Condominium Insurance Law

Florida Statute §718.111 Provides Guidelines that Associations Need to Follow

Larry Bache — Thu, 17 May 2012 13:03:51 -0500

Post-loss compliance is a significant element of the adjustment process. Policyholders can take the proper precautions and be prepared for potential losses, however, as illustrated in Denise Sze’s recent post on our Property Insurance Coverage Law blog, Courts Affirm that an Insured Must Comply with Post-Loss Duties, a policyholder’s failure to comply with a policy’s post-loss obligations may lead to a forfeiture of the claim.

Post-loss obligations are more complicated in claims presented by condominium and homeowners’ associations. The document and records requests can be overwhelming. Often, associations do not know the limits of their obligations: what type of documentation is it responsible for, and how long is it required to keep such information. Florida Statute §718.111(12) provides guidelines that associations must comply with.

Among other things, the statute requires associations to maintain a copy of the association’s bylaws, a copy of the articles of incorporation, books of the board minutes for seven years, and current policies of the association.

Following a loss, a carrier typically demands these documents for its investigation. If an association fails to produce these documents, a carrier may argue that its investigation of the claim has been prejudiced and it could jeopardize an otherwise legitimate claim. Complying with Florida Statute §718.111 should help associations expedite their claims and protect their claims and rights to indemnification.

We are just two weeks away from the beginning of the 2012 Hurricane season, now is the time for associations to check their records and verify compliance with Florida Statute §718.111.

Insurance Policies And The Exception To Exclusion Can Feel Like Trying To Fit The Pieces Of An Intricate Puzzle Together....Without Forcing Them

Shaun Marker — Mon, 23 Apr 2012 05:30:22 -0500

The coverages, limitations, exclusions and exceptions to exclusions buried in all those pages of property insurance policies can leave your head spinning when trying to make sense of it all. It can feel like trying to navigate through a complicated maze or fit all of the pieces of an intricate puzzle together without forcing them. This was demonstrated recently in a federal case from the Northern District of Florida, Bartram, LLC v. Landmark American Insurance Company, 2012 WL 1072207 (N.D. Fla. March 30, 2012).

The case involved an insurance coverage dispute between the apartment complex, Bartram, LLC, and several insurance carriers for damages stemming from faulty workmanship in the construction of the complex. There was primary coverage and three layers of excess coverage provided under builder’s all risk insurance forms. Each insurance policy excluded faulty workmanship from coverage. The policies also contained ensuing loss exceptions that provided coverage when “an excluded cause of loss ... results in a Covered Cause of Loss.” The parties agreed that the faulty workmanship exclusion applied, but they did not agree about the ensuing loss exception.

The insurers denied coverage for Bartram’s claim, and the lawsuit ensued. The parties filed competing motions for summary judgment based on the interpretation of the policies’ terms. Bartram argued that it suffered losses separate from and the result of the faulty workmanship, triggering the ensuing loss exception. Specifically, Bartram claimed water intrusion resulted from faulty workmanship and caused damage to the buildings’ exterior and interior finishes, wood sheathing, framing, balcony systems, drywall ceilings, and stucco. These damages were separate from the work needed to simply fix the faulty workmanship.

The insurers argued that an ensuing loss exception is not applicable if the ensuing loss is directly related to the original excluded risk. They argued that since the faulty workmanship naturally led to water intrusion without any new, independent cause of loss, there was no ensuing loss and coverage was barred by the faulty workmanship exclusion.

The Court noted that the cases cited by the insurers were distinguishable because the policies in those cases contained more detailed wording preventing the loss from being brought back within coverage under the exception to the exclusion. There was no such language in the policies that Bartram obtained.

The Bartram policies simply provided that if an excluded cause of loss “results” in a covered cause of loss, then “we will pay.” This means that ensuing losses, if they resulted from a covered cause, are covered under the policy regardless of whether the loss was naturally set in motion by an excluded cause of loss. The Court held:

Given the plain meaning of the policy language, if the faulty workmanship resulted in water intrusion that subsequently resulted in ensuing losses, the cost to repair the faulty workmanship is excluded but the ensuing losses from the water intrusion are covered.

The Court granted Bartram’s motion for summary judgment and held that the ensuing losses resulting from the faulty construction were covered. As this case demonstrates, even minor changes or variances in policy terms can have drastic results on coverage.

Court Orders Forensic Examination of Association's Computer Systems

Jeremy Tyler — Mon, 16 Apr 2012 05:30:00 -0500

We live in a digital age, where information is stored and transmitted electronically, often with little regard to the science and technology that makes it possible. Digital information is much different than traditional hard copy, print, or other physical information. Electricity, magnetic disks, and fiber optics allow information to be created, modified, transferred, and destroyed in an instant.

Electronically stored information (ESI) is everywhere and plays an important part in the operation of almost every business. It should come as no surprise that issues regarding ESI often arise in litigation, especially when large corporations such as condominium associations and insurance companies are involved. Recently in a South Florida federal court, a discovery dispute arose when an insurance company sought a forensic examination of an association’s computer systems. In Wynmoor Community Council, Inc. v. QBE Ins. Corp., 10-62411, 2012 WL 716480, *5 (S.D. Fla. Mar. 5, 2012), the court explained what the requested examination would entail:

A forensic image, otherwise known as a “mirror image” will “replicate bit for bit sector for sector, all allocated and unallocated space, including slack space, on a computer hard drive.” A mirror image “contains all the information in the computer, including embedded, residual, and deleted data.” [Citations Omitted].

While this type of examination may sound innocuous to some, please consider the following analogy. Imagine a minor fender bender in which one party sues the other alleging neck pain caused by the accident. The defendant would likely seek to have the plaintiff examined by a physician to determine whether the plaintiff was indeed injured. This defendant doesn’t just want an examination of the plaintiff’s neck, however, this defendant wants a full body molecular scan that would meticulously scrutinize every cell in the plaintiff’s body. This would involve not only analysis of the plaintiff’s DNA, but also an examination of the plaintiff’s entire medical history and a full download of the plaintiff’s thoughts, memories, fantasies, and mental impressions. This examination would channel deep into repressed childhood memories, lost love and heartbreak, religious and ideological beliefs, and past indiscretions, including those that have long been forgotten.

This may sound invasive because it is. A full mirror image of a computer system would not only reveal information that may be relative to litigation, but could also reveal video games, music, movies, photographs, websites, and more. That half-written self-memoir, unfinished game of solitaire, spam email messages, Vanilla Ice discography, inappropriate websites, off-color jokes, including the ones thought to have been deleted, could turn up in a full forensic examination of a computer system. Even more serious, it could reveal privileged information such as attorney-client privileged communications.

Though this type examination is highly intrusive, the Wynmoor court held that it could not be compelled unless the requesting party shows “good cause.” The court must also consider, “whether the burden or expense … outweighs the likely benefit, taking into account the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake ... and the importance of the proposed discovery in resolving the issues.”

In Wynmoor, the court found, among other things, that the plaintiff did not respond to discovery requests or object to them in a timely manner, did not respond at all to requests to produce electronic information, and had an increase in shredding hard copy paper documents in the recent months. Under those circumstances, the court ordered a forensic examination. The only saving grace for the association was that the court employed a previously used protocol to alleviate the invasive nature of the forensic examination:

Mindful of the potential intrusiveness of a compelling a forensic examination, the Court will employ a collection and review protocol as outlined in Bank of Mongolia. The Court is aware that Plaintiffs are non-profit and acknowledges that this procedure is likely to be costly. Therefore, the Court sets forth the following procedure:

1. An independent computer expert shall be appointed by the Court and shall mirror image Plaintiffs' computer system. (To the extent it is possible, the independent expert shall conduct his examination in a manner that minimizes the disruption to the operation of Plaintiffs' business.)

