NEU Insurance Services provides competitive rates and superior services to hundreds of community associations throughout the state of Florida. We work closely with boards and property managers to determine the best fit each association’s particular needs. And because we have strong relationships with just about every community association insurer, we can bring our clients multiple quotes each year, assuring the proper coverages and the best value, year after year.
Property Insurance
Community associations are varied and complex and are governed by multiple state statues that dictate who is responsible to cover certain items within the community. For example, Chapter 718 for Condominiums associations, Chapter 719 for Cooperatives and Chapter 720 for Homeowners Associations are all unique and require different insurance solutions.
Per Chapter 718, Condominium Associations are required to obtain a new insurance valuation or appraisal every 36 months. This appraisal provides a great deal of information about your structures and gives your agent a value to insure your buildings to. Having an updated appraisal is very important for a board member as you have an obligation to properly insure your buildings.
In most cases, the association is responsible for the shell of the building to the raw drywall. The association is also responsible to insure ALL heating and cooling (HVAC) equipment, regardless of its location. The routine maintenance of the HVAC equipment servicing only one unit remains the responsibility of the unit owner. The unit owner is responsible for the finishing of the drywall and the interior build out of the unit.
The below chart outlines who is responsible to insure certain items pertaining to the building.
The bottom line? NEU has the relationships and experience to help you find the “best fit” coverage for Community Associations at competitive price.
Property Insurance Coverage Terms
- Property – Provides physical damage coverage to the structure for covered perils of loss. It is very important to read the policy and review the exclusions. It is also very important to know what form of policy the carrier is using and the valuation method they are using.
- Basic Form Perils – Fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicle, riot, vandalism, sprinkler leaks, sinkhole, or volcano.
- Special Form Perils – Covers “all risks of physical loss” unless the policy specifically excludes or limits the loss.
- Common Exclusions – Ordinance or law, earth movement, government action, flood, mold, wear & tear, animal infestation, mechanical breakdown, pollution, neglect, construction defect
- Agreed Value Valuation – This coverage is used to remove the coinsurance requirement for covered property. With it, your company agrees that the amount of coverage purchased is adequate, and any coinsurance requirements are waived if the limit of insurance equals the agreed value.
- Replacement Cost Valuation – This loss valuation method pays for the cost to repair or replace damaged items with like kind and quality without deduction for depreciation. This is important since you could face a substantial loss if you must replace property at today’s prices but receive only the depreciated value of the property that was destroyed.
- Co-Insurance – A policy may contain a coinsurance clause requiring that the limit of coverage be a minimum percentage (usually 80%) of the insurable value of your property. If the amount of insurance carried is less than what is required by this clause, any claim payment may be reduced by the same percentage as the deficiency.
- Ordinance or Law – Code upgrade coverage that is in addition to your regular limits of coverage.
- Coverage A – Pays for loss of value of undamaged portion of the existing building that must be demolished and/or removed to conform to municipal ordinance or code.
- Coverage B – Pays for cost of demolition of the undamaged portions of the building necessitated by the enforcement of the building, zoning or land use ordinance or law.
- Coverage C – Pays for the increased expenses incurred to replace the building with one conforming to building laws or ordinances, or to repair the damaged building so that it meets the specifications of current building laws or ordinances.
- Mold – A fungus resulting from a water intrusion that goes unnoticed for some time. Some policies have limited coverage ($15,000) for mold built in.
- Sewer & Drain Backup – Covers damages as a result from sewage or sump pump backups.
- Wind Driven Rain – Covers damages from of wind driving rain into the structure, without have substantial damage to the structure from the wind.
- Terrorism – Covers your structure for physical damages that are deemed acts of terrorism.
- Asbestos – Covers the removal and remediation of the harmful fibers that are mostly in older buildings.
