insurance coverage does not extend
to repair or replace any additions, improvements or installations by the
owner - or the original developer - that are for the sole benet of one
unit.
The Statute states that adequate property insurance is based on the
replacement cost of the property determined by an independent
insurance appraisal, not the market value appraisal. Additionally, an
independent appraisal must be performed, reviewed and/or updated at
least once every 36 months, according to this Statute.
This Statute states that the association, or group of associations, may
provide adequate property insurance through a self-insurance fund that
complies with the requirements of Florida Statutes 624.460 through
624.488. Chapter 624 requirements include, “A not-for-prot group
comprised of one or more community associations responsible for
operating at least 50 residential parcels or units created and operating
under Chapter 718, Chapter 719, Chapter 720, Chapter 721, or Chapter
723 which restricts its membership to community associations only,
and which has been organized and maintained in good faith for the
purpose of pooling and spreading the liabilities of its group members
relating to property or casualty risk or surety insurance.”
Self-insurance
Self-insurance is not common because it is very expensive to set up. A
self-insurance fund must be secured by a surety bond, as well as have
liquidity to pay out in the event of a total loss. Below are a few self-
insurance details; however, buying insurance will often be more cost
effective than self-insurance. The following is a summary of the basic
points; the statute should be reviewed in its entirety.
624.466 (2016a): Certicate of Authority for Self-Insurance
Florida Statute
According to the Florida Department of Business and Professional
Regulations: Division of Florida Condominiums, Timeshares, and
Mobile Homes (2013):
A condominium association may provide adequate property
insurance coverage through a self-insurance fund that complies
with the requirements of Fl. S. Sections 624.460-624.488. A
cooperative association may self-insure against claims against the
association, the association property, and the cooperative property
required to be insured by an association, upon compliance with the
applicable provisions of sections 624.460-624.488.
Applications must include the name and address of each member
applying for coverage, as well as a current nancial statement of each
member applying for coverage, showing the aggregate net worth of all
members to be not less than $500,000. They must show a combined
ratio of current assets to current liabilities of more than 1 to 1, and a
combined working capital of an amount establishing nancial strength
and liquidity of the businesses to promptly provide for payment of the
normal property or casualty claims proposed to be self-insured.
9a. An initial deposit of cash or securities of the type eligible for
deposit by insurers under s. 625.52 in the amount of $100,000.
b. In lieu of the deposit of cash or securities, a fund may le with the
ofce a surety bond in like amount. The bond shall be one issued
by an authorized surety insurer, shall be for the same purpose as
the deposit in lieu of which it is led, and shall be subject to the
ofce’s approval.
1. No bond shall be approved unless it covers liabilities arising
from all policies and contracts issued and entered into during
the time the bond is in effect and unless the ofce is satised
that the bond provides the same degree of security as would be
provided by a deposit of securities.
2. No bond shall be canceled or subject to cancellation unless at
least 60 days’ advance notice thereof in writing is led with
the ofce.
Setting deductibles
The board has the power to set policy deductibles; however, Chapter
718 requires that “the deductibles must be consistent with industry
standards and prevailing practice for communities of similar size and
age, and having similar construction and facilities in the locale where
the condominium property is situated.” The board may, “determine
the deductible based upon available funds, including reserve accounts,
or predetermined assessment authority at the time the insurance is
obtained, and this determination must be made at a meeting scheduled
in accordance with Section 718.112(2)(e).”
According to Chapter 718, deductibles, uninsured losses, or payments
to cover damages which are in excess of the association’s insurance
coverage are considered as common expenses of the condominium.
The association’s responsibility to repair the common property
extends only to damage caused by an insurable event as detailed in the
insurance policy.
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Florida Statute Chapter 719. Real and Personal Property: Cooperatives
Insurance 719.104-7(3)(2016b)
3. Insurance. The association shall use its best efforts to obtain and
maintain adequate insurance to protect the association property.
The association may also obtain and maintain liability insurance
for directors and ofcers, insurance for the benet of association
employees, and ood insurance. A copy of each policy of
insurance in effect shall be made available for inspection by unit
owners at reasonable times.
a. Windstorm insurance coverage for a group of no fewer than
three communities created and operating under Chapter 718,
this chapter, Chapter 720, or Chapter 721 may be obtained and
maintained for the communities if the insurance coverage is
sufcient to cover an amount equal to the probable maximum
loss for the communities for a 250-year windstorm event. Such
probable maximum loss must be determined through the use
of a competent model that has been accepted by the Florida
Commission on Hurricane Loss Projection Methodology. Such
insurance coverage is deemed adequate windstorm insurance
for the purposes of this section.
b. An association or group of associations may self-insure against
claims against the association, the association property, and the
cooperative property required to be insured by an association,
upon compliance with the applicable provisions of ss. 624.460-
624.488, which shall be considered adequate insurance for
purposes of this section.
Discussion
“Association”, as in this statute, is dened as “the corporation for
prot or not for prot that owns the record interest in the cooperative
property or leasehold of the property of a cooperative and that is
responsible for the operation of the cooperative.”
Most of this section regarding insurance refers to the other statutes
covered in this course.
Liability insurance for directors and ofcers will be covered in the
section on types of insurance.
Florida Statute Chapter 720. Homeowners’ Associations (2016b): Division of Florida
Condominiums, Timeshares, and Mobile Homes
720.303.
h. All of the association’s insurance policies or a copy thereof, which
policies must be retained for at least 7 years.
11. Windstorm Insurance. Windstorm insurance coverage for a group
of no fewer than three communities created and operating under
chapter 718, chapter 719, this chapter, or chapter 721 may be
obtained and maintained for the communities if the insurance
coverage is sufcient to cover an amount equal to the probable
maximum loss for the communities for a 250-year windstorm
event. Such probable maximum loss must be determined through
the use of a competent model that has been accepted by the Florida
Commission on Hurricane Loss Projection Methodology. Such
insurance coverage is deemed adequate windstorm coverage for
purposes of this chapter.
720.3033. Ofcers and directors.
5. The association shall maintain insurance or a delity bond for
all persons who control or disburse funds of the association. The
insurance policy or delity bond must cover the maximum funds
that will be in the custody of the association or its management
agent at any one time. As used in this subsection, the term
“persons who control or disburse funds of the association”
includes, but is not limited to, persons authorized to sign checks
on behalf of the association, and the president, secretary, and
treasurer of the association. The association shall bear the cost
of any insurance or bond. If annually approved by a majority of
the voting interests present at a properly called meeting of the
association, an association may waive the requirement of obtaining
an insurance policy or delity bond for all persons who control or
disburse funds of the association.
Again, related to insurance this statute refers to 718,719 and 721.
Florida Statute Chapter 721: Vacation and Timeshares
721.165 Insurance (2016b)
1. Notwithstanding any provision contained in the timeshare
instrument or in this chapter, Chapter 718, or Chapter 719 to the
contrary, the managing entity shall use due diligence to obtain
adequate casualty insurance as a common expense of the timeshare
plan to protect the timeshare property against all reasonably
foreseeable perils, in such covered amounts and subject to such
reasonable exclusions and reasonable deductibles as are consistent
with the provisions of this section.
2. In making the determination as to whether the insurance obtained
pursuant to subsection (1) is adequate, the managing entity shall
take into account the following factors, among others as may be
applicable:
a. Available insurance coverages and related premiums in the
marketplace.
b. Amounts of any related deductibles, types of exclusions,
and coverage limitations; provided that, for purposes of this
paragraph, a deductible of 5 percent or less shall be deemed to
be reasonable per se.
c. The probable maximum loss relating to the insured timeshare
property during the policy term.
d. The extent to which a given peril is insurable under
commercially reasonable terms.
e. Amounts of any deferred maintenance or replacement reserves
on hand.
f. Geography and any special risks associated with the location
of the timeshare property.
g. The age and type of construction of the timeshare property.