2. The parties have up through and including March 12, 2012, to meet and confer regarding their designation of an independent computer expert. If the parties cannot agree, on or before March 15, 2012, each party shall submit its recommendation to the Court, and the Court will select the expert.

3. The appointed expert shall serve as an Officer of the Court. Thus, to the extent that this computer expert has direct or indirect access to information protected by attorney-client privilege, such disclosure will not result in any waiver of the Plaintiffs' privilege.

4. The independent expert shall sign a confidentiality order. Additionally, the expert shall be allowed to hire other outside support if necessary in order to mirror image the Plaintiffs' computer system. Any outside support shall be required to sign the same confidentiality order.

5. The expert shall mirror image the Plaintiffs' computer system.

6. The Defendant shall provide a list of search terms to the Court to identify responsive documents to Defendant's document requests on or before March 15, 2012. After Defendant has submitted the search terms to the Court, Plaintiffs shall have 5 days to submit their objections to the Court regarding any of the search terms, which the court will rule upon. The Court will provide the search terms to the independent expert.

7. Once the expert has mirror imaged the Plaintiffs' computer system, the expert shall search the mirror image results using the search terms. The results of the search terms and an electronic copy of all responsive documents shall be provided to the Plaintiffs and to the Court.

8. The Plaintiffs shall review the search term results provided by the independent expert and identify all responsive documents. The Plaintiffs shall either produce all responsive documents to the Defendant or identify those responsive documents not produced on a privilege log to the Defendant within 20 days of the date that the Plaintiffs receive the search term results from the independent expert. Any privilege log produced shall comply strictly with the Local Rules for the Southern District of Florida.

9. Defendant shall pay for all fees and costs of hiring the independent expert at this time. However, if at a later time there is evidence of the Plaintiffs improper deletion of electronic documents or any other associated improper conduct, the Court will revisit this issue and consider charging the Plaintiffs for the fees and costs of the independent expert or imposing the fees and costs on the parties in a duly appropriate apportioned manner.

10. The independent expert shall provide a signed affidavit detailing the steps he or she took in mirror imaging the Plaintiffs' computer system and searching the mirror image for the search terms within 5 days of providing the Plaintiffs and the Court with the results of the search for search terms in the mirror image.

In addition to being highly intrusive, a forensic examination can be quite costly. Most courts have the authority to allocate the costs between the parties as justice requires. The best approach to electronic discovery requests is still a proper response or objection to the request. If the court compels a forensic examination of your computer system, it could reveal more than you think.

Claims Handling and General Business Practices Deemed Discoverable in First Party Breach of Contract Case

Corey Harris — Tue, 10 Apr 2012 15:59:18 -0500

While relying on its investigation to make determinations as to coverage and the amount of damages after a loss has occurred, insurance companies often take the position that their claims handling processes, general business practices, and financial incentives to delay, underestimate, and/or deny claims are not relevant or discoverable in litigation over breaches of the insurance contract. While some courts have bought in to this proposition, the tides are turning as more and more judges are seeing the disingenuousness of the argument.

This issue recently arose in Summit Towers Condominium Association, Inc. v. QBE Insurance Corporation, a breach of contract action by the association over Hurricane Wilma damages. During the discovery, Summit Towers’ attorneys attempted to illicit testimony from QBE’s Corporate Representative regarding, among other things, QBE’s claims handling procedures, reinsurance information, and financial incentives (also known as contingent loss ratio bonuses).

QBE’s attorney, however, refused to allow the Corporate Representative to answer the questions posed claiming that they were not relevant in a breach of contract action and therefore not discoverable.

After the deposition, Summit Towers asked the appointed Magistrate Judge to compel QBE’s Corporate Representative to continue the deposition and answer the questions posed. Summit Towers contended, among other things, that because QBE had alleged that the claim was fraudulently inflated, a wider discovery should be allowed to allow Summit Towers to rebut the accusations.

Magistrate Judge Simonton overruled the objections and ordered QBE to produce its Corporate Representative again to answer the questions posed. In doing so, Magistrate Simonton succinctly stated:

I am going to tell you right now I am ordering those questions to be answered at a deposition. I am going to follow the same logic that was filed I believe by Judge Torres [Buckley Towers Condominium, Inc. v. QBE Insurance Corp., 2008 WL 2645680 (S.D. Fla. June 26, 2008)], and the relevancy objection is overruled at a deposition. If it is not privileged, then the witness needs to answer the question[.]

Despite the Magistrate’s ruling, however, QBE continued its attempt to protect evidence of its claims handling procedures, general business practices, and financial incentives by appealing the Magistrate’s Order to the District Court Judge. This effort again fell flat when the Honorable Patricia Seitz issued an Order denying QBE’s objections to the Magistrate Judges rulings.

Regarding the portion of the Order compelling QBE to answer questions relating “financial incentives, general business practices and bad faith or good faith and fair dealing”, Judge Seitz stated:

Magistrate Judge Simonton’s ruling is neither clearly erroneous nor contrary to law. Consistent with Buckley Towers and QBE’s affirmative defense of fraud, inquiry into the investigation process and analysis of an insured’s claim is relevant in this breach of contract action. The questions at the deposition are relevant to whether QBE’s initial determination that damages did not exceed the deductible was reasonable and also to rebut the claims of fraud alleged by QBE.

In relation to QBE’s argument that the questions were, in essence, premature bad faith discovery, the Judge Seitz stated:

That there is some overlap with this evidence and evidence that is relevant to a bad faith claim is of no consequence where, as here, the probative value of that evidence to the breach of contract claim outweighs any prejudice to QBE.

Fraud defenses are becoming all too common in first party property insurance claims. Some carriers, such as QBE allege fraud in almost every case that there is a disagreement regarding the amount of loss and causation of damages, even if there is no evidence to support such an accusation.

Orders like the one mentioned above show that courts are taking notice of these patterns and practices and are no longer allowing insurers to “hide the ball” in discovery by claiming that information that will rebut the alleged fraud defense is not relevant and is not discoverable.

The Importance Of Disaster Response Plans For Associations Cannot Be Downplayed--Part 2

Shaun Marker — Mon, 09 Apr 2012 15:32:03 -0500

Plan for the worst; hope for the best. This is an old adage that has taken shape in various places in the realm of planning. If you have really planned for the worst and given it thought, then the element of surprise is hopefully eliminated. The destructive impact of tornadoes in the Midwest and Texas cannot be understated. Residents of an apartment complex in Virginia Beach were surprised by when a plane crashed into their buildings; thankfully no one was hurt. Other areas of the country are on the verge of another hurricane and wildfire seasons.

Given the close proximity of unit owners in community associations, the impact of natural disasters can sometimes seem to be compounded. We have previously discussed the importance of disaster plans for associations in the July 4, 2011, post The Importance of Disaster Response Plans For Associations Cannot Be Downplayed. What should associations and their representatives include in their disaster plans? The following is a general list of some information that may be helpful, but is not meant to be all encompassing. The particular needs of the association and the unique circumstances of its buildings, property and residents must of course be considered. For instance, an over-55 community may have different safety concerns when thinking about power outages.

Appoint an “Emergency Coordinator.” A current board member could be appointed, and have a chain of alternate members to fill the role in the event the coordinator is unavailable. This coordinator can take the reigns in implementing the plan and dealing with the situation at hand. This individual could also conduct a damage survey with photographs, video, etc.

