Have you and your friends ever had trouble figuring
out how to split a check at your favorite
restaurant? If you have, you can imagine what
happens when those same people try to divide up the
costs of repairing units damaged by a hurricane.
If you are a director of a Florida condominium
association, there is no doubt you have heard about
the debate raging over the effect of a 2004
amendment to the insurance provisions of the
Condominium Act. I wish I was writing this article
to announce to you all that the issue has finally
been resolved, but, no, it has not. After more than
a year of relative silence, the Division of Land
Sales and Condominiums has issued a Declaratory
Statement that indicates its position on the issue.
While not binding, per se, on all condominiums, it
certainly is an indication of what a condominium may
expect if a similar issue comes before the Division
in an arbitration matter.
To better understand what the Division’s Statement
means, it is important to get a sense of the
controversy. In a nutshell, the law was changed to
attempt to clarify what portions of a condominium’s
property are required to be covered by the hazard
insurance policy the law requires an association to
obtain. Previously, the extent of the coverage
provided depended upon when your condominium was
created and what language was contained your
particular condominium’s declaration. That all
changed for policies issued or renewed after January
1, 2004; after that date, all hazard (fire and
windstorm, for example) policies were required to
cover the same property for all condominiums
irrespective of what the declaration said or when
the condominium was created. The only options
remaining to the discretion of the boards of
directors associations were the amount of a
“reasonable deductible” and whether to buy flood
insurance as a part of its package of coverage. The
new law also provided that the unit owner’s own
insurance policy is required to provide coverage for
the “excess over the amount recoverable under any
other policy covering the same property.” Note the
use of the word “recoverable,” since it is a part of
the confusion.
In many cases, a windstorm policy will have a
deductible equal to as high as 5% of the total
insurable value. For a condominium building with a
total insurable value of say, ten million dollars,
that would mean a $500,000.00 deductible before the
insurance company would pay anything. For many
condominiums, the total amount of damage from the
recent storms did not reach the amount of the
deductible. If the property that was damaged is a
part of the unit and the declaration provides the
maintenance obligation for that part of the unit is
the unit owners’ obligation, since there was no
recovery from the insurance company, who is
responsible for paying for the unit’s damage? Is it
the owner’s own obligation since the declaration
provides he has the maintenance obligation? Is it
the association since it insured the property? Since
there is nothing “recoverable” under the
association’s policy, does the owner’s policy kick
in? In the interest of brevity, suffice it to say
that there are a host of legal issues that need to
be addressed in order to answer these seemingly
rather simple questions. For example, declarations
of condominium have been likened to contracts among
the owners and the associations and the Florida
Constitution does not permit the legislature to
adopt laws that impair the obligations of existing
contracts. If the new law shifted the burden of
paying for repair to portions of the unit from the
unit owners to the associations, was that
constitutional? Did the statute alter the
obligations described in the declarations? Does the
law apply only where there is major damage from a
major hazard (flood, fire or windstorm, for example)
or does it apply to any damage caused by reason
(leaky bathtub, burst water heater or baseball
through a window, for example)? Are you starting to
get the picture?
The Division’s Declaratory Statement for Plaza East
Association, Inc. issued on January 24, 2006 (DS
2005-055) is the first official word on this issue;
there are no appellate court opinions yet that
provide a more definitive answer to these questions.
The Division concluded that the Association is
obligated to treat the deductible as a common
expense payable by all unit owners and not just
those whose units were damaged. The maintenance
obligations of the owners and the Association as
described in the condominium’s declaration were
concluded to be immaterial since the damage was
caused by a hazard as such was defined by the
insurance policy. The Division observed that that
the amendments to the Condominium Act allow the
associations to include a reasonable deductible in
their hazard policies and concluded: “It [the
statute] does not permit associations to shift the
cost of paying the deductible, even when no claim is
made because the amount of the insured damages is
less than the deductible, or the cost of repairing
the association’s insurable damages up to the
deductible amount, to individual owners.
In its 29 page Declaratory Statement, the Division
analyzed the statutes, the Plaza East declaration
and several of the critical issues of law to reach
its conclusions. There are certainly counter
arguments to the position the Division took on each
issue. Whether Plaza East will appeal the Division’s
Declaratory Statement is unknown at this point, but,
ultimately, this author expects that Florida courts
will be asked to wrestle with these same issues in
the years to come unless there is further
clarification from the legislature. Stay tuned for
further news. For your individual condominiums, how
the law is interpreted and how your board should
respond to demands by owners for payment in various
instances of damage will need to be evaluated by the
board and your legal counsel on a case by case basis.
For those of you reside in a non-condominium
community, this is a perfect example of why you
should consider urging your State Senators and
Representatives to vote against proposed
legislation that threatens to treat HOA’s like condos.