3. Notwithstanding any provision contained in this section or in the
timeshare instrument to the contrary, insurance shall be procured
and maintained by the managing entity for the timeshare property
as a common expense of the timeshare plan against such perils,
in such coverages, and subject to such reasonable deductions or
reasonable exclusions as may be required by:
a. An institutional lender to a developer, for so long as such
lender holds a mortgage encumbering any interest in or lien
against a portion of the timeshare property; or
b. Any holder or pledgee of, or any institutional lender having
a security interest in, a pool of promissory notes secured by
mortgages or other security interests relating to the timeshare
plan, executed by purchasers in connection with such
purchasers’ acquisition of timeshare interests in such timeshare
property, or any agent, underwriter, placement agent, trustee,
servicer, custodian, or other portfolio manager acting on behalf
of such holder, pledgee, or institutional lender, for so long
as any such notes and mortgages or other security interests
remain outstanding.
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4. Notwithstanding any provision contained in the timeshare
instrument or in this chapter, Chapter 718, or Chapter 719 to the
contrary, the managing entity is authorized to apply any existing
reserves for deferred maintenance and capital expenditures toward
payment of insurance deductibles or the repair or replacement
of the timeshare property after a casualty without regard to the
purposes for which such reserves were originally established.
5. A copy of each policy of insurance in effect shall be made
available for reasonable inspection by purchasers and their
authorized agents.
Florida Statute Chapter 723(2016b): Mobile Home Park Lot Tenancies
723.079. Powers and duties of homeowners’ association.
1. An association may contract, sue, or be sued with respect to the
exercise or non-exercise of its powers. For these purposes, the
powers of the association include, but are not limited to, the
maintenance, management, and operation of the park property.
4. The association shall maintain the following items, when
applicable, which constitute the ofcial records of the association:
f. All of the association’s insurance policies or copies thereof,
which must be retained for at least 7 years.
8. An association shall use its best efforts to obtain and maintain
adequate insurance to protect the association and the park property
upon purchase of the mobile home park. A copy of each policy
of insurance in effect shall be made available for inspection by
owners at reasonable times.
The following section is included because the CAM and homeowners’
association at a mobile home community have, in some cases, a
property owner to consider in addition to the individual owners of each
mobile home.
723.022. Mobile home park owner’s general obligations.
A mobile home park owner shall at all time:
1. Comply with the requirements of applicable building, housing, and
health codes.
2. Maintain buildings and improvements in common areas in a good
state of repair and maintenance and maintain the common areas in
a good state of appearance, safety, and cleanliness.
3. Provide access to the common areas, including buildings and
improvements thereto, at all reasonable times for the benet of the
park residents and their guests.
4. Maintain utility connections and systems for which the park owner
is responsible in proper operating condition.
5. Comply with properly promulgated park rules and regulations and
require other persons on the premises with his or her consent to
comply therewith and conduct themselves in a manner that does
not unreasonably disturb the park residents or constitute a breach
of the peace.
The Florida Administrative Code (FAC, 2016): 61E14-2.001. Standards of Professional Conduct
Licensees shall adhere to the following provisions, standards of
professional conduct, and such provisions and standards shall be
deemed automatically incorporated, as duties of all licensees, into any
written or oral agreement for the rendition of community association
management services.
1. Denitions. As used in this rule, the following denitions apply:
a. “Licensee” means a person licensed pursuant to Sections
468.432(1) and (2), F.S.
b. “Community Association Management Services” means
performing any of the practices requiring specialized
knowledge, judgment, and management skill as dened in
Section 468.431(2), F.S.
c. “Funds” as used in this rule includes money and negotiable
instruments including checks, notes and securities.
2. Professional Standards. During the performance of community
association management services, a licensee shall do the
following:
a. Comply with the requirements of the governing documents by
which a community association is created or operated.
b. Only deposit or disburse funds received by the community
association manager or management rm on behalf of the
association for the specic purpose or purposes designated by
the board of directors, community association management
contract or the governing documents of the association.
c. Perform all community association management services
required by the licensee’s contract to professional standards
and to the standards established by Section 468.4334(1), F.S.
d. In the event of a potential conict of interest, provide full
disclosure to the association and obtain authorization or
approval.
e. Respond to, or refer to the appropriate responsible party,
a Notice of Violation or any such similar notication from
an agency seeking to impose a regulatory penalty upon the
association within the time frame specied in the notication.
3. Records. During the performance of community association
management services pursuant to a contract with a community
association, a licensee shall not:
a. Withhold possession of the association’s ofcial records, in
violation of Sections 718.111(12), 719.104(2) or 720.303(5),
F.S., or original books, records, accounts, funds, or other
property of a community association when requested by
the association to deliver the same to the association upon
reasonable notice. Reasonable notice shall extend no later
than 10 business days after termination of any management
or employment agreement and receipt of a written request
from the association. The manager may retain those records
necessary for up to 20 days to complete an ending nancial
statement or report. Failure of the association to provide access
or retention of accounting records to prepare the statement or
report shall relieve the manager of any further responsibility
or liability for preparation of the statement or report. The
provisions of this rule apply regardless of any contractual or
other dispute between the licensee and the association.
b. Deny or delay access to association ofcial records to an
owner or his or her authorized representative who is entitled to
access within the time frame and under the procedures set out
in Sections 718.111(12), 719.104(2) or 720.303(5), F.S.
c. Create false records or alter the ofcial records of an
association in violation of Sections 718.111(12), 719.104(2)
or 720.303(4), F.S., or of the licensee except in such cases
where an alteration is permitted by law (e.g., the correction of
minutes per direction given at a meeting at which the minutes
are submitted for approval).
d. Fail to maintain the records for a community association
manager or management rm or the ofcial records of any
applicable association, as required by Sections 718.111(12),
719.104(2) or 720. 303(4), F.S.
The duciary role of the community association manager (2016b)
According to Section 718.111(a) of the Florida Statutes, ofcers
and directors of a condominium association owe a duciary duty to
their unit owners. The statute does not specify whether a community
association manager or management company contracted by the board
owes a duciary duty to the association, as well (Cole, 2015):
A duciary duty is a legal duty to act solely in another party’s
interests. Parties owing this duty are called duciaries. The
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individuals to whom they owe a duty are called principals. The
legislature intended that the statute not “provide for or remove
the duciary relationship between any manager employed by the
association and the unit owners.”
The legislature addresses this topic in Chapter 468.4334 in a section
titled, Professional Practice Standards, Liability. This section should be
thoroughly reviewed by all CAMs, directors and board members. The
2016 Florida Statutory standard, Section 468.4334, outlines the role of
the CAM and is discussed below:
1. A community association manager or a community association
management rm is deemed to act as agent on behalf of a
community association as principal within the scope of authority
authorized by a written contract or under this chapter. A
community association manager and a community association
management rm shall discharge duties performed on behalf of
the association as authorized by this chapter loyally, skillfully, and
diligently; dealing honestly and fairly; in good faith; with care and
full disclosure to the community association; accounting for all
funds; and not charging unreasonable or excessive fees.
2a. A contract between a community association and a community
association manager or a contract between a community
association and a community association management rm may
provide that the community association indemnies and holds
harmless the community association manager and the community
association management rm for ordinary negligence resulting
from the manager or management rm’s act or omission that is the
result of an instruction or direction of the community association.
This paragraph does not preclude any other negotiated indemnity
or hold harmless provision.
b. Indemnication under paragraph (a) may not cover any act
or omission that violates a criminal law; derives an improper
personal benet, either directly or indirectly; is grossly negligent;
or is reckless, is in bad faith, is with malicious purpose, or is in a
manner exhibiting wanton and willful disregard of human rights,
safety, or property.