Appoint someone with authority to contract for emergency repairs. This could be the emergency coordinator. Often following disasters, there will be the need for clean-up and other emergency services. The plan should have a strategy to facilitate temporary repairs and clean-up, in accordance with the association governing documents, and to start repairs as soon as possible.

Emergency telephone numbers. List emergency telephone numbers so they will be readily available when an emergency occurs. Include phone numbers that may be needed after an emergency, such as emergency repair contractors.

Utility outages and equipment failures. Include procedures for dealing with power outages. Elevators are one obstacle in this situation. If the association has an emergency backup generator, its location and operation should be described.

Utility shutoff locations. It is critical to know how to shut off water, gas, and electricity in the community to prevent further damage in the event of a disaster.

Steps to prepare. If the disaster is one where there is advance notice, such as a hurricane, there can be steps residents can take to mitigate damage, such as bringing loose items inside, securing shutters, etc.

Preparing for disasters with a detailed plan can make a difference in minimizing the impact and rebuilding after experiencing a disaster.

Insurance Companies Must Identify Policy Defenses with Some Particularity

Jeremy Tyler — Mon, 02 Apr 2012 06:30:28 -0500

In first-party property insurance litigation between a condominium association and its insurance company, the parties are generally required to plead the facts of their allegations and defenses in such a way that the judge or jury could apply them to the law. If the party does not plead in such a way, the allegations or defenses may be stricken, dismissed, or the court may allow for amendment.

An insurance company’s defenses were recently challenged in Florida federal court on grounds that they were insufficient. The Court’s opinion in Oriole Gardens Condo. Ass'n I v. Aspen Specialty Ins. Co., No. 11-62281, 2012 WL 864629 (S.D. Fla. Mar. 13, 2012), first set out the standard to which defenses must be plead in order to avoid being stricken.

An affirmative defense must be stricken when the defense comprises no more than bare-bones, conclusory allegations. [Citations Omitted]. A defense that simply points out a defect or lack of evidence in the plaintiff's case is not an affirmative defense. [Citation Omitted].

The Court went through each of the affirmative defenses that were pled by the insurance company. Many of the insurance company’s defenses related to the insurance policy itself. With regard to these policy defenses, the Court held that there must be some particularity that would give the condominium association notice of what the defense was about.

For example, one of the insurance company’s defenses was that its liability was limited “by the terms and conditions of the policy, including all exclusions, limitations, definitions and deductible provisions contained therein.” The Court held that this was so broad as to encompass the entire policy, and the association could not know which parts of the policy were being called into play. In two other defenses, the insurance company alleged that the association had not complied with the conditions of the policy. The Court held that the insurance company needed to identify which conditions in particular it was alleging non-compliance with so again, the association would know specifically what policy provisions to look at. Lastly, when the insurance company alleged “Concealment, Misrepresentation or Fraud,” the Court held that it must identify specifically how the concealment, misrepresentation, or fraud occurred.

The Court also held that the insurance company’s defenses that identified specific policy provisions were sufficient.

Petitioner also moves to strike the Sixth, Seventh, Eighth, Ninth, and Eleventh Affirmative Defenses. In each of these defenses, Aspen states that the insurance contract excludes some or all of the damages claimed by Petitioner. In each such defense, Aspen has included the particular policy language that pertains to that defense. For example, the Sixth Affirmative Defense lists the wear and tear exclusion, the Seventh Affirmative Defense lists the neglect exclusion, and so on. . . . . These defenses do give Petitioner sufficient notice, as particular contract provisions are identified in each defense. The “facts” that are alleged is the language of the particular insurance contract provision.

In summary, if the insurance company wants to use policy provisions as a defense, it needs to point out specific provisions so that the association can understand what the insurance company alleges.

Understanding The Term "Associational Standing"

Shaun Marker — Mon, 26 Mar 2012 04:30:12 -0500

Standing, as a legal concept, refers to the right to bring a lawsuit. To pursue a case as a party in court, a person or entity must show that it was sufficiently affected by the matter at hand. This is a general definition of the legal concept of “standing.” When condominium associations are involved, there is a legal concept known as “associational standing.”

A recent case in the U.S. District Court for the Southern District of Florida addressed the concept of associational standing. Mediterranean Villas Condo. Assoc., Inc. v. Moors Master Maint. Ass’n., Inc., No. 11-23302, 2012 WL 882508 (S.D. Fla. March 14, 2012). Mediterranean Villas Condominium Association is a condominium sub-association that operates the Mediterranean Villas Condominium. The condominium consists of 252 units, which share certain common areas. The Moors Master Maintenance Association Villas' master association.

In October 2010, Moors announced a change in the way it would levy assessments against the owners of the condominium. Villas alleges that the change greatly increased the amount assessed against the condominium's owners, and the increase is improper and violates the Master Covenants. Some of the unit owners refused to pay the increased assessments. Villas sued as the representative of the unit owners, alleging that the increased assessments are improper and that the unit owners who have paid the increased assessments have overpaid.

The Southern District Court reviewed the complaint to see if it stated a claim or was subject to dismissal. The Court noted that an association has “associational standing” to bring a suit as the representative of its members if it shows that:

Its members would otherwise have standing to sue in their own right;
The interests it seeks to protect are germane to the organization's purpose; and
Neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.

An association may have standing in the absence of injury to itself so long as a member has standing and the nature of the claim and of the relief sought does not make the individual participation of each unit owner necessary for a proper resolution of the case. The Court held that Villas failed to establish that it can bring this suit without the participation of the unit owners. The unit owners’ claims will vary based on their differing circumstances. Some unit owners paid the increased assessments while others refused to pay. Since each unit owners’ circumstances are different, the participation of Villas’ unit owners is required to properly resolve the individualized claims. The Court dismissed the case, and stated it is doubtful the Villas will be able to overcome the lack of associational standing.

Florida Law Requires Loss Assessment Coverage for Condominium Unit Owner Policies

Jeremy Tyler — Mon, 19 Mar 2012 07:06:19 -0500

Florida Statute § 718.111(4) gives condominium associations the power to make and collect assessments to “lease, maintain, repair, and replace the common elements of association property.” Typically, if common areas owned by condominium associations are damaged or destroyed, the associations may seek to have each of the individual unit owners pay for a portion of the damage. If the loss is one that the association is insured against, the association may still assess unit owners for any costs or liabilities other than what is recovered from the insurance claim.

Florida Statute § 627.714 requires that residential condominium unit insurance policies issued or renewed after July 1, 2010, must include at least $2,000 in property loss assessment coverage. This coverage would pay up to the stated amount for any assessments made upon each insured unit owner. When determining how much loss assessment coverage one should get, unit owners may want to consider what property the association is responsible for, how much insurance the association has, and how much previous assessments have been.

The loss assessment coverage provision of § 627.714 sets forth a few requirements:

Policy must include at least $2,000 worth of coverage
The coverage amount is in excess of all other coverage
Deductible can be no more than $250
The deductible will not apply if another one was already applied to the unit owner for the same loss
Coverage applies to all assessments made related to a particular loss
Loss must be to property owned by the community as a whole
Loss must be of the type covered by the unit owner’s homeowner policy

As long as the loss assessment coverage meets these minimum statutory requirements, it may include other terms and conditions. For example, as discussed in Loss Assessment Coverage and the “Master Deductible” Clause, depending on the policy written, this coverage may not apply to assessments made by associations to cover its own deductible on the association’s policy. Be sure to read each policy to determine what each policy’s loss assessment provisions cover.

Most Insurance Policies Require Insureds To Give Prompt Notice Of A Loss. Does That Requirement Extend To Reopening Previously-Submitted Claims?

