Condo Media - July 2022 - 30

Costs Are on the Rise
P
Prior to the Surfside condominium
collapse, condominium buildings have
always presented a challenge to insurance
companies given their very nature
of splitting responsibility between the
unit owners and the condominium
association, as well as certain facilities
and communal elements that also must
be insured. The master policy covers
the actual structure, as well as any
common areas, such as the gym, a pool,
or a parking garage. A homeowner's
policy for a condominium unit owner,
commonly known as an HO-6 policy or
a " walls-in " policy, provides coverage to
the unit owner for everything inside the
unit. Now, given the large-scale loss of
Surfside, there is a new peril and factor
(i.e., that condominium buildings are
grossly under-insured and their reserves
are underfunded to make critical
but necessary repairs) that insurance
companies must now deal with, which
is also contributing to the increased
premiums and stricter standards for
insurance coverage.
The sudden and unexpected collapse
of the Surfside condominium building
has raised concerns that other catastrophes
may be lingering in the shadows
at a high cost to human life and losses.
Following the Surfside collapse, family
and loved ones of those who lost
their lives fi led claims with the insurance
carrier and brought numerous
lawsuits against the association, the
association's structural engineer, and
a neighboring building's contractor,
among others. During an emergency
hearing held last July, Miami-Dade
Circuit Judge Michael Hanzman
opined that the $30 million dollar
property insurance policy and the
$18 million dollar liability insurance
policy is " inadequate to compensate
everyone fully for the extent of their
losses. " In addition to being underinsured,
Surfside was also fi nancially
insecure and did not have the requisite
reserve funds to cover the urgent
structural repairs, which resulted in
delays in repairing the building, as
well as denial of loans to complete
the repairs due to the fi nancial health
of the condominium.
In Florida, the insurance market
has already seen signifi cant changes
following the Surfside collapse,
which include mandatory inspections
and verifi cations of the structural
integrity of the condominium
buildings, increased premiums due
to a decreasing group of insurance
providers, and increased costs to
make immediate repairs to avoid
coverage cancellation. Additionally,
there have been changes to lending
practices and efforts to reform
federal policies related to lending
and insurance following the tragic
collapse of the Champlain Towers
South condominium building.
Nationwide and locally, insurance
premiums are on the rise as
a result of Surfside. Now, there is
an upward trend of rising insurance
related costs for condominium
buildings, as well as increased underwriting
requirements. Insurers are
reevaluating the insurance to value
ratio of buildings, recognizing that
buildings can be vastly under-insured
in the event of a major loss, as well
as cancelling policies or refusing to
insure buildings, if certain critical
repairs are not being made to ensure
the safety and the habitability of
the building in line with federal
regulations. Insurers are also now
scrutinizing building construction
more closely and more frequently,
as well as evaluating the structural
integrity, maintenance, and water intrusion,
among others, with increased
regularity as part of the underwriting
process. For example, insurers are
looking for condominium buildings
to have proactive maintenance agreements
and structural engineering
studies (or updated engineering studies)
to ensure the structural integrity
or identify any problems with building
deterioration.
Further, insurers are focusing on
the fi nancial resilience of condominiums
and examining the maintenance
and repairs of the condominium
buildings and the funding to do so. As
shown by lack of coverage and underfunded
reserves at Surfside, condominium
buildings are more than likely
underfunded to make substantial
repairs to prevent a tragedy like Surfside
and under-insured to cover major
losses. As such, insurance companies
are not only raising their premiums,
but also looking for condominium associations
to maintain suffi cient funds
to undertake regular maintenance,
and periodic upgrades and engineering
evaluations of the buildings to ensure
the safety and integrity of the building
and make timely, critical repairs.
WHAT DOES THIS MEAN
FOR YOUR ASSOCIATION?
The short answer is an increased focus
on proper operating funds and reserve
funds for the condominium in anticipation
of increased insurance premiums,
30 CONDOMEDIA July 2022
Condo Media - July 2022

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