After Isaac’s brief appearance, and as hurricane season trudges on in Florida this season, I am encouraging you to double check that you and your neighborhood have everything lined up in case of an emergency. This includes knowing if your Homeowner’s Association is also prepared for such an event.
A Homeowner’s Association is responsible for maintaining an insurance policy on any structures controlled by the entire neighborhood, like an apartment building, pool, or clubhouse. The type of policy written for these types of structures is written on a percentage basis. The Association is required to insure each structure for 80%, 90%, or 100% of the building’s market value. This percentage system is called a coinsurance clause. The insurance company is responsible for the percentage, and the association would then be responsible for the rest. The buildings must be reappraised at least every 36 months to maintain the policy. The way these policies work is a bit confusing. Insuring a structure for 80% is more effective than 90% or 100%. If a hurricane causes damage, and a claim must be filed, the property is reappraised for its value just before the damage occurred. If the policy was written for 100% on a $100,000 structure and it was reappraised at $110,000, it is considered underinsured even if the previous appraisal was something different. Then, not only will the association be responsible for the difference in coverage, but there will also be penalties assessed for being underinsured, so they won’t get a full payout. If the association chose an 80% policy, there is more room for changes in property value, and there is a greater chance of a full payout on the policy. Though the association is still responsible for the other 20%, that amount is known and can be planned for.
While the insurance plan is the same for an apartment building, the items the insurance policy covers will differ between an apartment building and a homeowners association. When you live in an apartment or condo, you essentially own the air inside the apartment, along with your personal belongings. If you live within a community with a homeowner’s association, chances are you own the house, along with the land it sits on. Therefore the level of responsibility required by the resident and the association shifts drastically between these two options. In an apartment, they are responsible for any structural damage to the building, whereas if you own the house, you are responsible.
With this information, you should ask yourself some questions about your HOA’s hurricane preparation. If there is a hurricane, will your HOA have to pay a deductible, or the difference of their coinsurance policy? Do they maintain a fund to pay for this deductible, or are they tentatively planning to charge an assessment to unit owners after the loss occurs? Do you have enough to cover the assessment? Have you taken this into account when purchasing your own homeowner’s insurance policy?
For those who don’t know, there is loss assessment coverage worked into a homeowner’s policy of someone who lives within a neighborhood with an HOA or Apartment Complex. According to Florida Statute 627.714 homeowner’s living within an HOA must purchase a minimum of $2000 in loss assessment coverage. We suggest that you purchase the maximum amount, because HOA’s are so widespread in Florida. Combine that with the high potential of hurricane damage, and the loss assessment coverage will protect you if your HOA needs to charge you for damages.
Members of a Homeowner’s Association Board: have you thoroughly researched your insurance options for your properties? Are you working with an experienced insurance agent who knows the differences between the two entities? How will you handle a potential lawsuit over insufficient insurance coverage?
Homeowners: Did you know that if for some reason you stop paying your mortgage, your insurance would lapse? Is your insurance enough to cover potential damage to the structure of your home, or property inside your apartment? What will you do if your HOA doesn’t have the insurance or funds to deal with the damage?
Being completely prepared for the destruction a hurricane can cause is nearly impossible, however, staying informed about the different and overlapping responsibilities you and your Homeowner’s Association have, will make it much easier to cope, should something occur. If you or a loved one need legal assistance with an insurance claim, or in your dealing with your HOA, contact the experienced Central Florida attorney’s at the Coye Law Firm for a free consultation.