Shaun Marker — Mon, 12 Mar 2012 06:30:25 -0500

There is a lot of litigation from Hurricane Wilma still proceeding in Florida state and federal courts. Much of that litigation has concerned whether the policyholders have complied with their post-loss duties to submit information, documentation and appear for examination under oath. During the last year or so, probably the heaviest litigated issue concerns whether the policyholder gave adequate notice of the loss to the insurer as required by policy terms. Insurers that raise such a defense are looking for a judgment on a technicality, and request the court to declare that they have no responsibility for any damages because the policyholder breached their duty to notify them of the loss.

This was one of the issues recently addressed by a federal trial court in the case Oriole Gardens Condominiums, III v. Independence Casualty & Surety Company, 2012 WL 718803 (S.D. Fla. March 6, 2012). On November 14, 2005, the association notified the insurer it had sustained a loss from Hurricane Wilma. The insurer hired an independent adjusting company to inspect the property in 2005 and determined the damage to the property fell below the insurance policy deductible. The insurer informed the association on December 9, 2005, that no payment would be forthcoming. Four years later, the association retained a public adjuster, notified the insurer that it wished to reopen the claim, and submitted a sworn proof of loss for $6,592,532.49. The insurer requested that Oriole Gardens comply with several of post-loss duties under the policy, including submitting to an examination under oath, and furnishing all documents in its possession relating to fifty separate categories.

The association produced its Board President and two representatives of the public adjusting firm for examination under oath. The association also submitted numerous documents responsive to the insurer’s requests and provided proofs of loss. The insurer requested additional examinations under oath and documentation, claiming that the people it had spoken with did not possess certain knowledge regarding the claim and because not all requested documentation had been received.

On January 10, 2011, Independence informed Oriole Gardens that it was standing by its initial 2005 claim determination that the amount of loss fell below the policy deductible. The association filed a lawsuit for breach of contract in Florida state court on January 10, 2011. The case was removed to the U.S. District Court for the Southern District of Florida.

The insurer filed a summary judgment in the case, arguing that Oriole Gardens did not comply with its policy duties after loss to submit to an examination under oath, provide relevant documents and give prompt notice of the loss.

After conducting a hearing and considering all of the evidence, the federal court denied the insurer’s motion in respects. Of particular significance was the court’s opinion on the notice issue. The court cited the pertinent part of the policy:

Duties in the Event of Loss or Damage

a. You must see that the following are done in the event of loss or damage to Covered Property:

(2) Give us prompt notice of the loss or damage. Include a description of the property involved.

The court held that the clause requiring Oriole Gardens to provide “prompt notice” of the loss is ambiguous. The ambiguity involves whether Oriole Gardens’ duty to notify pertains only to the initial claim, or also imposes a time limit on supplementing its claim. The insurer conceded that Oriole Gardens provided initial notice of the loss within a reasonable time after Hurricane Wilma, but argued that the duty to provide prompt notice of loss was violated because Oriole Gardens waited four years to request that the claim be re-evaluated. The court noted that the policy contains no provision delineating when an insured may submit a revised proof of loss or contest a previous claim determination.

In light of the ruling, a jury will probably resolve the question of whether the association satisfied its policy duties after loss. This opinion is important as it recognizes that insurers ask the courts to apply a meaning to policy terms that is not defined in most policies. We will continue to provide updates as additional cases are decided.

Reinsurance Information Can Play an Important Role for Associations

Corey Harris — Fri, 09 Mar 2012 16:21:51 -0500

Reinsurance is insurance for insurance companies. Often, insurers will write large policies to condominium and homeowner associations with limits well in excess of the amounts the carrier would be willing to pay if a total loss occurred. Instead of passing on the opportunity to write the policy, insurers typically lay off a portion of the potential liability to reinsurers. By spreading the risk, insurers can limit the amounts payable from their own coffers in the event of a large scale loss.

While many policies with large limits are reinsured, policyholders typically never meet any of the reinsurer’s representatives. In fact, most policyholders have no idea that their insurer has reinsured their policy. During litigation, however, reinsurance information can be a vital tool in rebutting coverage defenses and resolving disputes.

Just as an association has a contract with its insurance carrier, an insurance carrier has a contract with the applicable reinsurers. These agreements generally provide the terms and conditions of the reinsurance relationship and can spell out the rights and obligations of the insurance carrier and the reinsurer. While reinsurers are almost always involved in the claim or litigation filed by a policyholder, often reinsurers have the ability to join in the investigation or defense of the litigation and have the ability to participate in the decisions on coverage and amounts paid.

While many insurers will argue that their reinsurance agreements are not discoverable by a policyholder during coverage litigation, the vast majority of courts have disagreed. Federal Rule of Civil Procedure 26(a)(1)(D) requires the production of:

Any insurance agreement under which any person carrying on an insurance business may be liable to satisfy part or all of a judgment which may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment.

Because reinsurance agreements undoubtedly fall into these categories, Rule 26 requires them to be disclosed. The rule is absolute and does not require any showing of relevance. See, e.g., National Union Fire Ins. Co. of Pittsburgh, Pa. v. Continental Illinois Corp., 116 F.R.D. 78, 83-84 (N.D.Ill.1987).

Aside from the agreements, communications between an insurer and any applicable reinsurer can play an important role in a number of ways. Numerous courts have allowed these communications to be discovered by policyholders in litigation with their insurers for a variety of purposes including as extrinsic evidence of the meaning of an ambiguous policy provision, to defend against allegations of a material misrepresentation in the insurance application, to rebut a late notice or fraud allegation, and to reconstruct a lost policy. Medmarc Cas. Ins. Co. v. Arrow Int'l, Inc., 2002 WL 1870452, at *3-4 (E.D.Pa. July 29, 2002).

With the current financial climate, reinsurance is playing a large role in the United States as well as foreign markets. When dealing with large losses, it is important to understand the role reinsurers play and the potential impacts that these entities can have on the claim and any subsequent litigation.

Condominium Unit Owners Not Strictly Liable for Damage Originating from Their Unit in Ohio

Jeremy Tyler — Mon, 05 Mar 2012 08:07:51 -0500

In condominium associations, where individual owners share a common interest in property and are often within close proximity to each other, it is not uncommon for disputes to arise between individual owners. Resolution of these disputes often turns on how the property relationships are defined by condominium association documents and bylaws, as well as state condominium statutes. In a recent decision from Ohio, the court analyzed the rights and responsibilities between two unit owners when a water leak in a top unit caused damage to a lower unit that was not covered by insurance.

In Michnowicz v. Hines, No. C-110048, 2012 WL 601263 (Ohio App. Feb. 24, 2012), the owner of a lower unit sued his neighbor above him after water leaked from a broken pipe in the upstairs unit into the lower unit. At trial it was established that the upstairs pipe was improperly installed, but also that the improper installation was hidden inside a vanity and undiscoverable without breaking open the sealed vanity. The parties each moved for a directed verdict at the close of evidence, and the court granted the downstairs owner’s motion on the basis that he had proven that (1) the pipe was in the exclusive control of the top unit owner, (2) the owner had a duty to maintain the pipe, (3) the pipe broke, and (4) water flowed down into the lower unit causing damage.

The upstairs neighbor appealed the directed verdict, and the appellate court analyzed the trial court’s verdict to determine that it had applied an absolute liability standard, holding the owner of the top unit liable for damage even if he had acted reasonably under the circumstances. The court looked to the Ohio Condominium Act and the declaration of condominium for the association to determine whether unit owners were strictly and absolutely liable for damage to others’ property. The Ohio Condominium Act provides that:

[the] unit owner or any person entitled to occupy a unit is liable in damages in a civil action for harm caused to any person or to the unit owners association by that individual's failure to comply with any lawful provision of the condominium instruments.

