- Earthquakes, hurricanes, floods, fires, and tornados often involve catastrophic damage to
property. These occurrences are initially reported by the media, and gain widespread attention as a result of devastating consequences to those in harm’s way. While the leadership of condominium associations and property managers may contemplate these catastrophic events happening, many have not considered all the steps necessary to prepare for and recover from the catastrophe, and how to alleviate the fears and distress owners of condominiums naturally suffer following the event.
There are many considerations to address prior to the loss, as well as following the loss,
in order to ease the chaos and stress that can arise. The following are some groups or individuals that must be dealt with:
- Association Board Members
- Individual Owners
- Insurance Agents
- Insurance to Value Experts
- Insurance Company Claim Representatives
- Government Officials
- Condominium Staff and Maintenance Personnel
- Banks and Financial Institutions
- Public Adjusters
Property managers and condominium associations need to develop strategic plans to
put in place prior to a catastrophe so that they are able to cope with the situation after the loss. Effective communication techniques are of utmost importance and will assist in moving the recovery process along. Large natural disasters causing significant damage to condominium property can threaten the financial livelihood of many individuals if not properly handled. Owners are naturally concerned about whether their financial interests are protected. Proper communication is paramount to reduce this burden and prevent a second catastrophe with the owners from happening.
- Obtaining Appropriate Insurance Coverage: Key Considerations
Before a storm begins to approach, it is important to review and assess the insurance
coverage available to protect your property. This is true since once the storm is "in the box", carriers will not write additional coverage.
- What Kind of Coverage Do You Need?
Many condominium unit owners do not maintain adequate coverage for the personal
contents of their units. Condominium unit owners may need to consider loss assessment
coverage and water seepage coverage. These issues are extremely important if the Association policy is a "bare walls" form policy. The current Florida Statutes essentially require the Association to maintain a "bare walls" policy. The Owners Policy should be extensive and cover all fixtures within the Condominium Unit. Most Owners are underinsured because they do not realize that virtually the entire unit interior has to be insured by the Owner.
- Exteriors and Common Areas
In reviewing coverage under the policy, it is important to ensure that there is adequate
coverage for all areas of the condominium property, such as landscaping, tennis courts,
swimming pools, gazebos, walkways, etc.
It is also very important to ensure that there is adequate coverage for upgrades,
improvements and other betterments to your property. Coverage should be reassessed at regular intervals to make certain the property is fully protected.
- Flood Insurance
70 percent of Americans live on the coast and may be vulnerable to flooding. In fact,
homeowners are 26 times more likely to be affected by a flood than a fire, according to the Independent Insurance Agents and Brokers of America. Recent problems in the adequacy of insurance coverage have come to light since Hurricane Katrina. Specifically, it turned out that many individuals and businesses had not obtained flood policies, under the belief that such coverage was unnecessary since the building was not in a flood zone. Flood coverage needs to be purchased as separate National Flood Insurance policies sold either through FEMA or by individual insurance carriers authorized by FEMA. However, excess flood policies are also available through private markets, and condominiums near the water should purchase excess flood coverage.
Flood coverage is primarily to cover a property’s foundation, particularly with respect to
older properties. The average premium for a flood insurance policy is $400 to $500 a year on $150,0000 to $200,000 worth of insurance. An association can only get up to $250,000 per property, so if you think you'll want more coverage, you can get extra flooding insurance through private companies like the American International Group where you can insure your house up to $1 million. To assess your risk, check out the National Flood Insurance Program's Web site at www.floodsmart.gov or call (888) 379-9531. There is a 30-day waiting period before your coverage takes effect.
- E&O Coverage
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 either the insurable value (replacement cost) of those common building elements. Boards would be well advised to include their attorneys, as well as their agents, in coverage considerations, because insurance requirements are driven by by-laws and can be affected by state regulations.
This responsibility would typically include providing adequate flood insurance protection
for all common property located in high flood risk areas. Association document requirements could make the individual members of the boards of directors of associations personally liable for insurance errors or omissions, including those relating to flood insurance. It would be prudent to determine whether the E&O policies provide for such coverage. More and more umbrella insurers are resisting adding any type of errors and omissions (E&O) insurance into their policies. As that happens, more associations are being forced to reevaluate whether they need E&O coverage. If they do, they likely will be forced to buy such coverage on a stand-alone basis.