This Statute was viewed as expanding the role of managers and
their companies, with added duciary responsibilities (Cole, 2015).
Management companies hired by any association should also have a
duciary responsibility under the applicable sections of the Statute.
With expanding legal theories and responsibilities, the claim that a
manager is acting as a duciary is one that is highly dependent on
the facts of that situation. It is important that both managers and
associations understand the laws surrounding community association
managers and their new responsibilities. If any questions arise
about the scope of a manager’s responsibilities, consult an attorney
experienced with community associations and their managers.
Cobb (2014) addresses the issue that Section 718.111(a) does not
specify whether community association managers are contracted by
the board, and therefore owe a duciary duty to the association, as well
as to the owners. The duciary duty between a management company
and an association may be implied within the law. Mariani, Kammerer,
& Guffey-Landers (2010) state: “A duciary duty may be implied in
law, regardless of whether contractual relations or formal writings
exist or a statute imposes such a duty, when one party relies on another
to act on the party’s behalf and to look out for its best interests.”
If managers are employed by associations as agents of the association
hired to carry out the best interests of the association, then the
duciary responsibility may be implied in law.
The case of La Costa Beach Club Resort Condominium Association,
Inc. v. Carioti, 37 So.3d 303 (Fla. 4th DCA, 2010) ruled that a
management company, hired by a timeshare association, owed a
duciary relationship to that association and that a breach of duciary
relationship constituted an intentional tort which called for joint and
several liabilities, as per Florida Statute §721.13(1)(b) (Cole, 2015).
This case dealt with mismanagement of invested funds. The question
was whether or not the manager and the board were complicit in
(or were aware of) the investment fraud. It should be noted that the
duciary responsibility depends on the specic facts and situations of
the case. As stated previously, the CAM and the board must be aware
of the Florida Statutes and standards, and should consult legal counsel
before proceeding if there is any uncertainty about their role or in any
decision that they are considering.
A distinction must be made between reviewing Florida Statutes that
govern CAM roles and duties and the practice of law.
In 2015, the Florida Bar published an opinion that claried the role
of the community association manager in response to questions about
specic duties. Fourteen functions* that had traditionally been part
of the CAM’s role were questioned by some in the legal profession
because they involved legal matters (Blount & Picker, 2015):
The Florida Bar Real Property, Probate, and Trust Law Section
petitioned the Standing Committee on Unlicensed Practice of Law
(Standing Committee) for an advisory opinion regarding certain
activities when performed by non-lawyer community association
managers. The petitioner asked the Standing Committee to
examine a 1996 advisory opinion from this Court, Florida Bar
Advisory Opinion Activities of Community Association Managers,
681 So.2d 1119, Fl. Bar, 1996, and advise whether the activities
in the opinion that were found to be the unlicensed practice of
law continue to constitute the unlicensed practice of law. Further,
Petitioner asked whether fourteen additional activities, when
performed by non-lawyer community association managers,
constitute the unlicensed practice of law. As required under rule
10–9.1(f), the Standing Committee provided notice of and held a
public hearing to address these issues where it considered written
and live testimony.
*All fourteen of these functions in question will be covered in a
subsequent course regarding legal issues in the practice of community
association management.
The court’s opinion included the following clarications:
14. Any activity that requires statutory or case law analysis to reach
a legal conclusion (Blount &Picker, 2015). In the 1996 opinion,
the Court found that it constituted the unlicensed practice of law
for a CAM to respond to a community association’s questions
concerning the application of law to specic matters being
considered, or to advise community found that this amounted
to non-lawyers giving legal advice and answering specic legal
questions, which the court specically prohibited in re: Joint
Petition of The Florida Bar and Raymond James & Assoc., 215
So.2d 613 (Fla.1968) and Sperry (FL. Bar, 1963) (Soreide, 2016).
The Court held that it constitutes the unlicensed practice of law
for a non-lawyer to advise persons of their rights, duties, and
responsibilities under Florida or federal law and to construe and
interpret the legal effect of Florida law and Statutes for third
parties. The Court found that it constitutes the unlicensed practice
of law for a non-lawyer to interpret case law and statutes for
others. Thus, it is the Standing Committee’s opinion that it would
constitute the unlicensed practice of law for a CAM to engage in
activity requiring statutory or case law analysis to reach a legal
conclusion.
This ruling directs CAMs to avoid any activity that constitutes
analysis, interpretation, or advice concerning the law in their
management role.
How can the CAM determine what activities constitute the unlawful or
unlicensed practice of law? The Florida Court found that setting forth a
broad denition of the practice of law was “nigh onto impossible,” and
instead developed the following test to determine whether an activity
is the practice of law (Florida Supreme Court, 1980):
If the giving of (the) advice and performance of (the) services
affect important rights of a person under the law, and if the
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reasonable protection of the rights and property of those advised
and served requires that the persons giving such advice possess
legal skill and a knowledge of the law greater than that possessed
by the average citizen, then the giving of such advice and the
performance of such services by one for another as a course of
conduct constitute the practice of law.
Master policy
The Florida Statutes require the community association to carry a
master policy to cover general liability and common area property
which is shared by all owners. This policy covers damage from wind,
hail, re, ood, or damage caused by criminal behavior, liability, and
several optional areas of risk (Bray, 2017).
Depending on the geographic area and policy details, it is important
to look for exclusions that may require the association to procure
additional insurance for ood and hurricane force winds.
General liability
General liability insurance covers bodily injury and property damage
in the case of legal action against the association if an individual is
injured on the common area of the property. Many policies cover
personal injury, as well. Personal injury includes, slander, libel,
defamation, advertising issues, wrongful arrest or wrongful eviction;
however, these are often exclusions and must be added to the policy
for coverage.
A master policy will have liability protection and the coverage amount
for liability can typically range from $2-5 million dollars. Associations
must carefully review the property and policy to be sure that no areas
of risk are excluded from the master policy for liability. Examples of
exclusions to general liability coverage may include:
● Injuries from boats, aircraft or other aerial attachments;
● Employee injury on the job;
● Automobiles and other vehicle accidents;
● Hazardous materials such as mold, asbestos, smoke, fumes,
chemicals, pollution, or other toxic agents;
● Damages attributed to false arrest, malicious prosecution;
● Wrongful entry, eviction, invasion of property;
● Libel, slander;
● Breach of contract; or
● Liability related to hosts providing liquor.
Some of the most frequent claims are slip and fall - or trip and fall -
accidents where water is tracked into the building, and/or sidewalks
are not properly maintained.
The association must have adequate coverage for medical bills in case
of a lawsuit for accidental injury on the property - including extended
medical testing, treatment, as well as therapy and rehabilitation for the
injured party.
Director’s and ofcer’s (D&O) master policy liability
According to the Florida Department of Business and Professional
Regulations (2013):
The association may obtain liability insurance for its ofcers
and directors. And, the association must maintain insurance or
delity bonding of all persons who control or disburse funds
of the association; this includes, but is not limited to, those
individuals authorized to sign checks on behalf of the association,
and the president, secretary, and treasurer of the association. This
insurance is a common expense of the association.
A director’s and ofcer’s (D&O) master liability policy covers the
board members from being personally liable for most decisions
recorded in association documents Ofcers and directors of an
association may be held as personally liable for suits brought against
them by owners or by third parties. This insurance coverage helps to
protect the community association’s board members from legal action
brought against them for alleged wrongful acts, errors, or omissions
while they are acting on behalf of the association. Even though they
are unpaid volunteers, board members may be vulnerable to lawsuits
and may be personally sued.