The court held that the “failure to comply” requirement meant that there must be some level of improper conduct on the part of the upstairs neighbor before he could be held liable for damage caused by a leak originating from his unit.

Upon our review, we hold that the trial court erred by interpreting Article XI, Section 2 and R.C. 5311.23(A) to impose on Hines absolute liability for any damages to Michnowicz caused by the failure of a component in Hines's unit that Hines had the responsibility to maintain. Article XI, Section 2 merely sets forth the responsibility of the owner to maintain the unit and its components, but it does not define the scope of the duty to maintain.

And R.C. 5311.23(A) simply subjects unit owners to statutory liability to others for damages caused by the failure to comply with a provision of the association's instruments. The trial court effectively eliminated this element of proximate cause. Further, R.C. 5311.23(A) does not define a standard of care for the underlying violation of a provision, and we do not believe the General Assembly intended it to.

The appellate court held that after removing the incorrect absolute liability standard applied by the trial court, a directed verdict was not warranted and the judge should not have taken the issue away from the jury.

So what level of culpability is required before liability may be imposed on one owner for damage caused to a neighboring unit owner’s property? The court did not state what level was required for Ohio, and will most likely vary in different jurisdictions, so be sure to contact competent legal counsel when dealing with similar issues.

Understanding Associations' Ability To "Opt-out" Of The Repair, Replacement And Deductible Requirements Of The Florida Condominium Act

Shaun Marker — Mon, 27 Feb 2012 06:30:19 -0500

Condominium association unit owners, boards of directors and property managers are often faced with questions of responsibility for losses due to water damage within association property and units. Water damage claims are likely one of the most common sources of damage in non-hurricane years in Florida. This problem is complicated by the maze of legal terms within the insurance requirements of Florida Statute §718.111(11).

Consider a common scenario:

A leak from an upper unit causes water to flow into lower units and damages the ceilings and drywall within those units. Repair expenses may be significant, but there may be a fairly large deductible on the association policy of insurance, making it difficult to obtain insurance proceeds to help cover the loss.

Under the Florida condominium statute, associations are generally responsible for the repair and replacement of the drywall within the condominium units. According to Florida Statute §718.111(11)(f), 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.”

In the leak scenario, the association’s insurance covers all drywall damage caused by a covered peril and all other damage, with the exceptions of that specifically excluded by the statute -- provided that the loss is above the association’s policy deductible.

According to Florida Statute §718.111(11)(j) “any portion of the condominium property required to 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.”

This means that the association pays for repairs to the items covered by the association’s insurance, even if those damages are below the association’s policy deductible, unless the members have voted to “opt-out.” Under §718.111(11)(j), the association also pays the deductible as a common expense of the association unless it has to “opted-out” of the provision of the statute. The “opt-out” provision of the condominium statute in Florida Statute §718.111(11)(k) states:

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.

An Association can “opt-out” of part of the insurance law, but cannot “opt out” of its insurance obligations. It seems that the “opt-out” would change whether the repair expenses and deductible will be considered a common expense. If a majority of the association’s unit owners vote to “opt-out,” the requirement to pay for repairs as a common expense and the requirement to pay the deductible as a common expense can be changed and will be dealt with according to the condominium declarations. If damage was to only one unit, this “opt-out” may make it the unit owner’s responsibility to pay for the repairs and to pay the deductible.

Florida Statute §718.111(11)(m) states that if a community votes to “opt-out” of the repair and replacement and deductible requirements of the Statute, it must record a notice setting forth the date of the “opt-out” vote and the page of the official records book within the county records on which the declaration is recorded. The Statute allows an opt-out decision to be reversed by the same vote of a majority of the total voting interests of the association.

Associations considering whether to “opt-out” of the repair, replacement and deductible requirements of the Florida condominium statute should consult with their legal and insurance professionals who could likely help the board of directors weigh their options.

Who is Responsible for Limited Common Elements?

Jeremy Tyler — Mon, 20 Feb 2012 06:30:23 -0500

Condominium property is often divided and categorized into association property and unit property. Association property can be further subdivided into common elements and limited common elements. How an area of condominium property is classified may change the respective rights and responsibilities of the association and its members, including whose insurance will cover damage to each type of property.

To determine the type of property, Florida Statute §718.103 provides definitions for certain areas of condominium property:

(27) “Unit” means a part of the condominium property which is subject to exclusive ownership. A unit may be in improvements, land, or land and improvements together, as specified in the declaration.

(8) “Common elements” means the portions of the condominium property not included in the units.

(19) “Limited common elements” means those common elements which are reserved for the use of a certain unit or units to the exclusion of all other units, as specified in the declaration.

Although limited common elements are exclusive in ownership, in Cedar Cove Efficiency Condo. Ass'n, Inc. v. Cedar Cove Properties, Inc., 558 So. 2d 475, 479-80 (Fla. 1st DCA 1990), a Florida appellate court held that limited common elements such as balconies and patios may fall under the responsibility of the association and not the unit owners. In Cedar Cove, after a dispute developed on whether an association could levy an assessment over exterior balconies and doors, in identifying the responsibilities of the association and unit owners the court stated:

The Act's definition of “limited common elements” implies they are a subset of “common elements” and therefore a “common expense” properly within the scope of the association's authority. Sections 6.1 and 6.2 of the declaration of condominium authorize the association to levy an assessment to maintain and repair all unit exteriors and common elements. Even if the balconies and closet doors are not considered “common elements”, it is difficult to refute their classification as part of the unit exterior. The balconies and doors fall within the scope of the association's broad authority to maintain condominium exteriors.

Even though limited common elements such as balconies and patios may be considered the responsibility of the association and not the unit, other movable personal property that is placed or installed on limited common elements generally remains the property and responsibility of individual unit owners. After a Florida governmental agency had declared otherwise, another Florida appellate court set the record straight in Costa Del Sol Ass'n, Inc. v. State, Dept. of Bus. & Prof'l Regulation, Div. of Florida Land Sales, Condominiums, & Mobile Homes, 987 So. 2d 734, 736 (Fla. 3d DCA 2008):

In the total absence of any cognizable legal basis for the inside-and-outside distinction drawn by the Division, which would as well apply to a barbeque or even a lounge chair placed on the patio, it is self-evident that this ruling, that the owner of all the sticks or incidents of ownership which make up the proverbial bundle of property rights is not its owner and that something or someone else is, cannot stand.

The court went on to find that the association would not even have an insurable interest in these items of personal property that a unit owner individually purchases and retains exclusive rights over, even if they are placed in a limited common element. As an individual unit’s property, the unit owner would be responsible for insuring.

Theses cases and statutes represent Florida law, and the law often varies in different states and jurisdictions, so please contact competent legal counsel for assistance with any analysis of insurance covering limited common elements.

If a Roof Doesn't Leak, is it Damaged?

Guest Blogger — Wed, 15 Feb 2012 11:50:54 -0500

(*Note: This guest blog is by Steven M. Thomas, President of Roof Leak Detection Company, Inc., a Certified Testing Laboratory located in South Florida which specializes in testing and consulting services for commercial and industrial properties).

On numerous occasions I’ve had the unfortunate burden of informing building owners that their roofing system is no longer repairable and must be replaced. This revelation, that the roof must be replaced, becomes a big surprise when the tenants of the building report that the roof is not even leaking. “How can that be?” is usually the first question that is asked. Why must it be replaced!?