- What is Covered and What is Not
It is important to note that many policies contain exclusions for loss or damage caused by
the enforcement of any ordinance or law that regulates the construction or repair of the property, or that requires the tearing down of property. These types of exclusions are intended to address building codes that can require the use of more expensive building materials or construction methods. Because these types of building code requirements can add tremendous extra costs to the repair and reconstruction of a building after a loss, it is important to consider purchasing ordinance and law coverage to prepare for such contingencies.
Other important coverages that may be missed include coverage for business income,
ordinance and law, and flood coverage. Business income/business interruption insurance is particularly necessary for owners or managers who are involved with properties that are used for vacation rentals.
It is also essential that deductibles are properly understood, since deductibles for certain
perils can be much higher than the typical property insurance deductible. For example, the normal property deductible is often expressed by a dollar value. However, the hurricane deductible is typically expressed as a percentage of the coverage.
In the case of a hurricane deductible, or even a large property insurance deductible
condominium leadership, will need to prepare for the contingency that a loss will occur and that the deductible must be met from the Condominium's funds. The Association Board should divide the amount of the hurricane deductible by the number of units and create an assessment to the owners to cover the hurricane deductible each year. An alternative to that type of funding is to include the unit owner’s portion of the deductible in the yearly fees so a reserve can be maintained.
- Periodic Review of Coverage
Insurance coverage must be periodically reviewed to ensure that adequate insurance is
maintained on the property especially, in light of the various changes being made in the law concerning condominium insurance coverage in various states. Moreover, with rising property values and repair construction costs, it becomes essential to conduct a periodic review of the values insured. It has become apparent from various catastrophes following the 2004 and 2005 storms, that most properties are undervalued and under insured.
For example, Florida's statute addressing insurance coverage for condominium
associations, section 718.111, was broadly revised to impact policies issued on or after January 1, 2004. Those changes were instituted so as to attempt to alleviate the confusion over what items were to be covered by the association policy or by a unit owner's policy. The statute had previously attempted to divide up coverage responsibilities by the use of a definition of the word "building", and also required a review of the policy's declarations to determine coverage responsibilities. The newer version seeks to more clearly use the term "condominium property."
The statute's intent is to clarify which party is to be responsible for insurance coverage over what item, so that it should no longer be necessary to consult the condominium declarations to determine whether an item is to be covered under the association’s insurance policy or that of the unit owner. Because there have not been much in the way of reported decisions on the revised version of Florida's statute, it is uncertain how the statute's revisions will be interpreted by a court. Each state has different statutes and regulations affecting condominium insurance and they have to be periodically reviewed with counsel and qualified insurance agents.
The items mentioned above are not intended to be an exhaustive explanation of the
needed areas of insurance coverage to consider. It is often appropriate to consult with an expert to assess risk management needs. We strongly urge condominium associations to prepare checklists of all property that needs to be covered per the Bylaws and have the insurance agent confirm that the policy purchased covers everything required in the Bylaws.
- Insuring to Value: Understanding and Correcting the Problem
- Property to Value Ratios and Underinsurance
The first five years of the 21st century have been marred by enormous amounts of property damage from natural causes—tornadoes in the Midwest; hurricanes in the Southeast; fires, landslides and earthquake rumblings in the West; and drenching rain and flooding in the Northeast. In the aftermath of these catastrophic events, many victims have found themselves underinsured for significant property losses. In many cases, the victims had little understanding of the insurable value of their property or its related insurance costs. Alternatively, if they did, they made an unfortunate decision not to insure against the full amount of the losses they just experienced, which is likely to cost them many times more than insurance to value would have.
In order to understand the problem of underinsurance, it is helpful to understand the
interests of the various parties affected by property insurance issues. As explained by FEMA Policy Advisor Joe Coughlin in 2004, following a rash of devastating hurricanes: "All three parties have different interests, all of which must be accounted for. Insurers are interested in pricing their policies based on the value of the building being insured and the risk it faces. Lenders and regulators are interested in making sure that the collateral security for the loan is fully protected. The insured lastly, but most of all, should want to protect their full equity interest in the property, as well as the full outstanding balance of any loans on the property. That way the property owner is fully protected in the event of a loss, as are all other interested parties. This process all starts with accurate property valuation estimates."
Coughlin has attributed underinsurance to two reasons: a lack of understanding of the risk the property owner is exposed to on their property, and an inaccurate estimate of the insurable value of their property. In his view, "[a]ccurate property valuation estimates provide a solid foundation of information for property owners, lenders, regulators and insurers on which responsible decisions can be made regarding levels of insurance protection, and the terms, conditions and pricing of such coverage, to protect the interests of all parties. Without such information, there is no way to guarantee that all such interests are protected."