The association should be authorized to obtain this coverage to protect
the board. This coverage may not cover liability for intentional acts,
civil rights violations or other actionable conduct. It is important for
associations to carry this coverage because board members who serve
often perform duties that have the potential for personal liability.
Some D&O liability policies may be written two different ways:
1. A “claims made” basis provides coverage for protection claims
made during the policy period and based on actions that took place
only when the policy was in effect.
2. The second type of “occurrence” policy protects the board
members if claims are made during the policy period, regardless of
when the action took place.
It is important to determine if the policy will cover actions of the board
if the claim is made at the time that the individual is no longer a board
member. The coverage should be written to cover full prior acts so
that there would be coverage gaps if a decision to le a suit is made
within one year after the occurrence and the claim is brought during
the next year. Some policies are written for specic time periods, such
as coverage for full prior acts extending back ve years.
Another aspect of D&O coverage is Employment Practices Liability
coverage (EPLI). This coverage protects the association against claims
by employees on the property for employment-related issues such
as wrongful termination, harassment, retaliation, discrimination or
other labor related issues (IRMI, 2016). This insurance can be written
to cover claims made by volunteers, contractors, vendors, or any
worker that comes onto the property. It is possible for the association
to purchase a workers’ compensation policy that will cover any
independent workers who get hurt on the property and do not have
workers’ compensation coverage. Exclusions to general liability and
D&O policies include (Adams, 2016):
● Breach of contract;
● Underinsured or failure to insure;
● Election challenges;
● Dishonesty, criminal acts, fraud;
● Embezzlement (HOA can be covered by delity bond but not the
embezzler);
● Discrimination;
● Sexual misconduct;
● Employment claims (HOA can be covered by EPL insurance);
● Punitive damages, nes, penalties; or
● Injunctions.
A crime policy or delity bond
The Florida Statutes require a crime policy or a delity bond for the
maximum amount of funds the association may handle at any one time
for the year. The coverage amount must be equal to or greater than the
amount in the operation and reserve accounts at the maximum level
for the year. These amounts may uctuate from year to year; to be
in compliance with the statute, however, the highest amount within
the year must be used to determine the level of coverage. Crime and
delity policies provide coverage for protection from theft or nancial
misconduct by an association member.
Ination guard endorsement
The ination guard endorsement provides for an automatic increase in
the amount of insurance by a specied percentage every year by the
amount of the increase in the cost of living index, or with another cost
estimation. During times of escalating ination, this coverage is an
important safeguard to ensure adequate replacement value.
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Waiver of subrogation
According to HindmanSanchez (2017):
In a standard insurance policy the insurance company has paid for
damage to the property, the company has a legal right to recover
its loss from the parties who were negligent and caused the loss.
The association’s policy should contain a waiver of this right of
subrogation against the individual owners so that the insurance
company does not turn around and collect from the individual
owners the amounts that the insurance company has paid. A typical
waiver of subrogation clause includes statements that in the event
any sums are paid by the insurance company to the insured under
the policy, it will not exercise any legal right it may have as a
result of the payment against any unit/lot owner, ofcer, the board
of directors or the manager.
Cross liability coverage
When an owner brings a claim and a lawsuit against another owner
(or to the community association) for injuries due to an accident
that occurred in a common area on the property, the cross liability
coverage will take effect. Some master policies cover these types
of claims under general liability which may include a cross liability
endorsement. If not, it can be added to the coverage.
Umbrella liability insurance
An umbrella liability insurance policy adds additional coverage when
the limits of the general liability coverage for the association have
been depleted. This policy should extend coverage over all the types
of general liability policies for the association, including director and
ofcer liability, automobile and vehicle, workers’ compensation, and
all other areas of risk liability coverage held by the association. This
type of coverage can be especially important in Florida where extreme
weather events – such as hurricane and ooding – may result in losses
that exceed coverage limits.
Hired and non-association owned auto coverage
This auto liability policy covers accidents that might occur when an
individual is using a personal vehicle to conduct association business.
Anyone driving his/her own vehicle while on association business
that has an accident may not be covered by their personal insurance
policy if the accident occurred while doing association business.
This additional coverage would be in effect to cover the association’s
liability for the accident, as well. Associations can add an endorsement
to their general liability policy to cover this type of auto accident.
Automobile insurance
In the event that the association owns any vehicles, it should carry
adequate automobile insurance, including personal injury, liability and
property damage, medical and comprehensive - including re, theft
and vandalism on the vehicle (HindmanSanchez, 2017).
Title insurance
Title insurance would be appropriate when there is a transfer of deed
and operations from the developer to the board of the association.
If the developer had title insurance, it initially would protect the
association against future title problems. If a property is being
completed in phases, the board needs to be sure that the common areas
in all additional phases are covered.
Volunteer accident insurance
Because volunteers are not covered under workers’ compensation
coverage, volunteer accident insurance covers any possible coverage
gaps in the master policy. If a group of owners volunteer to serve on
a decorating or gardening committee and become injured, this policy
would cover the volunteer who is not an employee.
Workers’ compensation
Coverage should be reviewed to be sure that it will cover contractors
and workers who may become injured on the property, but who have
allowed their workers’ compensation policy premiums to lapse.
Associations should ask for documentation of workers’ compensation
insurance that will cover any worker that comes on the property.
Auxiliary structures
Master policies must be reviewed to ensure that they cover all
structures on the property owned by the association that may not have
been part of the original structure. These structures may include:
● Signs;
● Fences;
● Shufe board courts;
● Equipment or storage sheds;
● Pools, hot tubs;
● Fire pits;
● Grill areas;
● Playgrounds;
● Tennis courts;
● Fitness centers;
● Club houses; and/or
● Gazebos.
Standard policies may not cover these structures unless they are listed.
It is important to include these areas when determining value and
adequate coverage.
Property
This provides coverage for all the common areas of the property and
coverage limits that are based on the value of the building at the full
replacement cost – despite depreciation.
Policy exclusions
Insurance policies may be written using terms like “comprehensive” or
“all risk,” but it is important to look for coverage exclusions. Damage
caused in these cases will not be covered unless a specic rider or
additional endorsement (or policy) is written. Common exclusions are
listed below for damage related to:
● Termites or other insects, animals, birds, pets;
● Dry rot, fungus, mold;
● Pollution;
● Underground water;
● Rust, corrosion;
● Settling and damage to foundations;
● Electrical shorts or power failures that do not result in a re;
● Explosions from steam boilers;
● Latent defects or defects in construction or design;
● Signs;
● Glass;
● Floods, damage from water weight, water damage to interior walls
unless wind damaged the wall and drove in the rain, water damage
from exposure over time;
● War, nuclear hazard;
● Neglect, defective maintenance;
● Ordinary wear and tear;
● Intentional acts; and/or
● Landslides, sink holes, earthquakes, or other earth movement.
Demolition and increased cost of construction
If a building is severely damaged, collapses, or results in a total loss
and must be taken down, a portion may need to be demolished and
removed. This coverage would cover the expenses of demolition and
debris removal.
Along these lines, the 2014 Florida Statutes, which were not amended
in 2016, state that if a building has sustained damage over fty
percent, as determined by the state licensed building inspector, it must
be torn down and rebuilt with all systems and components brought
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up to code. In this scenario, the association will incur demolition
costs and possible removal of hazardous materials – such as mold or
asbestos – that should be included in the coverage. Also, consider that
the insurer in this case may only cover fty percent of the building,
because that was the percentage of damage determined by the building
inspector. This gap in coverage can be avoided with a policy that
covers the diminished value; thus, requires the insurer to cover the full
replacement cost of the property.