Depending upon the roof composition and supporting deck type, there can be multiple reasons why a bad roof does not leak. While there are numerous potential reasons, the most common are:

Concrete decks tend to not let water migrate into the interior of the building.
Sub-surface insulation boards can absorb large quantities of water and never leak into the interior.
Light weight concrete is very absorbent and can greatly reduce noticeable leakage into the interior. This is one the reasons why light weight concrete is so widely used on big retail centers.

For Example: The following is based on a recent insurance claim I worked on. A thirteen building complex in Boca Raton, Florida, did not know that their roofs were damaged. No one reported any leaks after Hurricane Frances had impacted the property in September of 2004. However, a wise property manager and Board President sent their maintenance personnel to do a cursory inspection of the roof to see if any damage was visible. The property had carport awnings and trees blown down, however the maintenance personnel reported that other than the drains being clogged on every roof, none of the roofs appeared to have been uplifted. The maintenance personnel did report that over a foot of water was present on each roof but one. The roof that had no ponding water was the only building in the complex that had a walk-out stairwell to the roof; this stairwell acted as an overflow for the roof and is the only reason why ponding water was not found on that particular roof.

The Association filed an insurance claim for the damage. They asked the insurance adjuster to look at the roofs, because every community around the complex was getting new roofs. The insurance adjuster did report that he observed several scrapes and gouges to the roof membrane on each of the buildings, however it was his position that the roof damage he observed was not over the deductible.

The Manager and Board President, not believing the insurance company adjuster, then hired a public adjuster to assist them in the claims process. The Association also hired a roofing consultant to evaluate the condition of the roofs. The roofing consultant hired by the Association performed Nuclear Moisture Surveys on each building and found that 12 of the 13 roofs were saturated with moisture. The insurance company did not believe the results of the Association’s consultant and decided to hire their own company to perform another Moisture Survey on three of the thirteen buildings in an effort to refute the Association consultant’s conclusions.

The company hired by the insurance company performed an Infrared Moisture Survey. The buildings had been re-roofed just two years prior to the storm event. The roofing systems at the complex are smooth surfaced silver reflective coated with six inches of light weight concrete. The Infrared Survey is not recommended for usage on this type of roofing assembly by ASTM or anybody with knowledge about infrared testing for roofs. The results were inconclusive according to the insurance carrier’s Infrared Moisture testing company. However, the company adjuster, believing he had fulfilled his duties to report that he found no damages over the deductible, denied the claim.

The Association was then forced to hire an attorney. The attorney subsequently hired my firm. After reviewing all of the previous tests performed on the roof, Roof Leak Detection personnel performed our own testing. The testing included a Roof Moisture Survey (Nuclear Method), Gravimetric Core Analysis on each roof, Wind Uplift and Fastener Uplift testing.

Our objective was to find out the condition of the roof before we opined on how the roof came to be in the condition we found it at the time of our evaluation. Insurance companies would be better served by their experts if the experts would take the same approach prior to making an opinion about the condition of a roof. I have performed hundreds of roof evaluations for insurance companies and not once did I ever give an opinion as to the condition without performing some type of roof testing. In my opinion a roof condition report without performing accepted scientific testing is unprofessional and cheats both the insured and insurance company. Would you let a Doctor tell you, you need to replace your knee without performing an X-Ray or MRI? Of course not! Then why would you believe an analysis of your roof without any testing being performed?

Our Roof Moisture Survey determined that the roofs on 12 of the 13 buildings were indeed saturated, as the Association’s consultant had found three years earlier (wet insulation does not dry out). We performed wind uplift testing to measure the performance of the roof in its present condition and found that the saturation of the light weight concrete severely diminished the roofing systems uplift capabilities. We conducted fastener uplift test into the light weight concrete to measure the uplift resistance of a like kind fastener and found that the light weight concrete could no longer provide the minimum resistance values for the like kind fastener. We performed Gravimetric Core Analysis on each roof to determine exact moisture contents. Through all of the testing performed, we were able to determine the condition of the roof and whether the underlying insulation would be useful in any future re-roofing applications. We proved without a doubt that the light weight concrete was damaged beyond repair and must be completely removed prior to a new roofing system being installed. We were also able to pinpoint the causation for how the moisture entered the roof during Hurricane Frances. It was not that difficult to figure out! Had the insurance carrier expert been there to truly evaluate the roofs’ conditions rather than taking on the roll of damage deniers, the good people of this community would not have waited so long for this case to settle.

The insurance adjuster and their experts hung their hat on the belief that if a roof is not leaking then it can’t be damaged. The insurance company adjuster and experts overlooked obvious signs of moisture infiltration into the roofing system and did not believe the first set of Roof Moisture Surveys that were performed by a certified testing company. In fact, the insurance company experts attempted to refute the first set of Moisture Surveys by cutting one core on one building to determine that all of the first Moisture Surveys were incorrect. The sad part is that the carrier believed them.

Even when my firm provided another Certified Moisture Survey they were skeptical. The first testing company and my firm are certified testing companies; however the carrier’s expert insisted on having another company perform another Nuclear Moisture Survey, the company they hired was not a certified testing company; however they came up with the same results as we did. The insurance company eventually paid a claim of over $5,000,000.00. The carrier reportedly paid over $250,000.00 in expert fees. What a waste! Had their experts been diligent, and followed accepted procedures for evaluating roofs, the case would have been settled much sooner.

If your property has been in the path of a hurricane, tornado or severe straight-line wind event, have your roof inspected by qualified independent personnel. Insist on scientific testing to back up any opinions from either the insurance carrier or your own engineering or roof consulting firm, DO NOT ACCEPT VISUAL OBSVERVATION REPORTS. Failure to accurately evaluate damage could lead to further damage to the property. More importantly though: never assume that because a roof does not leak, it was not damaged.

Steven M. Thomas
President
Roof Leak Detection Company, Inc.

Waiver of Subrogation Rights Prevents Lawsuit Between New Jersey Condominium Unit Owners and Association

Jeremy Tyler — Mon, 06 Feb 2012 06:30:33 -0500

Is a condominium association responsible for damage to individual condominium units caused by negligent maintenance of common elements? The answer is, “it depends.”

In Schoolhouse Commons at Union Ave. Condo. Ass’n v. CCTS Tax Liens I, L.L.C., L-2469-10, 2012 WL 95593 (N.J. App. Jan. 13, 2012), a New Jersey condominium association was allegedly negligent in maintaining a common water pipe that leaked, causing water damage to the unit below. When the association sued the unit owner for failing to pay assessments, the unit owner countersued for damages to its unit caused by the leaky pipe. The trial court dismissed the unit owner’s claim and the unit owner appealed. The appellate court had to determine the rights and responsibilities of the parties.

The respective rights and responsibilities of unit owners and condominium associations are governed by the [New Jersey] Condominium Act [], the master deed creating the condominium, and the condominium association's by-laws. … The determination whether [the unit owner] may maintain an action against [the association] and [the property manager] for the damage to its unit caused by their alleged negligent maintenance of the common elements turns on the sections of the [association] by-laws regarding the parties' obligations to obtain insurance and precluding subrogation actions.

The association’s by-laws required the association to carry insurance over the building and required the unit owners to carry insurance over their personal property. All policies were required to waive subrogation rights, cutting off the rights of the insurance companies to pursue action against the real party responsible for damage. The court concluded that these provisions demonstrated that the condominium by-laws were drafted with the intent of preventing unit owners and the association from suing each other over damage to their respective properties.

