The Florida property insurance market is facing systemic challenges of rising insurance costs and decreasing availability of domestic insurers willing to provide policies in Florida. As supply and demand for insurance ebbs and flows, a type of insurance known as surplus lines has temporarily filled the gap in commercial policies, leaving condominium associations with decreased coverage on their properties. Domestic carriers in Florida continue to exit the state amid concerns, and surplus lines carriers have entered the market offering policies that do not meet the conventional regulations and standards set forth by Florida’s Office of Insurance Regulation (FOIR).
A surplus lines insurer is an unauthorized insurer made eligible by the FOIR to underwrite property and casualty insurance policies. Any condominium association insured under a surplus line insurance policy forgoes the Florida Insurance Guaranty Act (FIGA) protections provided to Florida-authorized insurers. A Florida condominium association may risk forfeiting a host of consumer protections, regarding excessive rate hikes, reduced coverage levels, and good faith claims handling (if it elects to purchase a property insurance policy from a surplus lines carrier).
Under Florida Statute 718.111(11)(a), a condominium association must provide adequate property insurance, regardless of any requirement in the declaration or bylaws of the condominium. Such coverage must be for full insurable value, replacement cost, or similar coverage. The 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.
There are four areas associations should scrutinize when purchasing their insurance policy to reduce risk and increase coverage:
First is the 25 percent rule under the Florida Building Code for roof repairs. Florida Statute §553.844(5) provides that, if the existing roofing system or roof section was built, repaired, or replaced in compliance with the 2007 Florida Building Code or any subsequent editions of the Florida Building Code, and 25 percent or more of such roofing system or roof section is being repaired, replaced, or recovered, [then] only the repaired, replaced, or recovered portion is required to be constructed in compliance with the current Florida Building Code. The new statute substantially changes the way roof claims will be handled by insurance carriers.
Second, is the policy an “all-risk policy” or a “named perils policy”? In an “all-risk policy” all physical damage to the property is covered unless specifically excluded or limited. In an “all-risk” policy, the burden is on the carrier to prove that an excluded cause of loss is the cause of the loss. In a “named perils” policy, only a specially named cause of loss will be covered. In a “named perils” policy, the burden is on the insured to show the cause of loss is one of the enumerated covered causes of loss. A “named perils” policy is more restrictive than an “all-risk” policy and more likely to result in a denial or underpayment of the claim. Many surplus lines carriers are moving from “all-risk” policies to “named perils” policies to limit the claims which would otherwise have been payable. Associations are often enticed to purchase “named perils” policies with the promise of a cheaper premium but at the expense of less coverage, and thus your association is left to cover the repair costs from their reserves or through a special assessment in the event of an uncovered peril.
Third, does the policy contain sublimits for different causes of loss? Surplus line carriers have begun to establish specific sublimits for different areas of covered property or different causes of loss. The sublimits will be stated as a dollar amount and will include within its scope items that would otherwise be fully compensable. Generally, when there are sublimits, the amount stated by the policy is substantially less than what the actual amount of the repair or replacement would be. Again, that would leave your association in a position where it would have to cover the repair costs from its reserves or through a special assessment in the event of a limited benefit for a covered peril.
Fourth, Florida lawmakers approved property insurance reforms that remove attorneys’ fees concerning assignment of benefits (AOB) in property insurance. The AOBs enabled an association to make immediate repairs to the property by assigning to a contractor the insurance benefits due instead of waiting for the insurer to adjust the claim. The 2022 reforms remove the awarding of attorney’s fees altogether from AOB litigation, which will hurt associations and property managers by making immediate repairs less accessible. Without access to the use of AOBs, the association will have to use its reserves to make immediate repairs while risking the exclusions and limitations described above.
By being aware of these four issues, condominium associations can delineate the responsibilities of associations and the recent trends in property insurance coverages to avoid coverage gaps and limited insurance benefits. In turn, condominium associations will be adequately covered during a loss, have a manageable deductible, and, ultimately, create a streamlined claims process.
Managing Attorney and Founder, Larry Moskowitz | windylaw.com
Larry Moskowitz has practiced law in Florida for more than 30 years, beginning his career as an assistant state attorney/prosecutor in Broward County, FL. He is an accomplished attorney who has handled thousands of civil cases with over 150 trials to verdict.
Mr. Moskowitz has extensive experience handling and litigating property damage claims.
He has handled catastrophic claims involving the BP Deepwater Horizon oil spill in 2010 Hurricanes Wilma (2005), Matthew (2016), Irma (2017), and Michael (2018), Laura (2020), Sally (2020), and named storm Eta (2020). Larry is a member of the Florida Bar, Northern District of Florida, Middle District of Florida, and the Southern District of Florida. He is an active member of the Florida Justice Association, FAPIA (Florida Association of Public Adjusters), and APA (American Policy Holders Association). Contact him at larry@WindyLaw.com or 954-797-7990.