Increased cost of construction
Increased cost of construction coverage will cover the costs of
rebuilding the property to bring it into compliance with current
building codes. For example: If the property was constructed
according to 1980 statutes and building codes covering re safety
exits, emergency lighting, handicap access, or sprinkler systems, then
rebuilding the structure in 2017 would require compliance with today’s
codes. The components of the damaged property, if declared a loss,
may now be obsolete and may require costly retrotting with new
materials and systems to bring the building into compliance with 2017
building codes and standards.
Ordinance or law insurance
This terminology is sometimes used to dene coverage needed to build
a building back up to current code specications after a major damage
event.
Backup of a sewer and drain
One area that is often overlooked and that may not be covered in the
master policy is damage that results from the backup of a sewer and/or
a drain. In a condominium (or other attached structure) with connected
plumbing, this can cause extensive damage to many units. Coverage
for these problems can be added to the master policy.
The master policies offered by individual companies may differ
drastically in terms of covered and excluded components. It is
important for the CAM to assist the board when studying policy
coverage and quotes, carefully considering the association’s insurance
needs to adequately protect the interests of the owners. The board and
the CAM have a duciary responsibility to act in good faith. Obtaining
adequate insurance coverage requires:
● Time for thorough investigation of insurance needs and potential
risks;
● Securing and considering multiple quotes from licensed agencies;
and
● Consultations with objective professionals including legal counsel
in some cases.
There are a number of factors that impact insurance coverage. These
factors include:
● Date of construction;
● Type of association;
● Type of construction;
● Loss history of the property;
● Square footage;
● Number of buildings;
● Past history of insurance claims for property or liability;
● Property updates - For example, recent updates, renovation, or
additions to exterior walls, roof, porches, lanais, pools, parking
areas, windows, elevators, plumbing, heating, HVAC, re safety
systems, electrical systems, and the dates these were completed;
● Total number of units in the building;
● Number of oors or stories;
● Additional risks that may increase liability such as vehicles,
recreational areas, or geographic features such as a lake or pond on
the property;
● Flood zones designation;
● Business or commercial activity such as food, liquor, gift, or
gasoline sales;
● Replacement value;
● Amount of coverage the association is seeking; and
● Type of premium payment required - There are a number of ways
to pay for the premium that may be offered to make it easier for
the association to purchase adequate coverage.
Wind and hurricane wind coverage
The Ofce of the Florida Insurance Consumer Advocate provides the
following information (FICA, 2016):
Hurricane insurance pays for losses caused by the peril of
windstorm during a hurricane. [Hurricane] Windstorm means
wind, wind gusts, rain, hail, tornadoes, or cyclones caused by or
resulting from a hurricane (s. 627.4025, Florida Statutes).
A commercial residential policy:
● Is issued to a single association.
● After payment of a deductible, the association’s property insurance
policy covers loss from a hurricane/hurricane windstorm.
● The policy provides coverage for losses up to the policy limits in
the event of a total loss.
● Generally those limits are set at the replacement cost of the
building, other wise known as “insured to value”.
Chapter 627: Under this Section, a residential property insurance policy must include
windstorm coverage
Insurance rates and contracts
627.712. Residential windstorm coverage required; availability of
exclusions for windstorm or contents.
1. An insurer issuing a residential property insurance policy must
provide windstorm coverage.
627.4025. Residential coverage and hurricane coverage dened.
1. Residential coverage includes both personal lines residential
coverage, which consists of the type of coverage provided by
homeowner, mobile home owner, dwelling, tenant, condominium
unit owner, cooperative unit owner, and similar policies, and
commercial lines residential coverage, which consists of the type
of coverage provided by condominium association, cooperative
association, apartment building, and similar policies, including
policies covering the common elements of a homeowners’
association. Residential coverage for personal lines and
commercial lines as set forth in this section includes policies that
provide coverage for particular perils such as windstorm and
hurricane or coverage for insurer insolvency or deductibles.
2. As used in policies providing residential coverage:
a. “Hurricane coverage” is coverage for loss or damage caused by
the peril of windstorm during a hurricane. The term includes
ensuing damage to the interior of a building, or to property inside
a building, caused by rain, snow, sleet, hail, sand, or dust if the
direct force of the windstorm rst damages the building, causing
an opening through which rain, snow, sleet, hail, sand, or dust
enters and causes damage.
b. “Windstorm” for purposes of paragraph (a) means wind, wind
gusts, hail, rain, tornadoes, or cyclones caused by or resulting
from a hurricane which results in direct physical loss or damage to
property.
c. “Hurricane” for purposes of paragraphs (a) and (b) means a storm
system that has been declared to be a hurricane by the National
Hurricane Center of the National Weather Service. The duration of
the hurricane includes the time period, in Florida:
1. Beginning at the time a hurricane watch or hurricane warning
is issued for any part of Florida by the National Hurricane
Center of the National Weather Service;
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2. Continuing for the time period during which the hurricane
conditions exist anywhere in Florida; and
3. Ending 72 hours following the termination of the last hurricane
watch or hurricane warning issued for any part of Florida
by the National Hurricane Center of the National Weather
Service.
Standard residential master policies may include windstorm coverage
up to hurricane force winds. It is important to determine if additional
insurance is needed beyond the standard wind coverage in a master
policy for hurricanes that are declared and named. A separate
deductible will be added for hurricane coverage. Condominium and
HOA wind insurance policies may differ due to construction type
and proximity to the water. The master policy wind coverage and
the additional hurricane layer of coverage should be designed in a
seamless coverage so as to avoid gaps, overlaps, or duplications that
will not add additional premiums and provide complete coverage.
Florida Statutes Chapter 627: Insurance Rates and Contracts, covers
cancellation or nonrenewal of insurance policies following a hurricane
or an “Act of God,” as follows:
3. If the insurer elects to not renew a policy covering a property that
has been damaged, the insurer shall provide at least 90 days’ notice
to the insured that the insurer intends to not renew the policy 90
days after the dwelling or residential property has been repaired.
Nothing in this paragraph shall prevent the insurer from canceling
or nonrenewing the policy 90 days after the repairs are complete
for the same reasons the insurer would otherwise have canceled
or nonrenewed the policy but for the limitations of subparagraph
1. The Financial Services Commission may adopt rules, and
the Commissioner of Insurance Regulation may issue orders,
necessary to implement this paragraph.
4. This paragraph shall also apply to personal residential and
commercial residential policies covering property that was
damaged as the result of Tropical Storm Bonnie, Hurricane
Charley, Hurricane Frances, Hurricane Ivan, or Hurricane Jeanne.
e. If any cancellation or nonrenewal of a policy subject to this
subsection is to take effect during the duration of a hurricane
as dened in s. 627.4025(2)(c), the effective date of such
cancellation or nonrenewal is extended until the end of the
duration of such hurricane. The insurer may collect premium at
the prior rates or the rates then in effect for the period of time
for which coverage is extended. This paragraph does not apply
to any property with respect to which replacement coverage
has been obtained and which is in effect for a claim occurring
during the duration of the hurricane.
3. Claims on property insurance policies that are the result of an act
of God may not be used as a cause for cancellation or nonrenewal,
unless the insurer can demonstrate, by claims frequency or
otherwise, that the insured has failed to take action reasonably.
Boiler and machinery
If the property has a steam boiler (or other major equipment), this
policy will cover damage to the boiler and surrounding structures
in case of an explosion. Master policy protection typically will not
include this coverage that may include failure of pumps, compressors,
and motors and the resulting damage to adjacent areas.
Equipment breakdown
Equipment breakdown coverage is important, especially if the property
has an elevator or other major mechanical or electrical devices that
may be damaged by a peril (such as a lightning strike, for example)
that may not be otherwise covered by property insurance. This
coverage is not used for maintenance or air conditioning replacement;
additionally, normal wear is not covered by insurance. Reserve funds
would be used for covering the maintenance and the replacement of
expensive equipment. For this reason, the association – or HOA board
– must research and develop a plan and a budget for maintenance and
replacement of these large items.