Similarly, we conclude that the [association] by-laws, which require [the association] to obtain insurance on the condominium property and the unit owners to obtain property damage coverage for their own personal property, and require both policies to include waiver of subrogation provisions, contemplate that there will be no litigation between unit owners and the association based on alleged damage to the condominium units or the personal property contained in them. (Emphasis added).

While state statutes will likely apply to all condominiums in a given state, condominium deeds, declarations of condominium, and condominium by-laws may vary for each respective property, and require individual analysis to determine if the outcome in the case above would result at a different location.

Playgrounds Are Not All Fun And Games, Especially When They Are On Association Property

Shaun Marker — Mon, 30 Jan 2012 09:16:49 -0500

I often find that I am writing on this blog about recent court cases involving condominium associations and their property insurance claims with insurers. For this week’s post, I began thinking of another side of potential insurance disputes that associations are faced with. These involve liability issues. Risk management is a big concern for associations and their representatives. Similarly for me, as a new parent, potential dangers are suddenly more visible all around. Many condominium and homeowner associations have playgrounds in their common areas. Playgrounds are nice community amenities, but they can pose certain risks. The ironic thing is that such leisure amenities are often the things that pose increased risks. If injuries occur, the association and its insurer could get sued.

However, associations can minimize the risk of accidents occurring. Creating playground rules and making parents aware of them are very important to associations’ risk management.

The Community Association Management Insider has a website devoted to topics of interest for associations. An article on the site by James Bownas, Esq. and William Granahan, Set Playground Rules to Minimize Risk of Injuries and Lawsuits, covers what playground rules should cover from a risk management perspective.

The article discusses the following to be addressed in the rules:

Require adult supervision. As a manager, you are generally not required by law to supervise children on your community's playground. . . . But you should require parents or other adult guardians to watch kids and make sure the rules are followed.. . . . Some associations set a certain age below which children require supervision.

Warn that those using playground do so at their own risk. Your rules should warn members that they are responsible for their activities on the playground and that the association is not responsible for injuries or accidents. . .

Set hours. It is a good idea to set reasonable hours for playground use based on when it gets dark in your area. . . . If the playground has a fence and gate, you can lock the gate during off-hours and when it is raining or snowing.

Limit use to members and guests. You should limit the use of the playground to members and accompanied guests. . .

Ban older and bigger kids. Set a maximum age or height of the children you allow to use the playground—depending on the type of equipment and the manufacturers’ instructions. . . . Equipment is usually tailored to a particular age or height.

Ban improper use of equipment. Make it clear to members that they must ensure that their kids use the playground equipment properly. . . . [Y]our rules should ban some common abuses such as:

Standing, kneeling, or riding double on swings;

Walking up or down the slide; and

Climbing on top of the swing sets.

Ban in-line skates, skateboards, bicycles, and tricycles. One common dangerous misuse this rule prevents is children using skates or skateboards on the slide, which could cause injury.

Ban pets and food and drinks.

Taking recommended precautions can help to minimize risk while still preserving the residents’ ability to enjoy such an amenity. Association representatives and managers are urged to speak with their association’s attorney and insurer about adapting these rules to fit their community’s needs.

Condominium Entitled to Matching Components Rather than Patchwork Repairs

Jeremy Tyler — Mon, 23 Jan 2012 09:18:51 -0500

Last week on the Property Insurance Law Blog, I discussed a Florida statute that often requires insurance companies to repair undamaged parts of a property in addition to the damaged parts of the property. As discussed, Florida and federal courts have held that Florida Statute § 626.9744 only applies to homeowners’ policies, and not condominium association policies that are considered “commercial residential” policies. See Ocean View Towers Ass'n, Inc. v. QBE Ins. Corp., 11-60447-CIV, 2011 WL 6754063, *9 (S.D. Fla. Dec. 22, 2011). Despite the statute not covering commercial properties, a commercial residential policy may require an insurance company to repair undamaged property as well.

In 200 Island Boulevard Condo. Ass’n v. QBE Ins. Co., No. 11-20247, (S.D. Fla. Jan. 19, 2012), United States District Judge Cecilia M. Altonaga held that the insurance policy entitled the condominium association to “matching,” despite arguments from the insurance company that the policy did not provide for such repairs. The Court first found that there are two ways to approach a “matching” situation.

As an initial matter, the Court observes that matching of replacement building components to undamaged original building components can logically be arrived at by two means. The first is by installing replacement components that are “of like kind and quality” as the original components; uniformity is thus achieved without the replacement of undamaged original components. If that is not possible because, for example, components “of like kind and quality” are unavailable, a second option to achieve matching is to replace all like components (i.e., windows), both damaged and undamaged, so that any damaged components that are replaced are identical to the undamaged ones.

In opposition to the matching argument, the insurance company cited Ocean View and Strasser v. Nationwide Mut. Ins. Co., 09-60314-CIV, 2010 WL 667945 (S.D. Fla. Feb. 22, 2010), to allege that the policy did not cover “matching” through the second method discussed by Judge Altonaga.

While the reasoning of Strasser and Ocean View is persuasive, the cases are not directly applicable here for two reasons. First, in Strasser, “what constituted a direct physical loss under the policy . . . [was] not at issue.” [citing Strasser]. Similarly, the court in Ocean View Towers did not specifically address whether the policy’s coverage included “direct physical loss or damage” to the building as a whole, likely because the plaintiff did not raise the argument. [citing Ocean View]. In this case, however, Island maintains that by the policy’s own terms, the entire building or structure is “covered property,” and thus, damage to the building not only includes physical damage to its individual components, but also physical loss of the building’s original condition due to mismatched replacement components. … In sum, regardless of which method QBE used to compensate Island for its loss, Island is entitled to matching. Notably QBE fails to address this argument in its Reply. … [Emphasis added].

The Court looked to the payment provision in the policy that requires the insurance company to either “pay the value of lost or damaged property” under paragraph (a)(1) or “replace the property with property of like kind and quality” under Paragraph (a)(4).

Thus, although QBE states that it must “pay” as opposed to “replace or repair” the damage to Island’s property, QBE appears to agree that matching via the first method is appropriate, i.e., damaged items must be replaced with property of “like kind and quality,” which is language belonging to Paragraph (a)(4). … Indeed, if QBE opted to compensate Island under Paragraph (a)(4), money damages for breaching the insurance contract could simply contemplate what Island would have been entitled to: matching building components. [Emphasis added].

Essentially, the Court held that under the terms of the policy, the entire building was covered in its pre-loss condition. The building had matching components in its pre-loss condition, and the policy covers the cost to repair damage to bring the building back to that pre-loss condition, matching components and all. This makes perfect sense under all theories of indemnity, because the property should be brought back to its original pre-loss condition, not a patchwork of mismatched components.

Can Associations Require Their Unit Owners To Carry Property Insurance?

Shaun Marker — Mon, 16 Jan 2012 11:25:28 -0500

The short answer to this question is yes, as long as the Declarations address it. A recent case decided January 6, 2012, by a Florida appellate court involved this issue, as well as the association’s claim for attorneys’ fees and costs associated with the lawsuit. Alorda v. Sutton Place Homeowners Association, Inc., No. 2D10–3966 (Fla. 2d DCA 2012).

The Alordas purchased a townhouse located in Sutton Place Homeowners Association on June 29, 2007. The association is organized pursuant to Declarations of Covenants, Conditions, Restrictions, and Easements filed in the public records of Hillsborough County. Section 9.04 of the Declarations requires that the owner of a residence in the subdivision maintain insurance on the residential property and annually provide notice of coverage to the association. Specifically, the Declarations state:

The owner shall furnish proof of such insurance to the Association at the time of purchase of a lot and shall furnish proof of renewal of such insurance on each anniversary date thereof. If the owner fails to provide such insurance the Association may obtain such insurance and shall assess the owner for the cost of the same in accordance with the provisions of this Declaration.