The problem of underinsurance is by no means an isolated one. Observers of long-term trends in catastrophe claims in California have noted one major constant that links catastrophes such as the Oakland Fires (1991), Malibu fires (1993), Laguna Beach fires (1993), Northridge earthquake (1994), and Southern California Wildfires (2003) -- namely, underinsurance.
Because of the nature of catastrophes in general, a concentrated disaster often exposes flaws in residential and commercial property valuations that had previously gone undetected.
- Repair vs. Replacement Value
One contributing factor to the underinsurance problem is the disparity between insurers’ and property owners’ understandings of the term "replacement value." Insureds generally understand that term to mean the cost of replacing their lost property. On the other hand, insurers generally utilize a different definition, which contemplates a financial limitation which effectively provides the insureds with as little as 50% of the true cost to replace their property.
By limiting their exposure to stated policy limits selected by the insureds themselves, insurers are able to sell an "actual cost" policy, an insurance product that is wholly inconsistent with the true replacement cost of the covered property. This difference in the parties’ respective understandings regarding what constitutes a property’s full insurable value can place property owners and managers in a difficult financial position at the time of a loss. In many situations, the party responsible for the study is simply wrong regarding the estimate for reconstruction. Those errors may occur as a result of scope or pricing miscalculations. The errors may be a result of not considering all insurable portions of a structure. However, in many instances when repair is required, these buildings are rendered underinsured because of the fact that the property is to be repaired rather then replaced.
Typically, three primary reasons exist for a situation when the repair costs are greater than the "insurance to value" or "policy limits":
- The repair values/damages are not the same as replacement for new construction.
- Many portions of a condominium are excluded from valuation per the condominium documents.
- Catastrophe losses may cause temporarily high prices in situations where the catastrophe is widespread. The demand for repair construction under such circumstances far exceeds those in an isolated single event. Typically, insurable values are based on "replacement costs" of the building brand new.
"Repair costs" are usually 25 - 50 % higher than replacement cost construction. Further, the "scope" of repair includes items not typically found in replacement or new construction. For instance, water damaged buildings which are repaired require significant dry-out and dehumidifying costs, which are not ever associated with "new replacement/construction costs."
- Policy Exclusions for Specific Areas of a Property
Further, "insurance to value" excludes portions of structures because of premium cost consideration in bylaws or other condominium documents. A good example is that the foundation costs are typically excluded from insurance values because most condominium bylaws exclude foundations from being insured. The reason is typically to reduce the overall cost of insurance in relation to the very remote chance of damage to that portion of the building.
A major insurance estimating firm indicated that its database was approximately 50% off for the repair costs being actually found in the marketplace.
- Quantifying the Problem: Statistics on Underinsurance
- A leading valuation company estimated in 2001 that more than 75% of all commercial
businesses are underinsured. Many of these businesses are underinsured by figures that approach 40% per building.
- One industry estimate indicates that 67% of residential property owners in the United
States are underinsured by 25% or more.
- In the aftermath of the devastating Southern California Wildfires of October 2003, claim adjusters went to work in an area where an estimated 3,631 structures were destroyed. The California Department of Insurance said that of about 3,000 total loss homeowner insurance claims, 676 consumer complaints were filed, with almost half of those involving underinsurance complaints.
- A U.S. Department of Commerce estimate of damage caused solely by Hurricane Katrina underscored the magnitude of these financial losses. The report stated that insurance payments would be in many billions of dollars; property losses not covered by insurance were estimated to be more than those insured.
- Who is Hurt By Underinsurance?
Underinsurance is a problem that hurts property owners and managers and insurers alike. Specifically,
- Property insurance rates are calculated based on the full value of a property. Accordingly, proper insurance to value has an obvious impact on the bottom line of an insurer. If a property is underinsured, the insurance company is collecting less in premiums than it could if the property was insured for its full value. Requiring a property owner to insure for the actual full value of the property could significantly improve an insurance company’s bottom line.
- While insuring a property for less than its full value may reduce the insurance premiums a property owner or manager must pay, in fact it endangers the property owner’s interests because their insurance is not adequately covering their needs. In the event of a total loss, the property owner may have significant difficulty replacing their property and/or building their business.
- Identifying the Sources of the Problem: Why Does It Exist?