General Liability for Associations
General Liability is one of the most important coverages to include for an association. It covers against lawsuits alleging bodily injury, personal injury, or property damage due to negligence on the part of the association. This policy will pay the cost to defend the association as well as the damages. The most common liability claims for an association are those involving water damage, slips and falls.
General Liability Exclusions
Associations should be aware of these common exclusions when reviewing their general liability policy.
- Terrorism – Covers for negligence in connection with a terrorist act.
- Abuse & Molestation – Covers for actual or threatened abuse or molestation claims.
- Assault & Battery – Covers for negligence due to an actual, threatened, or alleged assault or battery.
- Firearms – Covers for negligence when a firearm is used.
- Absolute Liquor – Covers for claims involving alcoholic beverages.
- Cross Suits – Covers when one member of the association sues another.
Directors & Officers Coverage
Directors and Officers coverage is another very important coverage for associations. It covers the board members and property managers for wrongful acts taken by the board. Some policies will also include volunteers, spouses, and subcommittees as insureds for their wrongful acts. Wrongful acts include breach of contract, board failure to adhere to bylaws and breach of fiduciary responsibility, discrimination, misuse of association funds, improper notices, harassment, and failure to maintain common grounds.
Below are some important features that associations should watch out for when reviewing their director and officer’s policy.
- Defense Outside Limits – Cost of defense is in addition to your limit of coverage.
- Defense Inside Limits – Cost of defense is in included in your limit of coverage.
- Failure to Purchase Insurance – Covers when a board does not purchase a coverage and a loss occurred.
- Hammer Clause – Allows the insured to fight accusation, even if the insurance carriers want to settle.
- Full Prior Acts – Covers claims that happened in the past and just now realized.
- Insured vs Insured – Covers when one member of the association sues another.
Crime/Fidelity
Crime Policy Coverages
- Employee Theft – Covers theft from managers, board members, directors, and officers.
- Forgery or Alteration – Covers your association against bad checks or bank drafts.
- Computer &Funds Transfer Fraud – Covers theft of money, securities and property resulting from computer or wire transfer.
- Theft of Money & Securities – Covers loss of association’s money or securities that are either inside or outside the premise.
- Money Orders & Counterfeit Money – Covers loss from the acceptance of fraudulent money orders or counterfeit money.
Discovery vs. Loss Sustained Form
When choosing a crime policy, the association typically has two options: discovery or loss sustained. We typically recommend the discovery from when it is available. With the discovery form, losses are covered if the loss is discovered during the policy period. It does not matter when the loss occurred, but only when it was discovered. With the loss sustained option, the crime must be sustained and discovered during the policy period.
Workers Compensation
Workers compensation is policy that is commonly overlooked by Community associations. They assume they have no paid employees and do not need the coverage. A workers compensation policy not only covers injury to paid employees of the association, but it also covers losses for non-compensated volunteers of the association, if endorsed properly. In addition to board members and volunteers of the association, it will also provide coverage for subcontractors of the association under certain circumstances. Ex. The association’s lawn maintenance crew is cutting their grass and the person on the mower falls and breaks their leg. After the employee goes to the ER for treatment, the contractor finds out that their workers compensation policy premium was not paid this month and the policy cancelled. As long as the association did their due diligence and collecting proof of worker compensation cover at the beginning of the contractor’s policy period, the association workers compensation policy would pay the claim. For the very small premium it costs, workers compensation is ALWAYS recommended.
Umbrella/Excess Liability
An umbrella policy provides additional limits over the primary policies that are already in place. It is a more cost-effective option for providing higher limits of coverage to help protect the association from unexpected lawsuits and liability losses. Once the underlying policy limit has been exhausted, the umbrella policy will respond. Most umbrella policies with provide additional limits to your General Liability, Auto Liability, Directors & Officers, and Workers Compensation policies. Common limits for umbrellas are $1 million, $5 million, $10 million, up to $50 million.
