Condominium Insurance Law

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.

Some Condominium Boards Spark Flames By Seeking To Extinguish Smoking Within Their Communities

Shaun Marker — Mon, 02 Jan 2012 08:45:20 -0500

Smoking poses obvious fire risks and insurance costs to association and apartment communities. In addition to the fire risks, there are certain health risks to community residents, as well as increased complaints from non-smoking residents. With the aim to not only prevent fires and reduce health problems, but also to increase property values, some boards are seeking to prevent unit owners and their guests from lighting up in their communities. It seems they have heeded the warnings of that famous icon, Smokey the Bear, “Remember... Only YOU Can Prevent Forest Fires.”

Some boards feel that putting an end to smoking in common areas is enough, while others try to prohibit smoking in members’ units. Whether a board has authority to regulate this type of behavior within the association will depend on the governing documents and by-laws. It may also depend on the particular circumstances and how other unit owners are affected. If a community is comprised of single-family homes on large lots, then a board likely does not have a valid reason to ban smoking in its members’ units. Regulating smoking within members’ units may be more reasonable where the community consists of units that share a common ventilation system, such as a high-rise building, or if the units share common walls.

Boards may base the ban on nuisance provisions in the governing documents. Many, if not most, associations’ governing documents ban members from doing things that would be a nuisance or annoyance to others in the community. Secondhand smoke is a known carcinogen, and smoking in common areas, where members congregate, is certainly an annoyance to members who do not smoke and may fall within the legal definition of “nuisance.” In communities where members’ units share common walls or ventilation systems, smoking may be a nuisance even when confined to a member’s unit, because smoke often seeps through the walls.

Some municipalities have even passed ordinances preventing condominium and apartment residents from smoking in their units. The City of Larkspur, California adopted an ordinance in 2011 which bars residents from lighting up in most condominium and apartment units. County officials have said that the smoking crackdown is necessary to “preserve healthy communities.”

These measures taken by municipalities and condominium boards may be applauded by some residents, yet scorned by others. There may be a certain feeling of intrusiveness when the effects are felt in the privacy of our own homes. However, it must be remembered that condominium associations are communities where the board of directors have fiduciary duties to the residents. If things happening in the community jeopardizes the health and safety of the other residents, then the board of directors may have an obligation to take action. Whatever the board’s justification, a smoking ban will serve to reduce the risk of fire and smoke damage that can be the subject of insurance claims.

Florida Court Limits Condo Association's Claim to Actual Cash Value Since It Had Not Completed Repairs

Jeremy Tyler — Mon, 26 Dec 2011 10:16:58 -0500

When condominium associations suffer millions of dollars worth of catastrophic damage from a natural disaster, most associations will need to rely on insurance proceeds to start and complete repairs. Indeed, that is why they purchased insurance in the first place. Unfortunately for condominium associations in Florida without millions of dollars in reserves, recent legal opinions may not help when it comes time to make those repairs.

Last fall, Chip Merlin and I wrote about an unpublished decision from the Eleventh Circuit Court of Appeals that limited a condominium association’s recovery to actual cash value (ACV) instead of replacement cost value (RCV) when it had not completed repairs to its property after Hurricane Wilma. In Prevention of Performance with Replacement Cost Value, I discussed the case of Buckley Towers Condo., Inc. v. QBE Ins. Corp., 395 F. Appx. 659 (11th Cir. 2010), and how the Court held that an insurance company’s delay or refusal to pay benefits did not alleviate the association’s duty to spend almost $19 million to repair its property before it was entitled to replacement cost benefits under the policy. In QBE Insurance Case Rewrites Replacement Cost Adjustment, Chip continued that discussion, noting

The practical impact of such legal reasoning is that insurers, absent consumer protection statutes requiring payment of replacement costs, can now underpay losses and get away with it. If this unpublished [opinion] is followed, federal courts will not award the full amount of replacement cost benefits until the insured actually does the work. This seems like a pretty illogical result from the policyholders view, as a replacement cost policy should pay for replacement of the property to a new condition. Where an insurer underpays a loss and refuses to acknowledge a proper amount of value for replacement, how are policyholders supposed to do the replacement?

