Condo Insurance Question

[WX183]

I live in a 10 unit, 2 story condo in southeast Palm Beach County. We are directly on A1A approximately 200 yards from the ocean and 300 yards from the intercoastal and approximately 1 mile from an inlet.

Most Condominiums on the island have a master flood insurance policy as well as a master wind policy. As of right now it's not mandatory but that will change in the next few years as they are redrawing flood zones that will include the coast.

Our Board of Directors consist of 3 people 2 of which don't think it's important to have a master flood insurance policy on our building. They are basing there opinion on the fact that serious storm surge has never happened here and they honestly don't think a strong hurricane storm surge can damage our concrete building. At the same time we carry $1.4 Million in windstorm coverage. I informed our board of directors of the case studies from 2004 and 2005 that clearly showed that in total loss situations, it was better to have both flood and wind coverage. It was common in `04 that if one had a million dollar wind policy, suffered a total loss and did not have flood coverage; they would only recoup half or what ever percentage of the structure that they determine was destroyed by wind. If they think most of your house was destroyed by flood they may only give you 20 percent. Or even of they determine it was 50/50 you would only get $500,000. Whereas if you had flood you would get the 50 percent from the flood and 50 from your wind. I do believe studies have shown people get more money when they have both and I think that should be obvious.

The only reason that I have been given for not having a master flood policy is that they just don't think it's going to happen. This would cost each unit owner about $400.00 per year.

In addition we have spent over $400,000 in the last 5 years putting in hurricane windows...Its almost funny, we thought enough about storm threats to put up PGT windows but we can't spend the additional to protect them. Anyone care to share there opinions so that I may share them with the group. Thanks!

[wxman57]

If you can provide the precise location (address, satellite shot from Google Earth or Lat/Lon) then I can run the SLOSH model and see what it would take to flood the building. You can send the info by PM if you like.

[WX183]

I downloaded the slosh model and read one of your earlier post on the slosh model before it was released. I downloaded the .rex files and the other files and was able to toggle through the parameters. I don't know if I'm interpreting the data correctly i did see several scenarios where my home would be flooded, mainly western moving cat 4 or 5. I also recall reading that if the max reading on the scale was 10' then you would have a +- of 20 percent giving you a storm surge of between 8'-12'. Based on this I did see some scenario's where a surge between 11'-15 could be possible. Which if my house is about 10' above sea level a chance at flooding exist, although a long shot but still a shot none the less. They are redoing the flood zones however they have a program for people going form low/moderate risk to high risk. The program will keep your rates in the same low risk category for about 3 years if you purchase before the risk map changes. See their website for projected implementation times.

WXman57 Ive been reading your post for years and have a great deal of respect for your knowledge and no-hype forecast. If you don't mind was wondering your personal opinion. If you lived 200 yards from the ocean on the southeast coast would you think it important to obtain flood insurance? I appreciate your expertise and thank you for your great work.

[Bocadude85]

I downloaded the slosh model and read one of your earlier post on the slosh model before it was released. I downloaded the .rex files and the other files and was able to toggle through the parameters. I don't know if I'm interpreting the data correctly i did see several scenarios where my home would be flooded, mainly western moving cat 4 or 5. I also recall reading that if the max reading on the scale was 10' then you would have a +- of 20 percent giving you a storm surge of between 8'-12'. Based on this I did see some scenario's where a surge between 11'-15 could be possible. Which if my house is about 10' above sea level a chance at flooding exist, although a long shot but still a shot none the less. They are redoing the flood zones however they have a program for people going form low/moderate risk to high risk. The program will keep your rates in the same low risk category for about 3 years if you purchase before the risk map changes. See their website for projected implementation times.

WXman57 Ive been reading your post for years and have a great deal of respect for your knowledge and no-hype forecast. If you don't mind was wondering your personal opinion. If you lived 200 yards from the ocean on the southeast coast would you think it important to obtain flood insurance? I appreciate your expertise and thank you for your great work.

I would not be caught living without flood insurance on the ocean in South Florida. I am going to assume you are in the Boca Raton/Highland Beach/Delray Beach area? The last time this area took a direct hit by a Cat 4 hurricane was back in 1949...also took a direct hit by a Cat 4 in 1947 and the storm surge from that hurricane was 12ft. We have had a long stretch without a direct hit from a major hurricane and I would think our time is running out.