Sinkholes
Florida often has catastrophic ground collapses, or sinkholes, that
can swallow up buildings, roads, homes, or vehicles. The association
policies should include additional coverage for this type of loss, as it
may be excluded in a standard policy.
Flood insurance
Flood is dened as (FEMA, 2017):
● A general and temporary condition of partial or complete
inundation of two or more acres of normally dry land area or of
two or more properties (at least one of which is the policyholder’s
property) from: Overow of inland or tidal waters; unusual and
rapid accumulation/ runoff of surface waters from any source; mud
ow; or
● Collapse or subsidence of land along the shore of a lake or similar
body of water as a result of erosion or undermining caused by
waves or currents of water exceeding anticipated cyclical levels
that result in a ood as dened above.
Most of Florida has the potential to sustain damage from ooding.
Even if a property is not in a designated ood zone, it may be
susceptible to ooding in cases of extreme weather. The geography
of Florida – with its low-lying areas, barrier islands, peninsulas, and
abundant bodies of water affected by tidal zones – makes the state
vulnerable to ooding.
The Federal Emergency Management Association (FEMA) administers
the National Flood Insurance Program (NFIP). This program provides
insurance for residential condominium associations through the
Residential Condominium Building Association Policy (RCBAP)
(FEMA, 2014).
Concerning condominiums, FEMA notes:
Boards of directors of condominium associations typically are
responsible under their by-laws for maintaining all forms of
property insurance necessary to protect the common property
of the association against all hazards to which that property is
exposed for the insurable value/replacement cost of those common
elements. This responsibility would typically include providing
adequate ood insurance protection for all common property
located in Special Flood Hazard Areas (SFHAs). Such by-law
requirements could make the individual members of the boards of
directors of such associations personally liable for insurance errors
or omissions, including those relating to ood insurance.
Properties with residential, condominium ownership are eligible
for this coverage. Condominium buildings included in this type
of coverage may be high- or low-rise, garden apartment-type
construction, townhouses, row houses, single-family detached
buildings owned by the association, as well as fee-interest timeshare
buildings. The RCBAP is required for all buildings owned by a
condominium association containing one or more residential units, and
in which at least 75 percent of the total oor area within the building
is residential – without regard to the number of units or the number
of oors. Residential condominium buildings that are currently being
used as hotels or motels, or which are being rented out (either short or
long term) must be insured under the RCBAP.
Unlike regular property insurance, RCBAP covers damage to the
foundation as well as to the building. The following information
concerning RCBAP is provided by FEMA (2014):
Residential condominium: Association coverage on building
and contents: A condominium association may purchase
insurance coverage for a residential building and its contents
under the RCBAP. If the named insured is listed as other
than a condominium association, the agent/producer must
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provide legal documentation to conrm that the insured is a
condominium association. This documentation may be a copy
of the condominium association by-laws, or a statement signed
by an ofcer or representative of the condominium association
conrming that the building is held in a condominium form of
ownership.
Eligibility requirements (FEMA, 2014)
A. General Building Eligibility
In order for a condominium building to be eligible under the RCBAP
form, the building must be owned by a condominium association. The
NFIP denes this type of ownership as an entity made up of the units’
owners responsible for the maintenance and operation of:
1. Common elements owned in undivided shares by unit owners; and
2. Other real property in which the unit owners have use rights where
membership in the entity is a required condition of unit ownership.
A homeowners’ association (HOA) may differ from a condominium
association and is generally ineligible for the RCBAP, unless the HOA
meets the denition of a condominium association, as dened in the
policy. Cooperative ownership buildings are not eligible. Timeshare
buildings in a condominium form of ownership within jurisdictions
where title is vested in individual unit owners are eligible, provided
that all other criteria are met. If, during a policy term, the risk fails
to meet the eligibility requirements due to a change in the form of
ownership, it will be ineligible for coverage under the RCBAP. The
policy will then be canceled and rewritten using the correct Standard
Flood Insurance Policy (SFIP) form.
The NFIP has grouped condominium buildings into two different
types, low-rise and high-rise, because of the difference in the
exposures to the risks that typically exist. Low-rise buildings generally
have a greater percentage of the building’s value at risk than do high-
rise buildings, thus requiring higher premiums for the rst dollars of
coverage. The availability of the optional deductibles for the low-rise
buildings, however, allow the association to buy back some of the risk,
thereby reducing the overall cost of the coverage. For rating purposes:
● High-rise buildings contain ve or more units and at least three
oors excluding enclosure, even if it is the lowest oor for rating.
● Low-rise buildings have fewer than ve units regardless of the
number of oors, or ve or more units with fewer than three oors,
including the basement.
● Townhouse/row house buildings are always considered low-rise
buildings for rating purposes, no matter how many units or oors
they have. A townhouse/row house is a multi-oor unit divided
from similar units by solid, vertical, load-bearing walls, having
no openings in the walls between units and with no horizontal
divisions between any of the units.
Coverage
A. Property Covered
The entire building is covered under one policy, including both the
common as well as individually owned building elements within
the units, improvements within the units, and contents owned in
common. Contents owned by individual unit owners should be
insured under an individual unit owner’s Dwelling Form.
B. Coverage Limits Building coverage purchased under the RCBAP
will be on a Replacement Cost basis. The maximum amount
of building coverage that can be purchased on a high-rise or
low-rise condominium is the Replacement Cost Value (RCV)
of the building or the total number of units in the condominium
building times $250,000, whichever is less. The maximum
allowable contents coverage is the Actual Cash Value (ACV) of
the commonly owned contents up to a maximum of $100,000 per
building.
Basic limit amount
1. The building basic limit amount of insurance for a detached
building housing a single-family unit owned by the condominium
association is $60,000.
2. For residential townhouse/rowhouse and low-rise condominiums,
the building basic limit amount of insurance is $60,000 multiplied
by the number of units in the building.
3. For high-rise condominiums, the building basic amount of
insurance is $175,000.
4. The contents basic limit amount of insurance is $25,000.
5. For condominium unit owners who have insured their personal
property under the Dwelling Form or General Property Form,
coverage extends to interior walls, oor, and ceiling, if not covered
under the condominium association’s insurance, up to 10% of the
personal property limit of liability. Use of this coverage is at the
option of the insured and reduces the personal property limit of
liability.
Replacement cost
The RCBAP’s building coverage is on a replacement cost valuation
(RCV) basis. “RCV” means the cost to replace property with the same
kind of material and construction, without deduction for depreciation.
A condominium unit owner’s Dwelling Form policy provides
Replacement Cost coverage on the building if eligibility requirements
are met.
Coinsurance
The RCBAP’s coinsurance penalty is applied to building coverage
only. To the extent that the insured has not purchased insurance in
an amount equal to the lesser of 80% or more of the full replacement
cost of the building at the time of loss, or the maximum amount of
insurance under the NFIP, the insured will not be reimbursed fully for
a loss. Building coverage purchased under individual Dwelling Forms
cannot be added to RCBAP coverage in order to avoid the coinsurance
penalty. The amount of loss in this case will be determined by using
the following formula:
Insurance carried
Insurance Required × Amount of Loss = Limit of Recovery
Where the penalty applies, building loss under the RCBAP will be
adjusted based on the replacement cost coverage with a coinsurance
penalty. Building loss under the Dwelling Form will be adjusted on
an actual cash value (ACV) basis if the Replacement Cost provision
is not met. The cost of bringing the building into compliance with
local codes, law and ordinance, is not included in the calculation of
replacement cost.
Assessment coverage
The RCBAP Form and General Property Form do not provide
assessment coverage.
