A common scenario encountered by Condominium Associations is the water leak into a Unit from the Common Elements outside the Unit and/or from the adjoining Unit above. Under the best of circumstances this is a complex scenario that often involves 6 different parties - the Association, the Association’s insurance company, the upstairs owner, the upstairs owner’s insurance company, the downstairs owner and the downstairs owner’s insurance company.
On July 1, 2008 a new Condominium insurance law took effect. The law is found in Section 718.111(11) of the Florida Statutes. This new law covers many areas but this Memorandum will address the 5 most common questions about the new law as it relates to the water leak into the Unit scenario: 1. Who insures what? 2. Who makes the repairs? 3. Who pays for the repairs? 4. Who pays the deductible? and 5. Can the Association “opt out” of the insurance law?
Who Insures What?
According to Section 718.111(11) (f) Florida Statutes, the Association’s policy of hazard insurance covers “all portions of the condominium property as originally installed or replacement of like kind and quality, in accordance with the original plans and specifications” EXCEPT “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.”
This means that the Association insures everything except those items expressly excluded by the Statute, including but not limited to all drywall and a/c components inside and outside the Units.
Thus, in the typical leak into the Unit scenario the Association’s insurance covers ALL drywall (boundary, ceiling and partition) in the Unit for losses caused by a covered hazard. The Association’s insurance also covers all other damage except that caused to the excluded items listed above.
This portion of the law controls over any contrary or different provision found in the Association’s governing documents. The Association cannot “opt out” of this portion of the law by amending its documents and therefore, despite what the governing documents might provide, must provide insurance for casualty loss for all things except the excluded items listed above. There may be exceptions for limited common elements and owner made improvements however.
Note that hazard insurance only covers certain casualty events/losses such as fire, water intrusion, windstorm and other perils identified in the policy of insurance. Not all events that might cause damage are covered by hazard insurance, for example the breakdown of an a/c unit caused by age or normal wear and tear is not a covered hazard under the Association’s insurance.
Who Makes the Repairs?
According to Section 718.111(11)(j) “any portion of the condominium property required to be insured by the association against casualty loss pursuant to paragraph (f) which is damaged by casualty shall be reconstructed, repaired, or replaced as necessary by the association as a common expense.”
This means that the Association makes all repairs to the items covered by the Association’s insurance, unless the members have voted to “opt out” as described below.
Who PAYS FOR THE REPAIRS?
According to Section 718.111(11)(j) “any portion of the condominium property required to be insured by the association against casualty loss pursuant to paragraph (f) which is damaged by casualty shall be reconstructed, repaired, or replaced as necessary by the association as a common expense.”
This means that the Association pays for all repairs to the items covered by the Association’s insurance, unless the members have voted to “opt out” as described below.
If however, the cause of the damage can be attributed to the owner’s or another person’s negligence or intentional act the Association may seek to recover the cost of the repair from the guilty party. Further, the Association is not obligated to pay for reconstruction or repairs of casualty losses as a common expense if the casualty losses were known or should have been known to the Unit owner and were not reported to the Association until after the insurance claim of the association for that casualty was settled or resolved with finality, or denied on the basis that it was untimely filed.
Who Pays the Association’s Insurance Deductible?
Section 718.111(11) (j) provides that “all hazard insurance deductibles, uninsured losses, and other damages in excess of hazard insurance coverage under the hazard insurance policies maintained by the association are a common expense of the condominium.
This means that unless the Association has voted to “opt out” as discussed below, the Association pays the deductible.
In the typical “small” isolated water leak situation that only affects one Unit the amount of the damage will almost always be below the Association’s insurance deductible. Therefore, the Association will be obligated to pay for 100% of the repair costs and will not be reimbursed from insurance proceeds. The small water leak situation statistically occurs much more often than a catastrophic water leak event (i.e. hurricane). As such Association’s that have not chosen to “opt out” of this portion of the insurance law should budget for the payments of these types of “under the deductible” claims. Further, unless the Association can prove negligence, which is difficult even in the best cases, it will not be able to recover any money from the perceived “guilty” party that caused the leak.
CAN THE ASSOCIATION “OPT OUT” OF THE INSURANCE LAW?
Section 718.111(11)(k), Florida Statutes, provides that “an association may, upon the approval of a majority of the total voting interests in the association, opt out of the provisions of paragraph (j) for the allocation of repair or reconstruction expenses and allocate repair or reconstruction expenses in the manner provided in the declaration as originally recorded or as amended.”
This means that if a majority of the total Unit owners vote to opt out, the requirements to make the repairs to the Unit, the requirements to pay for the repairs as a common expense and the requirement to pay the deductible as a common expense can be changed. Traditionally, most condominium documents provide that where the damage is caused to only a single Unit, it is the Unit owner’s responsibility to make the repairs, pay for the repairs and to pay the deductible. The owner or his or her own insurance company may then seek reimbursement of the repair costs from the “guilty” party that caused the leak if it can be proven that the party was negligent.
Thus an Association can “opt out” of part of the insurance law but an Association cannot “opt out” of what it insures. If an Association’s wishes to “opt out” is must record a special type of notice in the public record indicating that it has opted out of paragraph J of the insurance law and will follow its governing documents on those issues.
Whether or not an Association should “opt out” is a decision unique to each community. In making that decision the Association should analyze the financial impact paying the “below the deductible” claims will have on the annual budget and whether or not the “traditional” allocation of costs and repair responsibility under the current governing document has been satisfactory in the past.
Conclusion:
There are certain exceptions in the condominium insurance law for limited common elements, owner constructed improvements and other matters. Therefore, the answers to the foregoing questions should be considered general and not applicable to specific factual situations.
The foregoing information is general in nature and is not intended as specific legal advice applicable to your Association. Further, the principles of law cited herein are subject to change from time to time. Each case is fact and Condominium document specific.©2009
CONDO & HOA LAW GROUP, LLC
|