[MGC]

Just show them some pictures of the damage Katrina or Ike caused. I notice extensive wave damage well above the stated surge. Water can do unbelievable destruction beyond your wildest dreams if you have never seen it in person. The Grand Casino Hotel, located on the water in Gulfport had extensive wave damage on the third floor and it is elevated a good 15 feet above ground level. I estimate the waves reached close to 40 feet above ground. The surge current wrapped cars around trees....MGC

[WX183]

Yes it is south boca, near the inlet. I've tried reasoning with these people but they are set in their ways. I actually had a majority of people that wanted flood and one of the board members talked them out of it. They all think Im over reacting. I asked all of them if they saw any of the pictures from Ike and katrina and they have already forgotten. People that live on the second floor think that if the first floor is flooded, they can still live on the 2nd. One person actually believes the property is more valuable if the building gets destroyed. Thats it, forget about refinancing or mortgage modification, just demolish your home and then you have equity. Ignorance is bliss and dangerous!

[psyclone]

10 units @ $400 per unit = $4000 per year in flood insurance expense. that means assuming rate stability it would take a century of flood insurance premiums to equal what was spent on the windows! i am baffled as to why owners would agree to a huge wind mitigation outlay and then not be willing to spend a nominal amount for flood protection.

[somethingfunny]

Yes it is south boca, near the inlet. I've tried reasoning with these people but they are set in their ways. I actually had a majority of people that wanted flood and one of the board members talked them out of it. They all think Im over reacting. I asked all of them if they saw any of the pictures from Ike and katrina and they have already forgotten. People that live on the second floor think that if the first floor is flooded, they can still live on the 2nd. One person actually believes the property is more valuable if the building gets destroyed. Thats it, forget about refinancing or mortgage modification, just demolish your home and then you have equity. Ignorance is bliss and dangerous!

Considering that hurricane landfalls seem to occur in clusters over given regions, that empty beachfront lot might not be as valuable as that owner thinks it is after a powerful direct hit... Think about what happened to South Florida's economy in the 1920s.

I'm also seconding what bocadude, MGC, and psyclone said. You're definitely in a risky area for surge and waves will cause damage further above sea level than the surge itself. These owners sound like they'll only be willing to buy a flood policy if/when the authorities redraw the map to put you in a higher risk zone, after the cost goes up.

[WX183]

Yes their opinions are astonishing. Even after a resident from another building told them the story of how their mother unfortunately lost everything she has in Hurricane Irene. She lives in upstate NY, a few hours from the ocean and did not have flood insurance. More than likely $500 would have saved her house. And had Hurricane Irene come a little further east we would have been hit. I thank everyone for sharing their opinion as our annual meeting is coming up and I am planning on sharing these opinions with them. Incidentally the years `47 -`50 were exceedingly tough on South Florida with regard to major landfalls.

[MGC]

Lots of vacant beach front property for sale here along the Mississippi Coast, actually miles and miles of it. Very few can afford to rebuild to the new flood and wind standards......MGC

[brunota2003]

Where's that photo of the boat after Hugo hit SC? I'll see if I can find it

[mitchell]

Anyone care to share there opinions so that I may share them with the group. Thanks!

I've been working with the National Flood Insurance Program for 20 years now, and in 5 disaster field offices. The NFIP is a mixed bag, especially with condo master policies. I have encountered many unhappy policy holders due to the bureaucratic nature of this federally-run program, and the incompetence of some outsourced claims adjusters. Its very sad to work with a person who have just been devastated by a flood become the victim of a claims adjuster who doesnt know or care what they are doing. I just have two suggestions for you:

1) If you know for a fact that your building is being remapped from the non-mandatory (Zone X) to the mandatory (Zone A or V) then you may want to have a local insurance agent (who knows the NFIP well) speak to your board about much more expensive the insurance will be after the maps change, and the "grandfathering" provisions that will apply now while your building is in the non-mandatory Zone X. The NFIP "grandfathers" many aspects of coverage and they should be aware of the issue.

2) Make sure you and the Board understand the differences between the condo master policy, your individual unit contents policy, and what types of flood insurance lenders will require once the building gets remapped into the "mandatory" zone. If the condo isnt covered by the master policy, people may have difficulty getting a loan to buy a unit in your building, which may affect property values.

Best of luck...

The NFIP can be its own worst enemy, and there are many many skeptics of the program. Sounds like you have some for neighbors.

[WX183]

I was aware of the "grandfathering" but I thought that it did not apply to master condo policies. I read all of the info about the "PRP" and this is good for my personal flood insurance, but do you think the same "PRP" applies to a Master Condo Policy? What is really sad is that we had a majority of 6 people but somehow one of the board members talked one person out of it and told them I'm just over reacting. Now we have a tie and the BOD breaks the ties. I would not be surprised if even when it becomes mandatory they find a way to circumvent the law. They are basing this on the fact that we will never be hit by a storm. All I can do is shake my head and save my money as I may need it one day with this type of leadership. Question, should I lower the amount of my personal flood coverage as without a master condo policy(covers exterior walls) does a personal policy help you in times of total loss from flood. Any info is greatly appreciated.

