Is your condominium association properly insured for hurricane season?

As hurricane season approaches, condominium associations, like any other business or homeowners association, need to find and maintain the right insurance policies for their property, operations, and residents.  

Insurance for condo associations can be a confusing topic as there are many types of coverage available. It’s important to understand what each one does before making a decision about what type of policy to purchase. It is crucial to have the right type of coverage as NOT having the right kind of coverage when a hurricane hits can be devastating for an association. 

Here are some answers to common questions about condo association insurance:  

  1. What is condominium association insurance?  

Condo association insurance is a type of policy that covers the property, operations, and residents of a condominium association or business. It is responsible for paying out claims if an incident occurs that causes damage or injury to people or things at the location.  Since Alvarez Law Group focuses on insurance claims litigation, we will focus this blog on having the right types of insurance policies in place for this hurricane season.  

  1. Why do we need it?

Insurance helps protect your association from unexpected events that could negatively affect its finances, operations or reputation. It also protects members’ assets by providing financial coverage in case there are damages to the units they own or rent. Additionally, condo associations in Florida are required by law to maintain insurance for catastrophes like hurricanes. Further, the declaration of condominium specifically spells out what types of insurance the association should purchase and what it needs to insure. The latter is very important as the association board could be liable if they fail to secure the right coverages to protect the association from catastrophes like hurricanes.  

  1. What should I buy?  

The insurance the association should buy will be spelled out in the declaration of condominium. At minimum, the association should have a commercial general liability policy and a property damage liability policy. With respect to the property damage liability policy, the association should at minimum insure catastrophes like hurricane, fire or water damage. However, the association should strive to purchase as broad a coverage as possible to ensure that it protects the building in case of a loss. Coverage should be the determining factor, not price. Once the condo association has determined the proper coverage to buy, a few things need to be kept in mind.   

One item to keep in mind is the deductibles. Most policies in Florida will contain an all-perils deductible and a wind/hurricane deductible. The all perils deductible is usually a fixed amount and it applies to losses like fire or water damage to the buildings. The wind/hurricane deductible will typically be a percentage of the whole value of the policy. Condo associations need to keep in mind that the higher the percentage for the wind/hurricane deductible, the more the association will need to pay in the event of a loss.  

A second thing to keep in mind is the coinsurance that applies to the policy. This is best understood with the following example. If the condominium building has a value of $1,000,000, and the policy of insurance has a 90% coinsurance clause, that minimum coverage the association should be buying is $900,000. Buying coverage below that amount could result in the building being underinsured, the coinsurance penalty applying, and resulting in a lower payout in the event of a hurricane loss.   

Lastly, the insured value should be reviewed every year. Inflation continues to drive the price of construction higher and higher. The condominium association should hire an insurance appraiser to estimate the value of replacing the entire building at today’s prices, not at last year’s prices. Otherwise, that coinsurance penalty could rear its ugly head if a hurricane loss occurs.  

  1. Where can I get coverage?   

The association should contact a reputable insurance agent that has experience dealing with condominium associations and procuring the right types of insurance at the right levels of coverage. A condominium that has 10 units will have very different insurance requirements than a condominium that has 200 units.  

If your condominium association has questions about insurance coverage or wants to ensure they are protected in the event of a hurricane loss, contact the attorneys at Alvarez Law Group for a free policy review before a hurricane hits. 

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At Alvarez Law Group, we are proud of our reputation for being a trusted advocate during insurance claims litigation and real estate transactions.

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