In June 2008, on the first anniversary of the Alordas’ purchase, the association did not receive notice that they had renewed their insurance coverage. The association sent letters requesting the proof of insurance. When the Alordas did not send proof, the association filed a complaint against the Alordas on April 9, 2009. The association sought the equitable remedy of injunctive relief, asking the trial court to “enter a permanent mandatory injunction requiring that the Defendant obtain the insurance coverages as are described in § 9.04 of the Declaration.” In response to the service of the lawsuit, the Alordas’ attorney sent the association’s attorney an email on May 6, 2009, advising that the Alordas did have the required insurance coverage. Attached to the email was a copy of the declarations page of the insurance policy, showing that it went into effect March 19, 2009. Counsel for the Alordas also asked the association to dismiss its action.

The case did not end there. The association refused to dismiss the action and ultimately obtained a judgment of attorneys’ fees and costs. The Alordas appealed that judgment, arguing that the original complaint did not state a cause of action for the injunctive relief requested.

To state a claim of injunctive relief, the requesting party must show that it does not have an adequate remedy available at law. The Alordas argued that the association acknowledged in its own pleadings that it had an available remedy at law, as the Declaration attached to the complaint provided the association with procedures to follow if an owner failed to provide the required notice of insurance coverage. The procedures specifically include allowing the association to obtain coverage and then assess the cost of obtaining that coverage against the owner. The procedures also provide that the assessment can be recorded as a lien against the owner’s real property if the assessment is not paid within thirty days and that an action at law could then be filed against the owner to collect the assessment.

The appellate court agreed with the Alordas and reversed the judgment for fees and costs, finding that the association was not the prevailing party. The court concluded:

[W]e are not unsympathetic to the Association's having incurred unnecessary fees and costs in attempting to obtain the Alordas' compliance with the terms of the Declaration. However, this opinion addresses only whether courts can award fees based on a prevailing party theory where that party can never prevail because the complaint, on its face, fails to state a cause of action. Because this impossibility prevents the award of fees to the Association in this action, we are compelled to reverse that award.

The outcome may have been different if the association had obtained insurance coverage for the Alordas’ property and then filed an action against the owner to assess the costs of that insurance against the Alordas. This case again makes clear that both associations and unit owners are bound by the terms of an associations governing documents and failure to comply with them can have detrimental consequences for both.

Insurance Company Can Only Blame Itself For Ruling on Supplemental Claims

Jeremy Tyler — Mon, 09 Jan 2012 06:30:58 -0500

Last week on the Property Insurance Law Blog, I wrote about a condominium association that sued its insurance company for failing to discover all Hurricane Wilma damage. The association discovered additional damage several years after the storm, and rather than file a supplemental claim for damage, the association filed suit. The insurance company claimed that the association needed to notify it of the newly found damage and submit to a secondary investigation before it could recover benefits. Judge Robert N. Scola, Jr., of the United States District Court for the Southern District of Florida, disagreed, finding that the insurance policy did not require a supplemental claim.

Following Judge Scola’s December 22, 2010, opinion, the insurance company asked the Court to reconsider. On New Year’s Day, in Ocean View Towers Ass'n, Inc. v. QBE Ins. Corp., 11-60447-CIV, 2012 WL 8569 (S.D. Fla. Jan. 1, 2012), Judge Scola denied that motion. Below are some of the highlights of Judge Scola’s denial.

In support of its Motion for Reconsideration, QBE cites numerous opinions from the Southern District of Florida in cases involving this very same Defendant-none of which were cited by QBE in its Response to the Corrected Motion for Summary Judgment. It boggles the mind to consider how QBE could not be aware of opinions in its own cases from the same federal district court and yet not cite those cases until after receiving an adverse ruling from the court.
…
QBE cites no decision holding that the insured must submit a supplemental claim before bringing suit where, as here, the insured alleges breach of contract and has not sought an appraisal or declaratory relief as to coverage under the policy.
…
QBE also cannot demonstrate any “manifest error” because, in this case, the Court simply followed the plain language of the policy. The Court reached the conclusion that Ocean View complied with its post-loss duties, despite the fact that Ocean View never submitted a supplemental claim before filing suit, because nothing in the policy's plain language required Ocean View to do anything more than provide the initial notification of the “loss,” which it unquestionably did in the days after Hurricane Wilma. That QBE failed to fully exercise its investigatory rights cannot be blamed on Ocean View or this Court. Although QBE argues that “the Court's order essentially abolishes the concept of a supplemental claim,” see Mot. at 7, this is hyperbole. The Court followed the law and interpreted the unambiguous policy terms according to their plain meaning. If QBE is unsatisfied with this result, it can only blame itself. If QBE wanted to ensure a contrary result, it should have included a provision in its policies expressly requiring insureds to submit supplemental claims as a prerequisite to bringing suit. It failed to do so, and this Court will not rewrite the policy for QBE after the fact.

As I stated last week, Judge Scola’s reading of the insurance policy sends a strong message to insurance companies to get their investigations right the first time. If they don’t, they can’t blame it on the insured, the court, or anyone else for that matter. The blame lies squarely on an insurance company that fails to fully exercise its investigatory rights.

Important Decision for Hurricane Wilma Claims

Corey Harris — Tue, 03 Jan 2012 06:30:00 -0500

The fact pattern is simple and quite common. An association suffered damages from Hurricane Wilma on October 24, 2005, and immediately notified its insurance carrier that the loss had occurred. The insurance carrier, in turn, retained an adjuster to investigate the loss and determine what was owed under the policy. After a brief inspection, the adjuster determines that the damages do not exceed the large hurricane deductible contained in the policy and denies payment.

Later, after the damages become more evident, the association finds that the damages from Hurricane Wilma were much more severe than originally thought. Roof leaks begin to appear, sliding glass doors and windows appear fogged or do not work properly, and residents begin to complain. At that point, the association hires its own consultant to do a full investigation, asks the insurance carrier to re-assess the previous denial and pay what is owed under the policy.

The scenario above was common to a large number of condominium associations over the past few years. This has led insurance carriers and their attorneys to come up with ways to attempt to avoid payment, many of which have relied on so called “late notice” defenses to fight coverage.

Recently, in Ocean View Towers Association, Inc. v. QBE Insurance Corporation, a federal trial court in the Southern District of Florida heard argument on competing motions for summary judgment. One of the main issues was whether the association was barred from recovery because it had not notified QBE of the additional damages and instead filed suit for breach of contract.

The court rejected QBE’s “late notice” arguments, finding that the clear and unambiguous language of the policy controlled the obligations of the policyholder. The policy, like most policies, required Ocean View to “[g]ive [QBE] prompt notice of the loss or damage” and “[i]nclude a description of the property involved.” Based on this requirement, the court determined that since Ocean View undisputedly provided prompt notice that Hurricane Wilma had damaged the property and had included a description of the damages known at that time, Ocean View had fulfilled its requirements under the policy and was not required to do more. As the court noted, QBE had ample opportunity to inspect and adjust the loss after the Hurricane and simply chose not to utilize all the means at its discretion.

This is an important case that all adjusters, attorneys, and insurance professionals should read carefully. Numerous other issues are addressed in the opinion, aside from the notice issue, however, those are highly technical and do not lend themselves to a single post. This decision will undoubtedly be cited by both sides in legal briefs for a long time.