Equipment Breakdown
Equipment Breakdown coverage (also called “Boiler & Machinery”) is a form of property insurance that helps protect the association against financial loss from a sudden and accidental breakdown of mechanical or electrical devices.
Equipment Breakdown coverage is the most common for loss or damage to or from boilers, water heaters, solar heaters, and pressure pipes. However, it also covers the mechanical breakdown of A/C, elevators, back-up generators, electric power panels, and pool and spa equipment. Failure due to wear and tear is not covered under this policy.
Flood
Flood insurance is a coverage that is often mistaken for being covered under the property policy. When it comes to flood coverage, think rising water coming from outside of the structure.
With the changes Congress made in 2016, and FDIC-backed lender must require flood insurance on any unit that sits in a high-risk flood plain. If any part of the structure is in the high-risk zone, the association must purchase the flood coverage to satisfy the unit owners FDIC backed lender.
The proper policy for the association is the Residential Condominium Building Association Policy (RCBAP). Most of these policies are underwritten through the National Flood Insurance Program (NFIP). However, there are private flood insurers out there that offer a similar product through a carrier that is not FEMA.
The RCBAP policy covers the entire structure for flood coverage. The only thing it does not cover is the unit owner’s personal belongings, betterments, and improvements to the interior of the unit. The RCBAP coverage written under the NFIP limits the amount of coverage you can purchase. The max amount you can purchase is $250,000 per unit. If you have 10 units in your building, you can purchase up to $2,500,000 in coverage. If the buildings appraised value is higher than the max amount allowed, you should purchase excess flood coverage.
Flood Zone Definitions
- Flood Zone V – The highest risk zone. Coastal areas with 1% or greater chance of flooding and an additional hazard with storm waves. These areas have a 26% chance of flooding over the life of a 30-year mortgage.
- Flood Zone A – High risk zone. Area with a 1% annual chance of flooding and a 26% chance of flooding over the life of a 30-year mortgage.
- Flood Zone X and B – Moderate to low-risk zone. Area of moderate flood hazard, usually the area between the limits of the 100-year and 500-year floods.
Glass Coverage
Glass coverage is less common coverage for garden style associations but is great coverage to have for high-rise buildings with a lot of glass and windows. The glass is covered under the property policy, but this policy would offer additional coverages, including a small or no deductible. It is essentially used as a deductible buy-down when an association has a large deductible.
Covered perils include hurricane, wind, hail, flood, earthquake, vandalism, and terrorism.
Legal Defense Gap
Legal defense gap is a unique coverage that will defend the association against exclusions and denials in your associations’ insurance policies. When your insurance carrier denies a claim due to exclusions or policy loopholes, you are forced to seek out your own counsel and fight the allegations out of the association pocket. Legal Defense gap pays for the defense of these unexpected legal fees. This policy typically provides unlimited defense of the claim or lawsuit with no deductible. It will cover denied claims from your General Liability, Property or Directors & Officers policies.
Cyber Liability
Cyber liability is growing risk not just for community associations, but everyone. With over 5 million cyber-attacks a day, there is no way to fully protect yourself from the attacks. Cyber liability is third party coverage and helps protect against claims resulting from such risks as theft of private data, unauthorized access of date, denial of service attacks, viruses transmitted from computer systems that lead to security breaches and an association’s failure to comply with state breach-notice laws. Most cyber exposures come from the vulnerabilities of third-party vendors and board members that are hacked.
Environmental Impairment Liability
Environmental impairment liability is a first- and third-party coverage for pollutants. It covers the clean-up expenses and legal defense expense incurred in the investigation, adjustment, settlement, and defense of a claim.
Common Environmental Exposures
- Retention pond migration of pollutants that spill into a nearby wetland
- Hazardous chemical storage spills including chlorine, pesticides, and herbicides
- Below ground fuel tank leaks into the soil
- Contractor incorrectly connects the clubhouse intake/outtake lines of the HVAC system causing a release of pollutants, which cause a bodily injury