One might ask themselves how the same issue could transcend time and location and
manage to arise during each successive catastrophe in the United States. Here are some theories from one claims adjuster’s perspective:
- Human Nature: As long as there are insurance premiums to pay, people will try to find ways to reduce their premiums, often at the risk of being underinsured.
- Competition: Let's face it, some insurance carriers (and/or agents and brokers) may be motivated to under-price their competitors by undervaluing the properties they insure.
- Lack of Communication: It is a sad reality that there remains a persistent disconnect between the Underwriting and Claims departments at some carriers.
- Technology: There is nothing wrong with either quick-calculations or long-form
calculations for determining a home's valuation, as long as the calculating tool is accurate
and updated. A commitment to updated valuation instruments would go a long way
toward staying ahead of the underinsurance problem.
- Remodeling: A substantial number of homeowners have completed remodeling projects in the past five years. Tract homes that have been gutted may offer no exterior clues of the value to be found within.
- Construction Costs: In an ever-rising realty market, construction cost factors will rise along with property prices.
- Code Upgrade Coverages: Sub-limits may give rise to an underinsurance shortfall.
- Predicting Outcomes Following a Catastrophe: What is Likely to Happen?
The likely outcome of an underinsurance issue after a catastrophe depends in large part
on the factors that went into the original coverage valuation. Errors by the carrier or the captive agent may lead to some reformation of the policy, while errors on the part of a non-captive agent or broker may end up with their errors and omissions carrier. But the claim of an Association specifically requested or insisted on the written limits will most likely result in no payment beyond the coverage limits (or extended limits) as outlined in the policy. The lesson? Get the value estimated right before the loss.
- Co-Insurance Provisions: How Have Insurance Companies Attempted to
Address the Underinsurance Problem?
Property insurance companies have long recognized that there is a fundamental relationship between the ratio of insurance to value and the price that should be charged for the insurance protection. This relationship derives from the fact that the great majority of losses in the property insurance area are partial and, indeed, most constitute only a relatively small percentage of the value of the insured property. Therefore, some insureds play the odds and do not insure their property for its full value. This allows them to save on the cost of insurance because they are paying for less coverage. If this phenomenon were not recognized in either the rate making process or the loss adjustment procedures, an individual could obtain full coverage for the most probable loss by carrying insurance to only a fraction of the value of the insured object.
To discourage this practice and to seek an equitable distribution of the burden of insured losses, the companies have followed the practice of requiring a specified percentage of insurance to value or adjusting the premium rate for amounts of insurance less than that contemplated in the computation of the basic rate. Such a requirement obligates the insured to keep a specified amount of insurance in force on the insured property, or face penalties in the event of a loss. In this way, the insurer and the insured share, in a specific ratio, the risk of losses covered by the policy, after the deductible is met. Under a coinsurance scenario, if the property is not insured to one hundred percent of its replacement cost value (RCV), then any loss can be prorated to the percentage of the amount purchased vs. the amount that should have been purchased. For example, if only $100,000 worth of insurance was purchased on a $200,000 RCV and there was a loss for $50,000, the insurer would then pay only $25,000, since only 50% of the required amount was purchased.
Where a coinsurance provision is in place, the insured continues to receive the benefit of a reduced rate. However, even if no such restrictive language is contained within the policy, the insurer is not going to pay its insured more than the amount of coverage purchased. This can be problematic, especially to those property owners who thought they had insured their building to its full value but used a faulty method to determine how much insurance they needed, likely through no apparent fault of their own. Coinsurance provisions, in the absence of a statute to the contrary, are generally treated as enforceable.
- Statutory Provisions: How Have State Governments Attempted to Address
the Underinsurance Problem?
A number of state legislatures have passed laws requiring managers and Boards of condominiums to maintain adequate insurance to value ratios or face legal penalties. For example, Alabama law provides that the association shall maintain, to the extent reasonably available: (1) Property insurance on the common elements insuring against all risks of direct physical loss commonly insured against or, in the case of a conversion building, against fire and extended coverage perils. The total amount of insurance after application of any deductibles shall be not less than the greater of 80 percent of the actual cash value of the insured property at the time the insurance is purchased or such greater percentage of such actual cash value as may be necessary to prevent the applicability of any co-insurance provision and at each renewal date, exclusive of land, excavations, foundations and other items normally excluded from property policies. Code of Ala. § 35-8A-313 (2006)[emphasis added]. With the exception of Alaska, where the required ratio is 100 percent (see Alaska Stat. § 34.08.440), the states that have statutes on the subject require an insurance to value ratio of at least 80 percent. See, e.g., La. R.S. 9:1123.112 (80 percent rule); § 448.3-113 R.S.Mo. (same); R.R.S. Neb. § 76-871 (same); Nev. Rev. Stat. Ann. § 116.3113 (same); N.M. Stat. Ann. § 47-7C-13 (same); R.I. Gen. Laws § 34-36.1-3.13 (same); Tex. Prop. Code § 82.111 (same); 27A Vt.S.A. § 3-113 (same); Rev. Code Wash. (ARCW) § 64.34.352 (same); W. Va. Code § 36B-3-113 (same).