Unfortunately for consumers -- especially condominium associations, last week, Florida’s Fourth District Court of Appeal expressly followed the logic and reasoning of Buckley Towers in Florida Ins. Guar. Ass’n. v. Somerset Homeowners Ass’n, Inc., 4D10-4157, 2011 WL 6373028 (Fla. 4th DCA Dec. 21, 2011). In Somerset, an appraisal panel entered an appraisal award in the amount of $12,581,471.43 for RCV and $11,630,208.55 for ACV. When the insurer failed to pay either ACV or RCV, the association sought confirmation of the award and a judgment was entered for the RCV award. The insurer appealed on several grounds, but the appellate court reversed only on the basis that the judgment was limited to ACV. The decision was based on policy language that required the association to actually perform repairs as soon as reasonably possible after the loss before it would be entitled to replacement cost benefits.

While this decision is ultimately anti-consumer, there is some good news because the appellate court rejected several of the insurer’s arguments, including those that the insurer was entitled to discovery regarding the appraisal, that the award should have been vacated, that “matching” was legally inapplicable, that an award of impact windows was improper, that the appraiser for the association made improper submissions to the umpire, that the appraisal award included items not previously adjusted, and that the insurer was entitled to challenge coverage. Also, this decision does not prevent recovery of the difference between ACV and RCV from being recovered once the repairs are completed, and does not address homeowner’s policies or Florida Statute § 627.7011 that legislates replacement cost coverage for homeowners.

The Concept Of "Custodial Contract" - Does It Make The Association Guardian Of Unit Owners' Repairs?

Shaun Marker — Mon, 19 Dec 2011 11:25:10 -0500

From time to time certain legal buzz words seem to jump off the page when reading court cases. “Custodial contract” is one of those interesting legal terms that I recently came across in an opinion from the U.S. Middle District of Florida. Upon first glance, it seems that the term must relate to the area of family law and guardianship or, more literally, to a contract for janitorial services. But law, in its infinite wisdom, has a way of transcending beyond the norm. Custodial is defined as “of or relating to the work of guarding or maintaining” and “marked by care and supervision.” The American Heritage Dictionary of the English Language, Fourth Edition. The concept of a contractual relationship arising out of the factual circumstances and actions pursued by the parties is an interesting one. The “custodial contract” concept as it relates to condominium association and unit owners is one with slim discussion in Florida legal precedent… until a recent case.

The case is Hawkins v. Condo. Owners Assoc. of Sand Cay, Inc., 2011 WL 5826570 (M.D. Fla. November 18, 2011). Mr. Hawkins owns a unit in Sand Cay Beach Resort for use as a vacation property and as a rental unit. In the lawsuit he filed against the condominium association, he alleged that his unit sustained damage during renovations performed by contractors working under the association’s direction. In 2004, substantial renovations to the exterior of the buildings of the units began. The renovations included structural renovations, repair and replacement of roofs, siding, walkways, windows and doors, and required entry of contractors, subcontractors, and other repair people into the affected units.

Mr. Hawkins alleged that his unit suffered mold infestation directly related to the repairs being performed in an unsatisfactory manner. In the Amended Complaint, he alleged causes of action against the association for breach of contract (Count I), negligent retention (Count II), fraud (Count IV), and conversion (Count V). The association moved for final summary judgment on all counts. This means that the association asked the Court to issue a judgment in its favor on all counts, declaring it the winner of the case.

Mr. Hawkins alleged that he entered into a “custodial contract” with the association when he vacated his unit and surrendered it to the association during the ongoing renovations to his unit. The count for breach of this “custodial contract” was the only count of the complaint on which the Court did not issue a summary judgment in favor of the association. The Court found that a jury must decide whether the association breached a “custodial contract” with the owner to repair damages, including mold, caused by the building repairs undertaken by the association.

As part of its analysis into this holding, the Court looked to the declaration of condominium and found that it gives rise to this “custodial contract” where it states:

6.1 Maintenance, Alteration, and Improvement. The responsibility for the maintenance of the condominium property and restrictions upon the alteration and improvement thereof shall be as hereinafter provided.