Determining the right coverage
The board should study the policy and understand the coverage limits
and exclusions. The size, risk factors, location, and type of property
are factors that impact the value and the insurance needs. The higher
the value of the property and level of risk to cover, the higher the
premium to pay. The value for replacement should be the priority
when making insurance decisions rather than the premium price.
Insurance companies often require that the building be insured
for casualty insurance at 80% or more of the value of the building
insurance. The association should carry insurance to cover 100% of the
current replacement value, including improvements, for full coverage
in case of a major loss.
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Making decisions
Many community association boards organize an insurance committee
to determine the types of insurance required for their type of property
after reviewing all the factors. They research, investigate and contact
insurance brokers that specialize in the type of insurance that meets the
needs of their property.
The insurance committee, or board members, then work with several
community association insurance brokers that are familiar with the
Florida Statute requirements and understand the specic needs of the
type of property and factors related to the geographic location. For
example, Florida properties are often adjacent to bodies of water -
ocean, rivers, or lakes, man-made or natural. This presents a variety of
different factors that must be considered. Statistically, some areas are
more prone to ooding and high winds; although no part of Florida is
outside of these potential risks.
For comparison, the committee may want to obtain several quotes to
present to the board and the owners for review and consideration. It is
important that all of the board members and owners have a thorough
understanding of what is covered and what is excluded before any
decisions are made. It is also critical to select companies that have
been vetted to be sure that they are experienced, nancially stable, and
have a history and reputation of excellence in the community. Even
though it is important to listen to the owners and take their input into
consideration (since they are paying assessments to cover insurance),
it is the responsibility of the board to analyze the needs, risks, values,
and costs to make sure that the insurance plan it chooses provides
complete coverage at the best value.
It is important that the proposals offered are based on the same
specications and coverage to make an effective comparison among
the proposed insurance policies. The goal is to look for the policy with
the most comprehensive coverage to meet the association’s specic
needs at the best premium price.
The following check list can be used as a guide (HindmanSanchez,
2017):
Checklist of specications for insurance coverage
1. Blanket, comprehensive, all-risk protection on improvements
including buildings, pools, fences and auxiliary structures and “all
risk” contents coverage, including theft. $____coverage to include:
1. All improvements;
2. Stipulated amount clause. This species the amount of money
the association will receive from the insurer in case of a loss
due to a covered event specied in the policy;
3. Ination guard endorsement;
4. Waiver of subrogation clause;
5. Appropriate deductible;
6. All losses payable to association as trustee for owners;
7. Replacement cost endorsement;
8. Additional owner coverage will not reduce master policy
coverage.
2. $ ___liability protection including:
1. Personal injury with no exclusion relating to employees.
2. Non-owned automobiles.
3. Comprehensive general liability endorsement.
4. Severability of interest clause. Note: This is a policy
component that states, except with respect to the coverage
limits, insurance applies to each insured as though a separate
policy were issued to each. Thus, a policy containing such a
clause will cover a claim made by one insured against another
insured (IRMI, 2017).
5. Business products and host food and liquor liability.
6. Owners as additional insured (for common area).
7. Contractual liability.
8. Minimum amount per person guest medical payments (for
example, $1,000.00).
9. Cross liability endorsement.
10. Personal injury rider to cover slander, libel and related claims.
11. Automobile insurance for employees.
3. $ ____ directors’ and ofcers’ liability insurance; specify
deductible and participation. Policy must be on a “claims made”
basis, and should include protection for prior ofcers.
4. $ ____ blanket bond to cover directors, ofcers and employees.
5. $ ____ umbrella coverage.
6. Workers’ compensation.
7. Title insurance on association real property.
8. Common charges insurance where one owner defaults and the
others have to pay their share to make up the default.
9. Clause prohibiting cancellation without 30 days’ notice from the
insurance company.
10. Flood insurance.
11. Water damage coverage.
12. Watercraft liability (where applicable).
13. Garage keepers’ liability (where applicable).
14. Golf cart coverage (where applicable).
15. Machinery and equipment (owned or leased) located in the
common area.
Note: The association’s documents should contain language that
requires unit owners to inform the manager and the board of any
improvements or alterations made to their units – including the value
and signicant changes to the original installations. These changes and
improvements should be made by licensed, bonded professionals and
according to code, to ensure the quality and integrity of the building.
This is especially important in condominiums and attached units such
as townhouses or row houses.
The master policy may have a coinsurance clause; it should reect the
value of all projects completed by the association. This is necessary
to ensure that coverage is up to the required coinsurance percentage so
the association will receive the correct replacement funds due in the
event of a loss. Again, it is important to insure the replacement cost to
100%, ideally.
Reviewing coverage
The following types of coverage and specications should be
considered when reviewing the policy to be sure it is adequate for the
needs of the association (HindmanSanchez, 2017).
Type of coverage:
● Casualty (“all risk”, “comprehensive”);
● Liability insurance;
● Flood insurance;
● Workers’ compensation;
● Automobile;
● Directors and ofcers (D & O);
● Boiler and machinery;
● Title insurance.
Endorsements to policy:
1. Replacement cost endorsement;
2. Ination guard endorsement;
3. Nonconforming building endorsement;
4. Cross liability endorsement.
Additional insurance provisions:
1. Policy exclusions;
2. Waiver of subrogation;
3. Coinsurance;
4. Deductible.
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Managing risk
The community association should take every step to manage potential
risks on the property. The board may appoint a safety committee
to develop and implement a risk management plan with the goal of
controlling and protecting against risk. Part of the risk protection is the
insurance policy; however, a carefully-devised plan for risk control
can help prevent property loss and personal injury from occurring.
If accidents and damage do not occur, then insurance claims are not
made in the rst place. This will result in lower insurance premium
costs.
Controlling risk
● Are there rules and steps taken to address safety issues in the
association documents? Are they enforced?
● Are owners encouraged to report conditions of risk or unsafe
behavior that they may observe? If they make reports, is action
taken to address and resolve the risk?
● Are there frequent, scheduled, and documented safety and
insurance reviews of the property by the board, manager,
maintenance, and professionals in order to identify risk and safety
hazards in all areas of the property?
● Are re and health department safety inspections performed
frequently?
● Are plumbing, HVAC, electric, boiler, or other equipment systems
inspected and maintained frequently?
● Are all employees trained in safety procedures – such as the
newly-revised CPR classes?
● Does the association have an emergency plan to cover res, oods,
windstorms, power failures, or other disastrous events? This
should include notication and evacuation plans for elderly, ill, or
disabled residents.
● Are there required warning and/or regulatory signs by the
swimming pools, hot tubs, tness rooms, grills, re pits, parking
areas, elevators, stairs and other areas of possible risk? Are these
regulations enforced?
● Does the association ll out accident reports, keep records, review
accident rates and take steps to prevent them from re-occurring?
● Are all common access areas – such as such as roofs, gutters,
laundry rooms, kitchen, tness rooms, storage areas, garages,
automatic gates, garbage disposal areas, parking decks, driveways,
fences, gates, pools, hot tubs, grills, re pits, golf or tennis
facilities, and sidewalks – regularly maintained and inspected for
damage?
● Does the association follow and comply with local re, health
department, building, and OSHA safety codes?
● Are there amenities owned and operated by the association that are
run like a business for prot– such as a snack bar that sells food
or liquor, a gift shop, or a marina where gasoline and supplies are
sold? Are there common areas that are rented out for functions,
such as social halls or ballrooms?
A regular part of the CAMs job should be frequently inspecting
and maintaining the property, and making safety and security a
top priority to avoid risks that may result in insurance claims.
This includes developing a strong, working relationship with the
board, staff, safety, and insurance professionals to avoid the need
for insurance claims. It is equally important to be prepared to
promptly address any emergency and to secure the property for the
safety and the well-being of its occupants.