- Note Regarding the Legal Duties of Insurance Agents and Companies
As a general rule, insurance agents have no legal duty to advise policyholders that they should purchase additional or different coverage. For years, insurers have taken advantage of this rule; for example, in a legal pleading filed in April 2004, Farmers Insurance Company observed that "Plaintiffs face a serious uphill battle on this underinsurance issue, [because] it is well settled California insurance law that the insured - not the insurer - is solely responsible for determining and obtaining the level of coverage desired." This is problematic, since an insured typically has no idea how much protection will be required in order to effectuate full indemnification in the event of a catastrophic loss. Moreover, insurers not only hold themselves out as experts in this arena, but their policy language and business practice often require that the insured submit to their assessment of the coverage limits required for the risk.
In an effort to mitigate this problem, many courts have developed rules that shift liability to the insurer in certain circumstances. Specifically, courts have held that insurance agents assume "special duties" when they (1) misrepresent the nature, extent or scope of coverage being provided, (2) fail to procure coverage specifically requested by an insured, or (3) hold themselves out as having particular expertise in the type of insurance that the insured is purchasing. Fitzpatrick v. Hayes, 57 Cal.App.4th 916, 927, 67 Cal.Rptr.2d 445 (1997).
Note also that, because an insurance agent may be an agent of the insurance company, the agent's conduct can be imputed to the insurance company and the insurance company can be held liable for the agent's misrepresentations or failure to obtain requested coverage. Farmers, 47 Cal.App.4th at 1120.
The Farmers case highlights the need for a property owner or manager to communicate their coverage needs specifically to their insurance agent. By the same token, to avoid being held liable for damages beyond the face value of a policy, it is important for insurance companies to consistently insure that their policyholders are maintaining an adequate level of coverage.
- Strategies for Procuring Insurance to Value
As shown above, some preparation on the front end can save a property owner a great deal of money and headache post-loss. At a minimum, an insured should do the following to increase the likelihood that his property is insured to value:
When First Procuring Coverage:
- Establish a contact at a reputable insurance company, agent or broker's office that is
qualified to advise you on fully insuring your property.
- Choose a quality insurer to value estimator, and demand that a personal physical
inspection appraisal be made.
- Provide in the Association's Bylaws that any vote to underinsure the property must be
passed by a majority of the property owners in writing.
- Read the Condominium Declarations to ensure all property to be insured is insured.
Give a copy to the agent in writing specifically requesting that the policy be written as
- Communicate fully with your insurer about how much coverage is needed to protect
your property, the full replacement value of the property, and the specific needs and
requirements of all parties involved. Ask whether local construction costs are considered,
and also ask how repair costs, such as water or mold removal, are considered.
- Be specific that you want to make sure you are properly insured and that you want to buy full replacement coverage, including code upgrade coverage. Never suggest that value be less than what would provide full coverage typically full replacement cost.
- Don't rely on the purchase, appraised or estimated sale price of your property to set
your coverage limits. That is not predictive of the cost to rebuild.
- Don't understate the size and amenities of your property to get a lower premium quote.
- Consider excess insurance coverage to possibly lower overall rates and fill lapses of coverage not under the Association master policy.
- Consider buying additional replacement cost policies or endorsements you can afford. Most insurers offer 25-100% above the limits that appear on your "declarations page." Shop around for this important protection. The older the building, the more important replacement cost insurance becomes.
- Keep your insurance company apprised of all remodeling and improvement projects. In this way, the insured value of your property will better keep up with changes in actual value.
- Protect valuables. If your property contains expensive or rare items, such as art work in common areas, get them appraised and look into a separate floater policy. You will get the full dollar value of the item or a replacement. Generally floater premiums will be a percentage of the value of the item.
- Get flood insurance and excess flood coverage to fully insure for this peril.