6.2 By the Association. The Association shall maintain, repair, and replace at the Association’s expense:

(a) All portions of a unit, except interior surfaces, contributing to the support of the unit, which portions shall include but not be limited to load-bearing columns and load-bearing walls.

(b) All conduits, ducts, plumbing, wiring, and other facilities for the furnishing of utility services contained in the portions of a unit maintained by the Association, and all such facilities contained within a unit that service part or parts of the condominium other than the unit within which they are contained.

(c) All property, real and personal, owned by the Association, the exterior wall enclosing any limited common element, and all common elements as defined in Articles 3.3(a) and 5.3(a) of the Declaration. The Association shall not be responsible for the maintenance of the interior of any limited common element as defined in Article 5.3(b).

(d) All incidental damage caused to a unit by such work shall be repaired promptly at the expense of the Association.

This decision reveals that the declaration of condominium controls the duties and obligations of the association and unit owners and can be a place where legal concepts such as the “custodial contract” take root. Association managers and boards of directors should review the declarations with representatives to ensure they are aware of the rights, duties and obligations of the association and unit owners created in their documents. Who would have thought that a concept such as a “custodial contract” could have its roots in a declaration of condominium?

The Incredible Shrinking Insurance Policy

Jeremy Tyler — Mon, 12 Dec 2011 08:13:38 -0500

A few years back, several journalists began reporting about a new trend in product packaging: offering less product for the same price. One of these journalists, Michael Brush, dubbed PepsiCo’s subtle repackaging as, “The incredible shrinking Doritos bag.” Most companies cited rising costs as the reason for reducing sizes, but when the result ends up being higher profits and larger market share, those motives could rightfully be challenged. According to Brush and Harvard Business School Professor John Gourville, this strategy works because consumers don’t react to a change in quantity like they do to a change in price. Unfortunately for insurance consumers, this trend is finding its way into the insurance industry.

One example came last week, when Florida’s Citizens Property Insurance Corporation presented its most recent plan to the Financial Services Commission. The proposal is peppered with keywords like reduce, eliminate, discontinue, limit, restrict, phase out, and remove. The plan calls for less coverage for other structures and personal property, discontinuing builder’s risk coverage, raising sinkhole deductibles, reducing liability coverage, cutting increase mold coverage, adding sublimits to high value personal property such as furs and jewelry, expanding the vacancy exclusion, limiting law and ordinance coverage to only the main structure, and losing business income and extra expense coverage. Many reports also indicate that Citizens will be dropping coverage for items such as carports and screened pool enclosures, putting caps on coverage for cosmetic damage, and phasing out hurricane mitigation discounts. The plan would also shed much of Citizens’ risk, as Citizens tries to push the risk back to the private market.

If the economic research holds true, insurance consumers will react less to losing these coverages than they would to premium increases. It appears Citizens is trying to adjust its bottom line while avoiding the recent reaction consumers had to Citizens’ 2000% rate hike. Regardless of whether these price increases come in through the front door as premium hikes or through the back door as reduced coverage, they will have a profound impact on all Florida policyholders, especially for those carrying larger policies that cover condominiums and commercial properties.

To avoid this sneaky price increase, policyholders need to stay vigilant in the fight for proper coverage. Consumer advocacy groups such as Policyholders of Florida provide information and resources for protecting insurance consumers’ rights. Education and standardization may also help raise awareness over broad policy changes like those proposed by Citizens. Research has shown that consumers react differently to changes once they have become accustomed to a particular size or quantity of product. As Brush concluded his article, “don't expect to see 11 eggs in a carton anytime soon.” As insurance consumers begin to expect certain coverages in their policies, it won’t be as easy for carriers to remove them from policies.

National Flood Insurance Program To Be Extended Again

Corey Harris — Mon, 05 Dec 2011 07:47:02 -0500

Few coverages are more important than flood insurance. Whether it is storm surge from a hurricane, rising rivers, torrential rains, or broken levees, floods occur in every part of the United States. Unfortunately, as most people know, flood insurance is difficult to find. Since most private insurers specifically exclude flood from coverage, the majority of flood coverage is purchased from the National Flood Insurance Program, which is instituted and administrated by the federal government. Unfortunately this vital program has been short on funding for years, leaving many to wonder if the program can survive.

