Condominium Insurance

Is it required? What is covered? Can an association self-insure?

By Elizabeth A. Lanham-Patrie / Published October 2023

While the cost of insurance has been rising for several years, Hurricanes Ian and Nicole, along with the increased costs required to comply with the new milestone inspection and structural integrity reserve study (SIRS) requirements, have led many associations to question whether they can forgo insurance and/or self-insure.  

I. Is insurance required for a condominium?

     Yes, it is required under Chapter 718 to have insurance, and it would be a breach of fiduciary duty for a board to forgo insurance.   

     Section 718.111(11), Florida Statutes, sets forth the insurance requirements for a residential condominium and provides as follows:           

(11) NSURANCE.—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.

…

(d) n 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. (Emphasis added).

     Therefore, the association must obtain insurance based upon replacement cost. If your condominium association is unable to obtain the insurance required, the association should contact its attorney to determine what is needed to prove the board has used its best efforts to obtain the required insurance. 

II. What is covered by casualty insurance?

     If there is a casualty, the most common questions are, what is covered by the association (or its insurance company), and what is the responsibility of the unit owner?

     Public policy requires that certain items that unit owners would otherwise maintain must be insured by the association for loss by casualty. If damage it not due to an obvious casualty, such as a hurricane, the association should contact its insurance company to determine if the source of the damage (e.g., a water leak) would be considered a casualty and covered under the association’s casualty insurance. If not, it would be considered a maintenance issue. Maintenance responsibilities are set forth in the governing documents of the association and differ from one condominium to the next. 

     If the damage is the result of a casualty, then Section 718.111(11)(f), Florida Statutes, provides the following:

(f) very 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 specifications.

2. All alterations or additions made to the condominium property or associat-ion property pursuant to s. 718.113(2).

3. The coverage must exclude all personal property within the unit or limited common elements, and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, 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.”  (Emphasis added).

     Based upon the foregoing, if the damage is a result of a casualty, the unit owners are responsible for replacing their floors, cabinets, countertops, paint, wallpaper, etc., and the association is responsible for the items not included in this list. This means the association is responsible for all drywall repair even if it is part of the unit and normally the responsibility of the unit owners. However, the association is not responsible for improvements installed by the unit owners but only for replacing items as originally installed or a replacement of a like kind and quality. 

     Further, pursuant to Section 718.111(11)(j), Florida Statutes, the unit owner is responsible for the costs of repair or replacement of any portion of the condominium property not paid by insurance proceeds if such damage is caused by intentional conduct, negligence, or failure to comply with the terms of the declaration or the rules of the association by a unit owner, the members of his or her family, unit occupants, tenants, guests, or invitees, without compromise of the subrogation rights of the insurer. In addition, the association is not obligated to pay for reconstruction or repairs of property losses as a common expense if the property losses were known or should have been known to a unit owner and were not reported to the association until after the insurance claim of the association for that property was settled or resolved with finality, or denied because it was untimely filed.

     Another common question is, what if the insurance deductible costs more than the amount of the claim? Unfortunately, this occurs frequently with the high deductibles for damage caused by hurricanes. If the association chooses not to file a claim, it is still responsible for paying for everything that its insurance would cover. 

III. Can an association self-insure?

     While “self-insurance” is permitted under Chapter 718, Florida Statutes, generally it is not feasible. Section 718.111(11)(a)(1) and (2), Florida Statutes, provides the following:

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 sufficient 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 Office 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, 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. (Emphasis added).

     An association “self-insuring” does not mean that the association does not have insurance and instead can just assess the unit owners to fix the damage when the time comes. That is not permitted. As a first step, the association will need to review its governing documents. Some declarations specifically require that insurance be issued by an insurance company. If this is the case, the association would need to amend the declaration to allow it to self-insure. 

     Second, according to Florida law, “self-insuring” basically means setting up a nonprofit insurance company with other associations and spreading the risk throughout the associations. The requirements in Sections 624.460 through 624.488, Florida Statutes, are extensive. The associations have to be set up like a “real” insurance company with assets, reserves, state regulation, etc. It is very complicated and should be discussed with the associations’ attorneys as to whether it is possible.

Elizabeth “Beth” A. Lanham-Patrie

Lawyer, Becker

     Elizabeth “Beth” A. Lanham-Patrie has been practicing law since 1993, and she has focused on representing community associations since June 2001. Beth provides a variety of legal services to condominium, homeowner, and cooperative associations and is a transactional attorney with extensive experience drafting and amending governing documents and preparing and reviewing contracts. Beth is also involved in resolving disputes between associations and owners. Ms. Lanham-Patrie is also one of only 190 attorneys statewide who is a board-certified specialist in condominium and planned development law. For more information email bpatrie@beckerlawyers.com, call 407-875-0955, or visit www.beckerlawyers.com.