[mitchell]

I dont know whether the rate grandfathering applied to Condo Master Policies nor do i know whether the preferred risk policy (PRP) is available as for a condo, or just smaller residential buildings. The NFIP is a very complex program and if your building managers are considering flood insurance, they really should make their decision based on a local agent with in-house expertise on selling NFIP insurance. This is also a reason to avoid State Farm, IMO. When SF backed out of selling flood insurance a few years ago, what they really did was disconcontinue their role as an NFIP Write-Your-Own company but to service their customers they will still purchase flood insurance from FEMA and pass it through to you, without the in-house capacity/support.

The question about your personal flood coverage vs. condo master policy is also a question you should direct to your local agent, armed with knowledge about the risk of actually taking water into your unit and damaging your belongings, and the total value of what you own that could be covered in the case of a loss. Think of it this way...the CMP mainly covers the building structure itself which you dont own under many condo arrangements. Your personal policy covers your belongings inside your unit.

Good luck!

[WX183]

The meeting is over. The flood insurance wasn't even voted upon because the board of directors didn't see it as appropriate. I was told if we had storm surge it would just drain west into the intercoastal. And still yet the kicker i was reminded that the property is worth more than the building. Condo living… Not for the logical.

[janswizard]

I'm too late to respond before your meeting but refer to your condo documents. They should address what kind of insurance is required for the association. Most association documents require the Board of Directors to maintain insurance and usually state exactly what kind of policies are required.

Additionally, Florida Statutes 718.111 specifically states:

