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When a Surfside, Florida condo building collapsed in late June causing significant loss of life, it sparked outrage. Questions arose about what led to the devastation and what could have prevented it. News coverage about the tragedy has diminished, but we are just beginning to see the impact of the collapse on the condominium and insurance worlds. Condominium associations are now under a microscope, and we can expect long overdue changes to policies, coverage, and underwriting guidelines.
Florida has one of the most robust condo markets in the country. Changes made there inevitably spread to other markets, and those involved - board members, insurers, investors, and condominium unit owners - need to be paying close attention.
The Responsibility of Condo Association Boards
The desire to keep condominium unit owners happy and prevent condo monthly fee hikes can prompt boards to defer necessary maintenance. It’s a risky, potentially dangerous, choice. Boards have a fiduciary responsibility to ensure proper repairs are being done to the building and provide full transparency to owners. Deferring maintenance can cost an association far more in the long run - after a while, untreated issues can compound, leading to catastrophic damage.
To ensure board members fully understand their range of duties, the State of Florida passed a law stating that “new directors must either sign a new director certification form or attend an educational class.” As this law is enforced, boards will be better equipped to manage aging buildings. Additional legislation will likely be introduced in the coming months, with a particular focus on how condo boards manage reserves and how often they should conduct inspections.
The Market Reacts: Changing Underwriting Guidelines
Due to the enormous losses related to the Champlain Towers South collapse, insurers are implementing new underwriting guidelines and training to help detect structural integrity issues. They are also refusing to underwrite any building more than 40 years old without a thorough inspection and proof of compliance with all recommendations. Some carriers are requiring engineering reports to confirm buildings are structurally sound, which can cost between $8,000 and $25,000 depending on the extent of the report.
Expect Exclusions and Rising Premiums
Directors and Officers (D&O) Policies: Rates for directors and officers policies are expected to rise. Most D&O policies cover defense for breach of fiduciary responsibility, but any renewal or new policy being written is likely to exclude unlimited defense. Carriers are also discussing excluding claims that result from improper reserve funding for necessary repairs. In addition, we may see the market restrict the amount of capacity for D&O coverage, which will make it difficult for insureds to buy higher limits of coverage.
Property Insurance: Florida was already experiencing a hard market prior to the collapse, as carriers exited the space, refusing condominium associations coverage due to the high level of risk involved. The collapse has caused the insurance companies that remain to tighten their already restrictive guidelines and to increase property insurance premiums.
Citizens, a State-run program, has become a last resort for many associations seeking property insurance coverage, with its influx of new policies doubling this year. However, Citizens in no way guarantees coverage for older buildings with structural issues. For those it does approve, it provides limited coverage (windstorm or basic peril) with 50- 150% higher premiums. This is causing financial difficulties for many Florida condo associations.
General Liability: Our experts predict that previously rare exclusions in general liability insurance will now become more prevalent, including the treble damages or multipliers of attorneys fees exclusion - for cases in which a court triples the amount of compensatory damages to the plaintiff; and the “cross suits” exclusion, which means that condominium unit owner suits brought against the association will not be covered. These exclusions could prove costly if relevant lawsuits were to arise.
Navigating the Shifting Market
For those affected by the hardening market, and condo associations worrying about the future of their coverage, the message is simple: don’t panic. Hard markets aren’t new and are manageable. Keep your buildings well-funded and stay on top of maintenance. When seeking coverage or renewal, be prepared to provide underwriters with comprehensive, quality data proving the structural integrity of your building.
Above all, make sure you have an A+ team working to secure the best coverage possible. Maintain a good relationship with your broker to stay abreast of marketplace changes and price trends.
Effects from the Surfside collapse will be felt for years to come, not just by condominium associations, but by architects, engineers, investors, developers nationwide, as aging buildings become a larger exposure for condo associations across the country. Risk Strategies has decades of experience and can offer seasoned counsel to those impacted navigating the issues created by the collapse.
Want to learn more?
Connect with the Risk Strategies Real Estate Team at email@example.com
Connect with the Risk Strategies Management Liability Team at MLPG@risk-strategies.com