After Obtaining Coverage:
- Make sure your insurer is adjusting your yearly limits to account for inflation. The
insurance industry's inflation guard is tied to a local index that tracks the costs of labor
and building materials. Rebuilding costs following future storms and other catastrophes
often reflect sharp increases in the price of building materials, labor, and new
construction standards required by strengthened building codes. Insurance limits must
keep pace with these costs of rebuilding. You may be paying a few dollars extra on your
premium to account for this, says Madelyn Flannagan of the Independent Insurance
Agents and Brokers of America. You should call your insurance company to find out if
inflation adjustments are being made to your policy.
- Raise your deductible to keep your premium affordable when you increase your
- For individual owner policies, reinforce that they should review their insurance
coverage after paying off any mortgages on your property. When a mortgage is paid off,
the need for ongoing attention to appropriate insurance value becomes even more
significant. Owners often forget to obtain insurance.
- Anticipate rate hikes. No matter how prepared you are, it's likely that your insurance
premiums are going to rise. In 2006, homeowner’s insurance rates increased 100 percent
statewide and 200 percent in southeast coastal Florida, where insurers faced the largest
potential losses from a major storm, according to Rob Haines, who covers insurance for
the debt analysis firm CreditSights. Flood insurance premiums also rose up to 6 percent
nationwide after Hurricane Andrew.
- Use a comprehensive assessment program to determine how much your property
insurance should be increased. Insist on visual inspections and estimates. Competent
estimators have to be retained. This must be done at least every three years.
- Don't be afraid to switch insurers to get a better policy. But, "cheaper" does not mean better. Make sure that the company has adequate financial stability and that the quotes
are based on the same coverages provided.
- Preparing the Property for a Hurricane or other Approaching Catastrophe
- Funding the Recovery Process
To ensure that there is going to be enough money available to properly fund repairs after a catastrophic loss, property management and/or the condominium association can establish a line of credit with a local bank or financing institution, as well as obtaining loan capabilities already approved in advance. That way, following the event, the funds can be immediately made available and the board can meet and pass an assessment necessary to repay the loan, giving the owners a period of time, such as 90 days, to pay the assessment.
- Retention of a Recovery Company
Another suggestion is to make accommodations for a hurricane or catastrophe disaster recovery company to work for the condominium in the event of a catastrophe. Arrangements should be made for the company to arrive as soon as possible following the loss, and if appropriate, even before a storm occurs, if evacuation is not mandatory. Sufficient funds must be available to pay these charges once they are incurred. The recovery company should be able to bring in generators, sand machines to scrape sand if the property is on the beach, pump to pump out water, and possibly even a recreational vehicle for use as a temporary office. Having a contract in place before the disaster explaining what the duties of the vendor will be can save critical time after the loss. Having proposals and bills made by these vendors in advance usually saves money because the condominium is not contracting when the vendor’s services are most needed.
- Practical Tips
The following are some practical suggestions to prepare for an impending hurricane, as
has been experienced on many occasions in the Gulf Coast states in the past several years:
- An Association should state very clearly in its bylaws who is authorized to make
decisions for the property in the event of a disaster, and should state whether and
under what circumstances those person[s] may make decisions without a Board
- Management should be prepared to fill sand bags to block water across rooms on lower levels.
- Maintenance and housekeeping in a rental property should be prepared to go from unit to unit, and move patio furniture indoors.
- Pool furniture and garbage cans should be moved indoors as well.
- Hurricane shutters can be helpful if installed, because they keep debris from
breaking windows on the property. Note, however, that hurricane shutters will
not prevent water from entering the property. If hurricane shutters are in place,
the condominium association will be responsible for closing all shutters prior to a
- Gas should be turned off to restaurants and grills.
- Any sensitive records or documents should be moved away from the ground floor.
- A set of insurance policies should be stored in one or two secure locations offsite.
- Arrange to order equipment for debris removal following the storm, such as a
front-end loader or sand scraper.
- Pack the pool with sandbags so that is not lifted out of the ground.
- Arrange for dumpsters to be put on property before the storm for debris. These
should be picked up at least 3 days before the storm.
- Arrange for sand to be brought in after the storm, if necessary, to fill in any
- Turn off the power in the building.
- Get gas cans filled with regular gasoline to run generators.
- Arrange for a drum of diesel fuel to run heavy equipment.
- In a rental property, arrange for housekeeping to check every sliding glass door in
the complex to see if they are locked. If not, the doors need to be locked; otherwise the strength of the wind could force the doors open.
- Purchase items designed to soak up moisture, to be placed on the tracks of sliding
glass doors inside the units. If the water blows under the door, they will absorb
the water and keep the inside of the unit from getting wet and moldy.