(11) INSURANCE.—In order to protect the safety, health, and welfare of the people of the State of Florida and to ensure consistency in the provision of insurance coverage to condominiums and their unit owners, this subsection applies to every residential condominium in the state, regardless of the date of its declaration of condominium. It is the intent of the Legislature to encourage lower or stable insurance premiums for associations described in this subsection.
(a) Adequate property insurance, regardless of any requirement in the declaration of condominium for coverage by the association for full insurable value, replacement cost, or similar 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.
1. An association or group of associations may provide adequate property insurance through a self-insurance fund that complies with the requirements of ss. 624.460-624.488.
2. The association may also provide adequate property insurance coverage for a group of at least three communities created and operating under this chapter, chapter 719, chapter 720, or chapter 721 by obtaining and maintaining for such communities insurance coverage sufficient to cover an amount equal to the probable maximum loss for the communities for a 250-year windstorm event. Such probable maximum loss must be determined through the use of a competent model that has been accepted by the Florida Commission on Hurricane Loss Projection Methodology. A policy or program providing such coverage may not be issued or renewed after July 1, 2008, unless it has been reviewed and approved by the Office of Insurance Regulation. The review and approval must include approval of the policy and related forms pursuant to ss. 627.410 and 627.411, approval of the rates pursuant to s. 627.062, a determination that the loss model approved by the commission was accurately and appropriately applied to the insured structures to determine the 250-year probable maximum loss, and a determination that complete and accurate disclosure of all material provisions is provided to condominium unit owners before execution of the agreement by a condominium association.
3. When determining the adequate amount of property insurance coverage, the association may consider deductibles as determined by this subsection.
(b) If an association is a developer-controlled association, the association shall exercise its best efforts to obtain and maintain insurance as described in paragraph (a). Failure to obtain and maintain adequate property insurance during any period of developer control constitutes a breach of fiduciary responsibility by the developer-appointed members of the board of directors of the association, unless the members can show that despite such failure, they have made their best efforts to maintain the required coverage.
(c) Policies may include deductibles as determined by the board.
1. The deductibles must be consistent with industry standards and prevailing practice for communities of similar size and age, and having similar construction and facilities in the locale where the condominium property is situated.
2. The deductibles may be based upon available funds, including reserve accounts, or predetermined assessment authority at the time the insurance is obtained.
3. The board shall establish the amount of deductibles based upon the level of available funds and predetermined assessment authority at a meeting of the board in the manner set forth in s. 718.112(2)(e).
(d) An association controlled by unit owners operating as a residential condominium shall use its best efforts to obtain and maintain adequate property insurance to protect the association, the association property, the common elements, and the condominium property that must be insured by the association pursuant to this subsection.
(e) The declaration of condominium as originally recorded, or as amended pursuant to procedures provided therein, may provide that condominium property consisting of freestanding buildings comprised of no more than one building in or on such unit need not be insured by the association if the declaration requires the unit owner to obtain adequate insurance for the condominium property. An association may also obtain and maintain liability insurance for directors and officers, insurance for the benefit of association employees, and flood insurance for common elements, association property, and units.
(f) Every property insurance policy issued or renewed on or after January 1, 2009, for the purpose of protecting the condominium must provide primary coverage for:
1. All portions of the condominium property as originally installed or replacement of like kind and quality, in accordance with the original plans and specifications.
2. All alterations or additions made to the condominium property or association property pursuant to s. 718.113(2).
3. The coverage must exclude 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 which are located within the boundaries of the unit and serve only such unit. Such property and any insurance thereupon is the responsibility of the unit owner.
(g) A condominium unit owner’s policy must conform to the requirements of s. 627.714.
1. All reconstruction work after a property loss must be undertaken by the association except as otherwise authorized in this section. A unit owner may undertake reconstruction work on portions of the unit with the prior written consent of the board of administration. However, such work may be conditioned upon the approval of the repair methods, the qualifications of the proposed contractor, or the contract that is used for that purpose. A unit owner must obtain all required governmental permits and approvals before commencing reconstruction.
2. Unit owners are responsible for the cost of reconstruction of any portions of the condominium property for which the unit owner is required to carry property insurance, and any such reconstruction work undertaken by the association is chargeable to the unit owner and enforceable as an assessment pursuant to s. 718.116.
3. A multicondominium association may elect, by a majority vote of the collective members of the condominiums operated by the association, to operate the condominiums as a single condominium for purposes of insurance matters, including, but not limited to, the purchase of the property insurance required by this section and the apportionment of deductibles and damages in excess of coverage. The election to aggregate the treatment of insurance premiums, deductibles, and excess damages constitutes an amendment to the declaration of all condominiums operated by the association, and the costs of insurance must be stated in the association budget. The amendments must be recorded as required by s. 718.110.
(h) The association shall maintain insurance or fidelity bonding of all persons who control or disburse funds of the association. The insurance policy or fidelity bond must cover the maximum funds that will be in the custody of the association or its management agent at any one time. As used in this paragraph, the term “persons who control or disburse funds of the association” includes, but is not limited to, those individuals authorized to sign checks on behalf of the association, and the president, secretary, and treasurer of the association. The association shall bear the cost of any such bonding.
(i) The association may amend the declaration of condominium without regard to any requirement for approval by mortgagees of amendments affecting insurance requirements for the purpose of conforming the declaration of condominium to the coverage requirements of this subsection.
(j) Any portion of the condominium property that must be insured by the association against property loss pursuant to paragraph (f) which is damaged shall be reconstructed, repaired, or replaced as necessary by the association as a common expense. All property insurance deductibles, uninsured losses, and other damages in excess of property insurance coverage under the property insurance policies maintained by the association are a common expense of the condominium, except that:
1. A unit owner is responsible for the costs of repair or replacement of any portion of the condominium property not paid by insurance proceeds if such damage is caused by intentional conduct, negligence, or failure to comply with the terms of the declaration or the rules of the association by a unit owner, the members of his or her family, unit occupants, tenants, guests, or invitees, without compromise of the subrogation rights of the insurer.
2. The provisions of subparagraph 1. regarding the financial responsibility of a unit owner for the costs of repairing or replacing other portions of the condominium property also apply to the costs of repair or replacement of personal property of other unit owners or the association, as well as other property, whether real or personal, which the unit owners are required to insure.
3. To the extent the cost of repair or reconstruction for which the unit owner is responsible under this paragraph is reimbursed to the association by insurance proceeds, and the association has collected the cost of such repair or reconstruction from the unit owner, the association shall reimburse the unit owner without the waiver of any rights of subrogation.
4. The association is not obligated to pay for reconstruction or repairs of property losses as a common expense if the property losses were known or should have been known to a unit owner and were not reported to the association until after the insurance claim of the association for that property was settled or resolved with finality, or denied because it was untimely filed.
(k) 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. Such vote may be approved by the voting interests of the association without regard to any mortgagee consent requirements.
(l) In a multicondominium association that has not consolidated its financial operations under subsection (6), any condominium operated by the association may opt out of the provisions of paragraph (j) with the approval of a majority of the total voting interests in that condominium. Such vote may be approved by the voting interests without regard to any mortgagee consent requirements.
(m) Any association or condominium voting to opt out of the guidelines for repair or reconstruction expenses as described in paragraph (j) must record a notice setting forth the date of the opt-out vote and the page of the official records book on which the declaration is recorded. The decision to opt out is effective upon the date of recording of the notice in the public records by the association. An association that has voted to opt out of paragraph (j) may reverse that decision by the same vote required in paragraphs (k) and (l), and notice thereof shall be recorded in the official records.
(n) The association is not obligated to pay for any reconstruction or repair expenses due to property loss to any improvements installed by a current or former owner of the unit or by the developer if the improvement benefits only the unit for which it was installed and is not part of the standard improvements installed by the developer on all units as part of original construction, whether or not such improvement is located within the unit. This paragraph does not relieve any party of its obligations regarding recovery due under any insurance implemented specifically for such improvements.
(o) The provisions of this subsection shall not apply to timeshare condominium associations. Insurance for timeshare condominium associations shall be maintained pursuant to s. 721.165.

I know that's a lot of reading but it's in there for a reason.

Janice
(Licensed Community Association Manager)