Temporary fixes have been proposed and passed by Congress that have allowed the Program to continue until now. The current extension is set to expire December 16, and Washington is again scrambling to find a solution.

Currently, a bill proposed by Sen. David Vitter (R-La.) seeks to extend the Program until September 8, 2012. This would be the 13th short term fix passed by Congress since 2002.

Flood insurance is a necessary coverage for homeowners, condominium unit owners, and associations alike. Some of the most devastating losses occur as a result of unexpected flooding and a lapse in coverage can lead to large assessments. Associations and unit owners should speak to their agents and brokers now to ensure that their flood coverage is current. Associations, especially in flood prone areas, should also look into getting excess flood coverage from the private market if possible.

It's All About the Property Interest, or Why Associations Aren't Normally Responsible for Damage to Individual Condominium Units

Jeremy Tyler — Mon, 28 Nov 2011 06:55:27 -0500

Is a condominium association responsible to repair casualty loss damage to the interior of individual condominium units? Generally the answer is no, but why not? After all, some state statutes like the Maryland Condominium Act require that the association repair or replace, “any portion of the condominium damaged or destroyed.” In the case of Anderson v. Council of Unit Owners of Gables on Tuckerman Condo., 948 A. 2d 11 (Md. App. 2008), the court took the opportunity to explain why not.

Anderson was actually a combined case in which two different unit owners and their insurance companies sued condominium associations to repair the interiors of their condominium units. The first unit owner, Ms. Anderson, suffered damage to her unit when her water heater leaked causing damage to walls, ceilings, and floors. The other unit owners, Mr. and Mrs. O’Carroll, suffered damage to their unit from a grease fire in their kitchen. In both instances the damage was limited to the individual units, and in both instances Erie Insurance Exchange insured the units. Both unit owners submitted claims to Erie, who in turn paid the claims less the deductibles. The owners and Erie then sued the association for reimbursement on the theory that the Maryland Condominium Act required the association to be responsible for the damage and to maintain insurance on the common elements and units. The court explained that the reason the associations were not responsible was because of the respective property interests.

A condominium is “an estate in real property” that “typically involves an apartment building or other structure consisting of two or more separate apartments or units,” i.e., “horizontal property” or multi-story “stacked units.” … In Ridgely Condominium Ass'n v. Smyrnioudis, 343 Md. 357, 681 A.2d 494 (1996), we provided an overview of the condominium form of ownership, explicating that an owner has a “hybrid property interest”:

A condominium is a “communal form of estate in property consisting of individually owned units which are supported by collectively held facilities and areas.” …

The term condominium may be defined generally as a system for providing separate ownership of individual units in multiple-unit developments. In addition to the interest acquired in a particular apartment, each unit owner also is a tenant in common in the underlying fee and in the spaces and building parts used in common by all the unit owners.

… A condominium owner, therefore, holds a hybrid property interest consisting of an exclusive ownership of a particular unit or apartment and a tenancy in common with the other co-owners in the common elements.

… The owner, therefore, possesses two distinct, separate property interests. She or he owns a fee interest in her or his individual property, comprising the exclusive right to use and occupy it. … “All a condominium is, is a vertical, rather than horizontal, subdivision of one of the incidents of real property, the airspace.... [T]he condominium statutes did not create a new real property. They simply created another way to own airspace....”

The owner also possesses an undivided percentage interest, as a tenant in common, with the other owners, in the condominium's common elements, which,

may include the land, foundations, columns, supports, walls, roofs, halls, lobbies, stairs, entrances, recreational areas, parking lots, gardens and installations for utilities. The common interest represents the residual rights that the unit owners have in the property. The unit owners collectively own, as tenants in common, the entire condominium property, minus the airspaces consisting of the units. The rights to individual units are, in a sense, carved out of the tenancy in common.

… Common elements can be further subdivided into limited common elements, which are allocated for the exclusive use of one or more, but fewer than all, owners, such as, for example, designated parking spaces, balconies, terraces or patios, as well as general common elements, such as grounds and roads.