Conclusion
The Florida Statutes provide guidelines about the general requirements
for the major required insurance coverages of the community
homeowners’ associations. Familiarity with the Statutes and Codes
will help the CAM to assist the board in obtaining adequate insurance.
The CAM must have an effective, working relationship with the
board and staff to help identify and minimize risks. The CAM must
understand his/her role and observe the boundaries set by law when
consulting with the board and owners to avoid legal improprieties.
Due to the diversity in the types of construction, amenities, and
geography which inuence the level of risk, the community association
properties will have varying insurance needs: no single policy will
work for all associations. Similarly, replacement costs may change as
improvements are made. Building codes may change, materials may
become obsolete and ination may or may not affect these costs.
Whether the duciary duty is stated or implied by law, the CAM must
be prepared at all times to be prepared for extreme weather conditions.
The CAM must be ready to secure his/her properties and to ensure the
safety of the owners, as well as to contact insurers, provide accurate
documents to demonstrate loss and value, and complete claims
processes in the case of a disaster.
Florida offers unique challenges to the CAM, not only due to ooding
and windstorms, but due to of the abundance of condominiums, mobile
homes, vacation/timeshare properties, manufactured, and retirement
properties with homeowners’ associations. Within each of these
property types there is a considerable variety of insurance needs that
present challenges to the CAM. In all cases, it is critical to consult a
certied insurance agent and a legal counselor that specializes in the
property type being managed.
In addition, the CAM must continue to develop his/her knowledge
of the Florida Statutes and Administrative Codes that are updated
annually.
References
Adams, A. (2016). Insurance Exclusions. Retrieved April 30, 2017 from http://www.davis-stirling.
com/Main-Index/Insurance-Exclusions
A.M. Best, (2017). Glossary of Insurance Terms. Retrieved April 19, 2017 from http://www.Ambest.
Com/Home/Default.Aspx
Blount, N. & Picker, T. (2015). The Florida Bar Re Advisory Opinion—Activities of
Community Association Managers. No. SC13–889. Retrieved May 6, 2017 from http://www.
Floridasupremecourt.Org/Decisions/2015/Sc13-889.Pdf.
Bray, I. (2017). What Your Homeowners’ Association (HOA) Insurance Covers; And What It Leaves
Uninsured. Retrieved May, 2, 2017 from http://real-estate.lawyers.com/homeowners-association-
law/hoa-insurance.html
Cobb, C. (2014). Community Association Managers’ Duty to the Association. Retrieved May 6,
2017 from http://www.Jimersoncobb.Com/Blog/2014/08/Community-Association-Managers-Duty-
Association/
Coles, D. (2015). A Community Association Manager’s Fiduciary Duty. Retrieved May 7, 2017 from
www.Tannenbaumlawgroup.Com/.../A-Community-Association-Managers-Fiduciary-Duty.
Cornell Law Library. (2017). Denition of Tort. Retrieved May 10, 2017 from https://www.law.
cornell.edu/wex/tort.
Federal Emergency Management Association. (2014). Condominiums. Retrieved May 7, 2017
from https://www.fema.gov/media-library-data/1397157263727-9472660324719d0465d3ebe300f
4f192/06_condo_508_june2014.pdf.
Florida Department of Business and Professional Regulations: Division of Florida Condominiums,
Timeshares, and Mobile Homes. (2013). Property Insurance for Residential Condominiums.
Retrieved May 5, 2017 from http://ww.Myoridalicense.Com/Dbpr/Lsc/Condominiums/
Lscmhcondominiumsfaqassociation.Html#A19.
Florida Administrative Code and Florida Admnistrative Register. (2016). Standards of Professional
Conduct. Retrieved May 1, 2017 from https://www.rules.org/gateway/ruleNo.asp?id=61E14-2.001
Florida 4th District Court of Appeals. (2010). La Costa Beach Club Resort Condominium Ass’n, Inc.
v. Carioti, 37 So.3d 303. Retrieved May 7, 2017 from https://casetext.com/case/wendt-v-la-costa-
beach-resort-condo
Florida Statutes. (2012). Title XXXII, Part VIII: Community Association Management
Retrieved May 1, 2017 from http://www.leg.state..us/statutes/index.cfm?App_mode=Display_
Statute&URL=0400-0499/0468/0468PartVIIIContentsIndex.html&StatuteYear=2012&Title=-
%3E2012-%3EChapter%20468-%3EPart%20VIII
Florida State Statutes. (2016a). Title XXXVII Insurance. Retrieved April 30, 2017 from http://www.
Leg.State.Fl.Us/Statutes
Florida State Statutes. (2016b). Title XL Real Property. Retrieved April 30, 2017 from http://www.
Leg.State.Fl.Us/Statutes
Florida State Statutes. (2016c). Title XXXII. Regulation of Professions and Occupations. Retrieved
April 30, 2017 from http://www.Leg.State.Fl.Us/Statutes
Florida Supreme Court. (1980). Florida Bar v. Moses, 380 So. 2d 412 (Fla. 1980). Retrieved
May 10, 2017 from http://www.oridasupremecourt.org/clerk/comments/2014/14-2112_102814_
Appendix%20D.pdf
HindmanSanchez. (2017). Understanding Homeowner Association Insurance Master Policy.
Retrieved May 6, 2017 from http://www.Hindmansanchez.Com/Resources/Article/Understanding-
Homeowner-Association-Insurance/
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Liability Insurance. Retrieved May 3, 2017 from https://www.irmi.com/online/insurance-glossary/
terms/e/employment-practices-liability-insurance-epli.aspx
CAMS.EliteCME.com Page 90
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Clause . Retrieved May 6, 2017 from https://www.irmi.com/online/insurance-glossary/.../
severability-of-interests-clause.aspx
Mariani, J.F., Kammerer, C.W. & Guffey-Landers, N. (2010). Understanding Fiduciary Duty.
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INSURANCE FOR FLORIDA COMMUNITY ASSOCIATIONS
Final Examination Questions
Select the best answer for each question and mark your answers on the answer sheet found on page 92 or
complete your test online at CAMS.EliteCME.com
41. Liability insurance provides coverage for damage or injuries
caused by negligence or other human acts.
¨ True
¨ False
42. The actual value cost is the dollar amount needed to replace
damaged personal property or dwelling property without deducting
for depreciation, but limited by the maximum dollar amount
shown on the declarations page of the policy.
¨ True
¨ False
43. An umbrella policy is coverage for exclusions to the liability
coverage.
¨ True
¨ False
44. The duties of the CAM in assisting the board to identify insurance
needs, assess value, review quotes, select adequate coverage,
and submit claims for reimbursement demand the highest level
knowledge, judgment and managerial skill.
¨ True
¨ False
45. When considering insurance requirements, Florida Statute
Chapter 718 takes precedence over many declarations in
condominium association documents, and states that associations
must adequately insure property for its value, which needs to be
determined by a replacement cost appraisal every 36 months.
¨ True
¨ False
46. The association shall maintain insurance or delity bonding
only for the treasurer who controls or disburses the funds of the
association.
¨ True
¨ False
47. Windstorm insurance coverage is obtained and maintained as
sufcient to cover an amount equal to the probable maximum loss
for the communities for a 100-year windstorm event.
¨ True
¨ False
48. Exclusions to general liability and D&O policies include
underinsured or failure to insure.
¨ True
¨ False
49. In order for a condominium building to be eligible under the
RCBAP form, the building must be owned by a condominium
association.
¨ True
¨ False
50. Frequent, scheduled and documented safety and insurance
reviews of the property by the board, manager, maintenance and
professionals in order to identify risk and safety hazards in all
areas of the property will help to control risk.
¨ True
¨ False
CAMFL04IFE18