- Provide all employees a letter stating that they can return to the property
following the storm, listing their employment status, along with a copy of their
driver's license. Otherwise employees may be blocked from re-entering the
location of the property.
- Send a letter via email to unit owners, including those who do not live in their
units, beginning several days before the storm, to advise them on status and make
clear that they will not be permitted to enter the buildings immediately following
- In a situation where mandatory evacuation will be in order, renters and/or
homeowners should be prepared to evacuate 48 hours prior to the storm’s
expected arrival. Although the residents will likely complain about the necessity
to do so at an earlier hour, they will likely thank you later when they were not
forced to sit in 12 - 24 hours worth of traffic to evacuate.
- If the evacuation will not be mandatory, give residents the option to remain, and
advise them to fill their gas tanks.
- Evacuation information should be posted in all central areas including elevators.
- If not a mandatory evacuation, arrange for your recovery company to send
someone to remain on site during the storm.
- In a rental property, housekeeping should go through every unit to clean out the
fridge and throw away garbage. This will prevent rotten, smelling food in the unit
once power is lost.
- Buy several cases of bottled water for the staff during the clean-up process.
- Arrange for a webmaster to host a website with phone numbers for unit owners to
call into and obtain information. This should probably be arranged well in
advance of an actual storm event.
- Make an inventory of all important documents and records, including the
locations and account numbers for all bank accounts, a list of vendors and their
contracts, a list of professionals including accountants, lawyers, insurance agents,
and a list of names and addresses of unit owners and renters, including emergency
contact information. The Association should also carefully maintain all inspection
and repair records, including but not limited to those pertaining to balconies,
elevators and handrails.
- Board Minutes should reflect all the on-going maintenance and repairs made to
the property. All to often the Minutes reflect only problems and do not indicate all
the favorable aspects of the property maintenance. If the building is in good
repair, the Minutes need to reflect this so that the insurance company does not get
the wrong idea about the condition of the property just before the Catastrophe.
Post-Disaster Management: Actions to Take Immediately Following the Loss
The following are some practical suggestions for steps to be taken once a hurricane, or
other catastrophe, has occurred:
- Any heavy equipment that was previously reserved should be used to clean sand and
debris from the first floor.
- The housekeeping and maintenance staff should arrive on site to begin clean-up work.
- In a rental property, housekeeping should check every unit, taking notes to document all damage. If the carpeting is wet, it is pulled back and the wet portions are removed, as is the padding. A company should be made available with anti-microbial units, de-humidifiers, and fans
to begin the dry out process.
- A generator should be set up to work in at least one elevator.
- Before power is restored, all wet walls and floors should be dried as much as possible.
- The gas company should be called out to check for leaks before turning on the natural gas supply.
- Post digital pictures on the hosted website as soon as possible.
- Maintenance staff should move patio furniture back outside.
- Each unit must be inspected for mold and mildew, again with notes taken in order to follow-up with the insurance adjuster.
- The insurance company should be notified immediately, with arrangements made for an adjuster to visit the site.
- Any wet area rugs should be picked up and cleaned.
- Remove and store sandbags.
- Pump out elevators.
- Pump out driveways and use heavy equipment to clean out and prevent water from undermining the foundation of the building.
- Make arrangements for an engineer to inspect the building to ensure it is structurally sound.
- Utilize your disaster recovery service to make roofing repairs, fix garage floors, hand rail repairs, and any necessary immediate foundation work.
If hurricane shutters have been installed, it is essential that the owner leave a key on site,
so that once they are closed they can be re-opened. For condominiums that are primarily owner occupied and seasonal, companies can be hired to come in before the storm and put up the shutters, and come back after the storm and take them down.
Following the loss, the community will see the influx of companies and professionals
seeking work for construction and/or public adjusting work. Unfortunately, some of these
individuals may be seeking to make a quick profit from catastrophe recovery efforts without having the proper qualifications, licenses, or considerations in mind. Again, contacts can be made with emergency restoration vendors before the loss so, references can be verified and quality work assured as best as possible.
The importance of documenting all repairs cannot be overemphasized. Associations need
to take care to document every action taken to restore the property, including such things as waterproofing and handrail repair. For example, if the sliding glass doors are in good condition and not fogged up, this should be reflected in the Minutes or Maintenance records.