The court reviewed the Maryland statutes and history in light of the unit owners’ argument that the statute only required a unit owner to be responsible for maintenance but not repairs. The court held that such an interpretation would create an illogical result.

The Owners' interpretation of the statute [] would lead to illogical and absurd results by giving the council owners greater responsibility for losses within a unit than a landlord has on the property of a tenant, when the landlord owns the space, while the council of owners does not. … Additionally, the council of owners would be responsible for repairing or replacing property in a unit within which the council has no right to enter to make inspections or perform preventative maintenance. … As we have noted on many prior occasions, the General Assembly reasonably could not have intended such an illogical result. …

We conclude that the Maryland Condominium Act does not require the council of owners to repair or replace property of an owner in an individual condominium unit after a casualty loss. Thus, we affirm the judgments of the Circuit Court for Montgomery County and the Circuit Court for Prince George's County.

The court held as many have done around the country, that the association is responsible for maintenance and repairs to the common elements, and that the individual unit owner is responsible for the maintenance and repairs of his or her respective units. It is important to note that this case involved damage that was restricted to the individual units. More complex issues arise when the same property damage bridges across both individual and association ownership interests. The results may also vary depending on local laws, so contact competent counsel regarding these types of issues for your jurisdiction.

Citizens Plans Large Rate Hike.....Again

Corey Harris — Sat, 19 Nov 2011 08:18:57 -0500

While the holiday season usually brings good tidings and cheer, condominium associations and residents insured by Citizens Property Insurance Corporation can expect coal in their stockings this year. Once again, the state’s largest insurer plans to increase rates to Florida condominium residents between 19 and 20.6 percent on average leaving many dismayed, especially since it has been over 5 years since the last major hurricane.

Beginning in March for new policies and April for renewals, rates for all of the commercial residential multi-peril risks will increase by 19 percent on average. For those associations and residents in higher risk areas like Broward, Miami-Dade, Palm Beach, Indian River, and St. Lucie counties, however, an average increase of 20.6 percent is planned. This will create a huge influx of premiums to the state-run insurance carrier, especially since the high risk counties alone account for more than $71 million in premiums.

If you or your association see a rate increase, I suggest you contact your state representative or senator. With re-elections looming, your input may have more of an impact than ever before.

When is an Insurance Claim Ready for Litigation?

Jeremy Tyler — Mon, 14 Nov 2011 07:42:02 -0500

When asked if something is ripe, one might immediately think of fruit that is ready to eat. Similarly, the legal term “ripeness” means the readiness of a case for litigation. While a simple smell test may be all that is needed for fruit, the ripeness of a legal case, an insurance claim, and a legal case about an insurance claim, require a little more analysis.

For a property insurance claim, the standard recipe involves: (1) property damage, (2) notification to the insurance company, (3) investigation of the damage, and (4) a decision on the claim. If the recipe doesn’t turn out right with these simple ingredients, one may need to add a little legal support. Unfortunately, each of these steps take time to complete, and much like the timers found in the Iron Chef kitchens, there is a legal timer known as the statute of limitations that can threaten to cut even the best chefs short.

When dealing with large condominium losses, one factor that can take significant time is the investigation of the loss by the insurance company. This is because the insurance company may want to inspect a large property, review boxes full of association records and documents, and interview association board members. Depending on the circumstances, this process may span months or even years. So what is an association to do when a property damage claim is still under investigation but the statute of limitations is running out? In Yacht Club on the Intracoastal Condo. Ass'n, Inc. v. Lexington Ins. Co., 10-81397-CV, 2011 WL 5223127 (S.D. Fla. Nov. 2, 2011), the association went ahead and file suit.

In Yacht Club, the condominium association first notified its insurance company of Hurricane Wilma damage approximately four years and seven months after the loss. The insurance company requested a proof of loss, examination under oath, and various documents. Faced with a potential statute of limitations problem at the five-year anniversary of the loss, the association filed suit for breach of contract before the insurance company’s investigation was complete. The court held that under the specific facts of that case, the lawsuit was not ripe when it was filed because the insurance company could not breach the contract until after it had investigated and denied the claim. The court dismissed the case without prejudice so it could potentially be filed again when and if it became ripe.

