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Condominium association self-insurance is a mirage
by: Rob Samouce
With the costs of condominium association insurance continuing to skyrocket, even though there were no significant hurricanes impacting Florida this last hurricane season, condominium associations have been trying to look at any options to rein in the unconscionable increases.

We have seen condominium association policy rates rise far more than single-family home rates. For some reason, the condominium association policies are written by the insurance industry as commercial policies, rather than residential policies like single-family homes, even though the condominium units are residences and not commercial businesses. We have heard of local condominium association insurance rates increasing from 50 percent inland to up to 600 percent or more on the beach.

Even worse, many, if not most, of the condominiums that suffered damage from Wilma had to pay for most of the repair costs as their total damage did not exceed their 3 percent or 5 percent wind deductible, or not by much. They had been paying for insurance all these years, and when a storm actually hits the area, they got nothing or little in return.

As a result of the State of Florida requiring, by statute, that condominium associations must buy insurance and when a hurricane loss occurs, little or nothing is paid out by the insurance companies, many boards of directors have asked why can’t they just self insure. Instead of paying the increased yearly fees to the exponentially increasing insurance policy premiums, put the same money into an association reserve account to earn interest and grow over time to cover any possible future storm loss.

At first blush, looking at the applicable insurance provisions contained in the applicable Section 718.111(11), Florida Statutes for condominiums, one would think that this could be a solution. However, the hopeful language, as currently written in the statute, is only a mirage.

Section 718.111(11) (a), Florida Statutes provides, in part, that: “An association or group of associations may self-insure against claims against the association, the association property, and the condominium property required to be insured by an association, upon compliance with ss. 624.460-624.488.”

It is impossible to comply with the requirements contained in these provisions of Chapter 624, Florida Statues (called the “Commercial Self-Insurance Fund Act”) as they are currently written and therefore condominium self-insurance is not an available option for condominium associations today.
First, Section 624.462(2) (a) 4. Florida Statutes would allow a commercial self-insurance fund to be established by “A not-for-profit group comprised of no less than 10 condominium associations as defined in s. 718.103(2), which is incorporated under the laws of this state, which restricts its membership to condominium associations only, and which has been organized and maintained in good faith for a continuous period of 1 year for purposes other than that of obtaining or providing insurance.”

The closest type association that comes to mind that may currently exist that would meet this requirement would be a master association of a neighborhood that contained only condominium associations and contained at least 10 condominium associations.

Even if such a master association currently exists somewhere, the chances of it being able to comply with the provisions of the commercial self-insurance fund act is slim to none as such a self-insurance fund has to then basically follow all the statutory requirements that insurance companies writing in Florida must follow, including “a plan of risk management which has established measures and procedures to minimize both the frequency and severity of losses (i.e.: reinsurance).”
Good luck in finding anyone to reinsure a group of 10 condominiums in the same location.

In order for condominium self-insurance to become a reality, at a minimum the statutory requirement of only associations made up of 10 or more condominium associations needs to be changed to allow for homeowner associations. This would open up possible organizations who could act as an applicable self-insurance fund to the whole state. One such organization that could possibly then qualify would be the Community Association Institute; a community educational organization who’s members are comprise condominium and homeowner associations throughout the state and the county and which currently exists for purposes other than that of providing insurance.

Another unnecessary requirement is why an association must be maintained for one year for a purpose other than providing insurance. It seems such associations should be allowed to be formed throughout the state for the sole purpose of providing self-insurance to its members.

There is no reason the Florida legislature could not change these ridiculous requirements in its next session. If enough outraged condominium owners write and call their state representatives, the law can be changed. The politicians are going to have to show some real backbone on this issue, though as any such change will most likely be met with stiff opposition form the lucrative insurance lobby.
Rob Samouce, a principal attorney in the Naples law firm of Samouce, Murrell, & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners' associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.