- Insurance Claim Presentation Following a Loss
Following the loss, after the insurance company adjusters are contacted, in a complex
loss situation, a claim should be presented. This presentation can be made by the property
managers and/or condominium associations themselves, with the assistance of a public adjuster, or with the assistance of an attorney. In this regard, the importance of competent, professional legal counsel cannot be overemphasized. Many states prohibited property managers from negotiating the insurance loss because it constitutes the practice of law or public adjusting.
- Tips for Adequate Claim Presentation
Public adjusters are individuals typically licensed by the state, although some states may
not necessarily license public adjusters. They often charge a percentage of any recovery, and are available to assist the property owner in making an insurance claim. Although public adjusters are able to estimate and scope the loss, they are usually not able to interpret insurance policy provisions on behalf of the policyholder. Insurance coverage attorneys, such as the Perry & Neblett P.A., are also available to assist with claim presentation to the insurance company, as well as with coverage disputes.
Certain concepts should be kept in mind when presenting an insurance claim. For
- Do not sign a Release if you feel you are not receiving enough to properly fix the damages. Property insurance policies do not require that a release be signed.
- Do not allow insurance company adjusters to write claims or based on normal repair circumstances, and not take into account the increased costs of materials and labor in a catastrophe climate.
- Do not allow the insurance company adjuster to make the policy a "self-serve" policy by telling you what to do to determine the loss or damage, rather than promptly making a complete inventory and estimate of damages. Showing first
field adjuster to fully document the loss is a critical step to the easy flow of insurance benefits because it avoids duplicative requests.
- Do not allow an adjuster to write up to only 45% of the property’s value in order to escape new building code requirements, which are potentially triggered at damages exceeding 50%.
- Obtain your own independent quotes for fixing the damage to the property.
- Call, confirm, and follow-up in writing with everything told to you by the insurance company adjuster.
- Keep receipts for every thing repaired and replaced, as well as all other costs associated with the repair process.
- Proof of Loss Forms
In addition, insurance policies need to be reviewed with respect to the requirements for a "proof of loss" form to be submitted. Typically, windstorm and property insurance policies either require that a proof be proactively submitted by the insured, or that a proof be submitted within a certain number of days after it is requested by the insurer. In some cases, the insured will be granted an extension to file a proof of loss under a windstorm policy. With National Flood Insurance policies, the proof of loss requirement of the policy is sixty (60) days following the loss, unless a formal written waiver is given by FEMA. A verbal waiver or a waiver by an adjuster will not suffice to circumvent the sixty-day proof of loss requirement. The failure to properly and completely fill out a flood proof of loss, or the failure to timely submit the proof of loss, will result in the failure to recover any flood benefits under a Federal Flood Insurance policy.
- Preventing Breach of Contract and Fraud Claims
Insurance policies also contain conditions requiring an insured to submit to an examination under oath, if requested by the insurer, and to allow inspection of books, records and documents in the possession of, or maintained by the insured. These requirements cannot be taken lightly, and must be completely complied with, so that there is no argument that the insured has breached the policy conditions. A breach of policy conditions by the insured can be used as grounds for the insurer to deny coverage for a claim. The unintentional actions of an insured can sometimes be seen as an unlawful attempt to defraud the insurance company. For example, throwing away debris before the insurance company can inspect it may lead an insurance adjuster to suspect that a policyholder was trying to destroy evidence which may indicate that he damage was not as bad as claimed. The property manager may have assumed that getting rid of the damaged property was the safe and efficient thing to do unaware that the policy requires the damaged property to be held for inspection.
- Be Aware of Applicable Statutes of Limitation
If a dispute arises between the insured and the insurer, the particular state's statute of limitations for filing a lawsuit must be recognized and complied with, with respect to a windstorm or property insurance policy. When it comes to National Flood Insurance, a one-year statute of limitations exists, and any litigation between the insured and the insurer must be filed in Federal Court.
- The Importance of Communication
Emotional distress and fear naturally follow significant catastrophe situations, so that
communicating to the Association before and after the catastrophe reduces the emotional burden following a loss. The Association's members should be aware of the type of insurance in place at least on a yearly basis. The agent will often prepare a summary of coverages and personally explain the insurance coverages purchased so there are no surprises. The agent typically explains the types of coverages the owners may need and the markets available. Insurance is bought for peace of mind. Owners need to feel secure that they are adequately insured before the unknown disaster ever happens. This information should be widely disseminated.
Widespread catastrophes typically involve outages of power and communication lines.
Some may consider purchasing satellite phones for this contingency, so that lines of
communication can remain open.