In the past, courts have either dismissed an early-filed lawsuit or stayed the litigation so that the insurance company could complete its investigation before reaching a determination on the loss. See El-Ad Enclave at Miramar Condo. Ass'n, Inc. v. Mt. Hawley Ins. Co., 752 F.Supp.2d 1282, 1287 (S.D. Fla. 2010). What is different about Yacht Club, is that after the association filed suit, the insurance company abandoned its efforts to investigate the claim. Over a year went by with significant litigation before the court ultimately dismissed the case, yet the court found that there would be no hardship to the parties if the case was dismissed and re-filed later. Under the court’s logic, and under the facts of that particular case, even though the insurance claim was not brought until close to five years after the loss occurred, the claim would not be barred by the applicable statute of limitations even if the insurance company denied the claim after a lengthy investigation, because the denial would start the countdown clock ticking, not the hurricane itself.

It takes some good analysis to determine when a claim first becomes ripe and when that countdown clock will run out. If you have property damage, be sure to take action early to give yourself plenty of time, and seek professional help to ensure timeliness and accuracy for your claim.

Does Appraisal Have A Certain "Appeal" To Citizens?

Shaun Marker — Mon, 07 Nov 2011 08:10:01 -0500

On March 7, 2011, Jeremy Tyler wrote Litigating The Right To Resolve Disputes Without Litigation, providing an excellent synopsis of various appeals Citizens Property Insurance Corporation (Citizens) pursued in the Florida Third District Court of Appeal related to compliance with policy conditions before appraisal. He discussed how Citizens is forcing policyholders to “proceed with evidentiary hearings to prove entitlement to an alternative dispute resolution proceeding that was, ironically, created as an alternative to litigation.” With so much contractual and judicial support for appraisal, policyholders may wonder what this evidentiary hearing that Citizens keeps requesting is supposed to accomplish.

In a recent case decided by the Third District Court of Appeal the Court used a buzz word that may shed some light on the issue. On October 26, 2011, the Court issued its opinion in Citizens Prop. Ins. Corp. v. De Los Cuetos, 2011 WL 5061232 (Fla. 3d DCA 2011). It was only a paragraph long, but involved a scenario similar to many of the other Citizens appraisal appeal cases.

In the case, the trial court ordered the parties to appraisal without conducting an evidentiary hearing on post-loss compliance with the policy duties. Citizens filed an appeal, and the policyholder’s counsel confessed error. That means that they agreed the trial court should have conducted the evidentiary hearing before compelling appraisal. Based on that confession of error and the record reviewed by the appellate court, the case was remanded for an evidentiary hearing to determine whether post-loss obligations were “sufficiently” met under the policy. Notably, the Court did not direct the trial court to determine whether all of the post-loss obligations were “specifically” met.

It almost seems that Citizens uses the duties after loss as a shield to the resolution of claims through appraisal and intends to force the parties to litigate in court. Litigation can be far more costly and time consuming than the dispute resolution process of appraisal. We will continue to provide updates on this blog, as well as on the Property Insurance Coverage Law blog, as this area of law develops.

Florida Legislative Update: New Bad Faith Bill Filed

Corey Harris — Tue, 01 Nov 2011 13:42:32 -0500

For the second straight term, a bill has been filed in the Florida Legislature designed to make changes to the well-settled legal principles that have successfully governed our state for many years and have held insurance carriers accountable when they act improperly.

Instead of holding insurers accountable when their wrongful actions cause harm to others, some in the legislature seem determined to give these companies a pass.

Policyholders, including businesses and condominium associations, will be affected in many ways, but a couple stand out. First, in the context of a third-party claim, the claimant will be required to give a 60-day notice to the carrier and Department of Financial Services. Failing to do so can result in the claim being barred.

While it may not seem problematic, these “Civil Remedy Notices” have been required for years in first-party situations (where an insured is suing its own insurance carrier) and have done nothing to stop the problems such Notices were intended to cure. Instead, the whole process has been plagued by abuses from skilled insurance defense attorneys who find creative ways to challenge the Notices in court based on a purported technicality. This leads to an increase in time and money spent litigating bad faith claims and adds to the burden already on the plaintiff.

