Insurance coverage for the 147 units in Pine Run is made up of policies that are the responsibility of the association and policies that are the responsibility of each unit owner. Full and adequate coverage requires that these two compliment each other. The insurance agency of Brown and Brown manages the Pine Run Association Policies.
SARASOTA HERALD TRIBUNE ARTICLE ON NEW STATE LAW REQUIRING CONDO OWNERS TO CARRY INSURANCE By Aaron Kessler Published: Monday, November 24, 2008 at 1:00 a.m.
In a situation that might qualify as a "be careful what you wish for" tale, several new Florida laws related to condominium insurance policies are slated to go into effect Jan. 1. The problem is they are essentially unworkable as currently written -- leaving many condo owners, community associations and insurance agents in a state of confusion about how to proceed.
At issue is a bill passed during the last legislative session, one which was pushed in large part by condominium associations looking to deal with a particular problem: how to deal with condo units that became damaged or destroyed inside, but whose owners lacked homeowner's insurance policies to fix them.
Condominium associations' insurance generally only covers reconstructing things to the bare walls. Everything beyond that, including carpets, cabinets, light fixtures and the like, are the responsibility of the unit owner to cover with his or her own insurance policy, if they so choose. Some condo owners simply forego that expense, if they do not find it economically viable. Associations can require such coverage in their condominium documents, but they do not have to.
But under new legislation set to take effect in January, state law now appears to mandate all condominium owners in Florida to provide proof of homeowner's insurance.
The way the new law was worded, however, created several problems that raised the alarm with associations and insurance companies as early as this past summer.
For one, the onus is now on the associations themselves to police these new regulations -- requiring that every condominium association obtain proof of insurance from each of its owners on a yearly basis. But it is unclear what happens from there.
"What exactly are they supposed to do?" said Ken Direktor, an attorney who heads up Becker & Poliakoff's statewide community association practice. "How are these associations supposed to enforce this? It's not really their role, or it certainly shouldn't be, to get into the insurance business."
The new law offers one solution to associations, but it turns out to be a nonstarter. It says the associations can buy individual insurance policies directly for the owners who do not have them.
The association "may purchase a policy of insurance on behalf of an owner," the new statue, part of Chapter 718.111(11), subsection G, reads. "The cost of such a policy, together with reconstruction costs undertaken by the association but which are the responsibility of the unit owner, may be collected in the manner provided for the collection of assessments."
In other words, if Joe Smith does not have insurance on his condo, the idea is for the association itself to go to an insurance company and purchase a policy for Joe Smith. The association then assesses Joe Smith for the cost of the insurance they have bought for him.
If he does not pay the bill, the association can file a lien against Joe as it would with any other owner delinquent on his dues or assessments.
Of course, there are two notable issues with this.
From a logistical perspective, the associations themselves would be in a position of not only policing who has insurance, but putting up the initial money to buy policies and then forcing their owners to comply, which may require legal action. The sheer work and expense of doing that would overwhelm their resources, associations say.
What is more, practically, even if they wanted to do that, no insurance agents seem willing to write that kind of coverage in the first place.
"If you're not the owner, we just can't do that for an association, it's just not done that way," said Evonne Devold, with MetLife Insurance. "I've had numerous associations calling about this in Bradenton and Sarasota, but I've had to tell them we just can't do it. I don't know any insurance agent who would."
Another part of the new law requires that "the association must be an additional named insured and loss payee on all casualty insurance policies issued to unit owners in the condominium." Insurance agents say they will not write that kind of policy either, as it could have all kinds of unforeseen consequences.
'Wait and see'
Forcing a homeowner's insurance policy on someone against their will is not completely unheard of, but it is limited to one type of relationship.
Banks, as part of mortgage contracts, can require such insurance -- and if the borrower does not buy it, the bank can go directly to an insurer to force compliance. But in those cases, an actual contract provides the bank with that authority.
Condo associations are a very different situation, and no insurance company in Florida seems willing to go down that road. That leaves the associations themselves unsure just what to do.
"We're being told on one side by the management company that we have a new law going into effect we need to comply with, and then on other side by the insurance company saying they just can't offer the kinds of policies we've asked about," said Kathy Timmons, a board member of the Garden Lakes Courtyard Community Association in Bradenton. "We're just going to wait and see what happens."
Direktor said at this point, he is advising his condo association clients to sit tight and wait until the Legislature comes back into session. He said he is telling them to go ahead and send letters out requesting the proof of insurance from all owners, but not to go beyond that.
"Going out and spending a bunch of money up front trying to get this insurance themselves, which appears to not even be possible, or taking action against owners who don't have policies, to me doesn't make a lot of sense if the statute is going to be rewritten in a few months' time," Direktor said.
Legislative staff in Tallahassee have already been in discussions with industry groups since the summer over how to deal with the snafu, and consensus seems to be emerging that perhaps mandates on individual owners should be scrapped altogether.
According to a Senate staffer participating in the discussions, a draft bill is already being prepared that could roll back many of the provisions in the new law.
As to how to avoid the very scenario the bill initially intended to address -- what happens when a damaged unit is left without insurance -- some in Tallahassee are exploring whether condo associations themselves should be required to cover more interior features in their own insurance policies. Specifically, there has been mention of cabinets having to be covered by the association, rather than an individual policy.
Doing so would raise the cost of the association's insurance, but it would lower the cost of individual policies that could be more limited. Given that the owners fund the association, the idea is for the cost to largely balance itself out in the end.
That approach would hearken back to the way condo insurance used to be 30 years ago. At that time, almost everything was covered under the association's policies. But after some high-profile cases in the 1980s and 90s of people spilling bleach on their rugs and burning their countertops and getting successful claims, the statutes gradually moved away from association responsibility for the interior of condos and instead provided for individual owners to buy such coverage.
Now, there may be movement back in the direction of community responsibility. Regardless, the new statutes set to take effect Jan. 1 will likely be on the chopping block by legislators this spring.