Second, the bill provides that a complainant must provide the specific amounts owed. If the insurance carrier pays the specific amount within 60 days, no action can lie for bad faith, regardless of the damages already suffered. In essence, this legislation gives insurance carriers the ability to do anything they wish, regardless of the consequences, and then avoid liability by simply paying what it should have in the first place within 60 days of a Civil Remedy Notice. Unfortunately for the individual or entity making the complaint, any damages suffered as a result of the carrier’s actions would not generally be included in this amount and would likely be unrecoverable no matter how severe.

Finally, this provision also puts the burden of calculating damages on the person bringing the action instead of on the insurance carrier. Insurance carriers have trained, skilled, and licensed adjusters on staff and are required to investigate a loss and determine what is owed pursuant to both the policy and the relevant ethical and statutory obligations. This bill will reverse this obligation and will put the burden on the policyholder, who generally does not have the training or experience to do it. This will only increase the time and cost burdens for the policyholder.

Most insurance carriers handle claims in good faith and a financially strong insurance market is important to our state. This does not mean, however, that we can ignore the actions of a company or provide it immunity when it injures its own customers. Regardless of what you hear, this bill is anti-consumer and should be opposed.

Keeping Halloween Parties within Association Rules

Jeremy Tyler — Mon, 31 Oct 2011 07:18:04 -0500

Halloween usually brings two things for sure: trick-or-treaters and Halloween parties. As a member of a condominium or homeowner’s association, you can almost be certain that either your association or one or more of your neighbors will be hosting a Halloween party. If you or someone you know is planning a party, try to make sure that the party doesn’t go so far as to violate any of the association’s rules, as one California homeowner’s party did in Jones Ranch Homeowners Ass'n v. Degnan, A118584, 2008 WL 5049757 (Cal. Ct. App., Nov. 25, 2008, A118584).

The Degnan homeowner’s association Covenants, Conditions, and Restrictions (CC&R) contained the following provisions:

(1) restricting a member or member's guest from parking more than 10 vehicles in the common area at any given time, without board permission; (2) prohibiting the use of helicopters and light aircraft in Jones Ranch except for emergencies; (3) requiring a member desiring to host a gathering attended at any one time by more than 100 persons to submit an application to the HOA board 45 days in advance the event; and (4) permitting the HOA to levy reimbursement assessments to be enforced by lien with power of sale, and increasing the upper limit on fines that can be levied against a member from $50 to $25,000.

Dr. Degnan owned a secluded residence on which he regularly entertained large groups with lavish parties. One such Halloween party invitation included the following language:

DR DEGNANS HALLOWEEN PARTY. THIS IS A HALLOWEEN/PAJAMA PARTY, SEXY COSTUMES ARE ENCOURAGED FOR WOMEN.... Gentlemen will be expected to bring at least two ladies or you will not get in-NO EXCEPTIONS.

Dr. Degnan’s parties were known to include up to as many as 500 guests “in various stages of dress and undress,” loud music, public drinking, parking that obstructed traffic, and widespread littering. On at least one occasion, a private helicopter landed in Dr. Degnan’s yard to deliver guests. After several of such parties, the homeowner’s association filed suit to enforce its restrictions against Dr. Degnan. The court ruled that the first three of the four provisions cited above were enforceable, but the liens and fines of the fourth provision were excessive.

As a result of this litigation, Dr. Degnan was required to submit an application to the HOA board for large-scale gatherings of more than 100 people. The application required information such as the number of guests, date and time of the party, security measures, and cleanup arrangements. Dr. Degnan was also required to submit a deposit to cover HOA expenses that may be incurred as a result of the parties and to obtain insurance to cover the HOA for any liabilities that might arise from his parties.

If you are planning a party, make sure it falls in line with your association’s rules. With that caveat, be sure to have a good time.

Merlin Law Group wishes you a safe and happy Halloween!

When Insurers Use Examination Under Oath to Harass the Witness

Shaun Marker — Tue, 25 Oct 2011 06:30:19 -0500

We have written several times in the Condominium Insurance Law Blog regarding examinations under oath and their importance in the insurance claims process. In his July 3, 2010 post titled Examinations Under Oath Can Be Difficult For Associations, Corey Harris gave an excellent description of what an examination under oath is and what the process entails. Corey wrote that:

[A]nyone sitting for an EUO should remember that while it is not a “legal proceeding,” it is about as close as you can get. The insurance company’s representative asking the questions will undoubtedly be an attorney, and you should plan for some tough questions.

It is true that during the examination under oath, the person being questioned may face some tough questions concerning the loss, the description of damages as well as efforts to conduct repairs. But what happens if the insurer unfortunately uses the examination under oath process to harass the witness with a laundry list of questions completely unrelated to the loss itself?

Recently the Third District Court of Appeal in Florida issued an opinion addressing the unreasonableness of an insurance company’s lawyer’s questions during an examination under oath. De Leon v. Great American Assurance Co., No. 3D09-646, 2011 WL 4824135 (Fla. 3d DCA October 12, 2011). Chip Merlin wrote about this case on October 17, 2011 in his post The Games Insurance Companies Play on the Property Insurance Coverage Law Blog. Chip noted that the title to the post was actually a quote from the Third District Court’s opinion.

The De Leon case involved an insurance claim where someone stole a truck owned by De Leon and insured by Great American. When it was recovered, the truck was damaged and was missing nine large valuable tires. When the insurer demanded an examination under oath, De Leon appeared without counsel. Great American’s lawyer did not even discuss the truck and the tires. As the Court described, “[i]nstead, he insisted on probing into the details of, among other things, a prior, totally unrelated criminal conviction, and the person with whom the claimant was then living.” The Court quoted numerous pages from the examination under oath transcript and described it as “a never-to-be-emulated model of its kind.”

The Court stated in its opinion that when De Leon was asked about the unrelated questions of who he was living with and the criminal conviction, that:

With complete justification, De Leon declined to answer most of these questions, even though Diz [the insurer’s lawyer] specifically warned him that he was jeopardizing his insurance coverage and invited him to withdraw his claim in lieu of responding. In fact De Leon told Diz that if he continued on that track, he would leave, get an attorney, and see him in court. Diz did not desist. He persisted. True to his word, De Leon got a lawyer and filed suit.

In the De Leon opinion, there is a strong statement written after the majority opinion by Judge Shepherd:

This court recently admonished ‘all counsel’ who practice in the courts of this state that ‘improper conduct’ in the courtroom ‘will not be condoned by this court.’ This case involves conduct outside the courtroom, stemming from the theft of a 2000 Freightliner “eighteen wheeler” commercial truck…After suit was filed, the trial court abated the action and ordered completion of the previously begun examination under oath. The same lawyer who conducted the first aborted EUO conducted the second. It lasted over seven hours. It stains credulity to assert—as the insurer does in this case—that a seven-hour sworn statement of a single individual is necessary to the investigation of an $8000 tire loss claim, whatever may be the insurer’s suspicions. ‘Over-lawyering’ is a frequent affliction found in the legal profession. If there is any question concerning whether the insured’s instincts about the interrogator’s purpose was any different in the second EUO than in the first, the doubt can be dispelled easily by reviewing the transcript of the latter EUO.

An attorney is an officer of the court, and he plays his role badly, even outside the courtroom, if he trespasses against the obligations of his professional responsibilities. A careful review of the transcript of the second EUO reveals the role played by counsel during that EUO was performed just like the first—badly. As in the first EUO, counsel’s misunderstanding of the permissible range of inquiry in a sworn statement taken to verify a simple theft loss, whatever might have been the insurer’s suspicions, was palpable.

This is strong stuff. For an appellate court to be admonishing this behavior by the insurer and its representatives in this opinion is as if to say enough is enough. An examination under oath should not be utilized as an all day fishing expedition into detail that has nothing to do with the insurance claim and damages. The Third District Court ordered the insurer in De Leon to pay for the policyholder’s attorney’s fees for filing the lawsuit after the abusive treatment during the examination under oath because the claim was “not resolvable absent judicial intervention.” The Court ended its opinion with the statement:

We cannot permit Great American to escape the consequences of what it tried to get away with in this case.

Bravo!