Risk & Business Magazine JGS Insurance Fall 2021 - Page 14



insurance coverage as it relates to risk management , as the two , while intertwined , can easily be confused .
While insurance — the strategy of transferring risk and the chance for property loss from direct , physical damage to a second party ( the insurance company )— certainly is a form of risk management , it is not the only form , and in the last few months , condominium residents , boards of directors , and management teams across the country have come to learn what insurance management professionals have understood for some time : risk management and the strategy of controlling and avoiding loss begins with the insured .
Great American , the Property carrier for Champlain Towers South , has agreed to pay the policy limit of $ 31.4 million , likely to avoid a drawn-out adjustment process and the very real possibility that a number of factors led to the building ’ s collapse . But in its purest sense , collapse coverage under the Insurance Services Office ( ISO ) policy ( the standard policy form on which many carriers ’ Property Coverage forms are based ) is subject to exclusions including , but not limited to , “ building decay that is hidden from view unless the presence of such decay is known to an insured prior to collapse .”
For Champlain Towers South , certainly the Association knew on some level of major problems and that “ failure to replace the waterproofing in the near future will cause the extent of the concrete deterioration to expand exponentially ,” according to the Morabito Consultants report . While Champlain Towers South ’ s carrier has agreed to pay policy limits under the Property form ( and the General Liability and Umbrella Liability carriers will also pay policy limits of $ 2 million and $ 15 million ), policy language still provides a cautionary tale not to be ignored : boards and owners need to understand that allowing building structure ( s ) to deteriorate could result in partial payment or denial of a claim .
Despite Great American ’ s intent to pay , too , it is concerning that the building was likely underinsured . While Florida is a bare walls state — the obligation of the Association and its Master Policy carrier by statute is to insure the building up to the unfinished walls , with the condominium unit owners ’ ( HO-6 ) policy insuring everything from the unfinished walls in — an annual examination of values seemed to have failed despite the fact that appraisals are required by Florida law every 36 months and the Condominium Act requires that the Association insure the building for its full insurable value .
Regardless of how the legislatures intend to address the failures that led to the Champlain Towers South failure , Associations should begin to examine the health of their own Associations now . Laws may require and provide an Association with the framework and guidance to do the right thing , but absent laws , working with your professionals — management , legal , and insurance — is now critical . Commercial buildings across the country have an average median age of 53 years — that age jumps to 90 years in olderinfrastructure cities like New York City . And while garden- and townhouse-style homes have fewer stories , reports of deck failures and collapse are still rampant .
1 . Required by law now or not , if your Association has not already obtained a reserve study , it ’ s important to establish a baseline study that will help the Board determine life expectancy of major and even minor components . Understanding how long a component will last and the average cost of replacement ( scaled for inflation ) will allow the Association to begin reserving for eventual replacement .
2 . Fund the reserve study . It does little good to obtain a reserve study that isn ’ t funded .
3 . Owners will always be resistant to spending money and will complain about increased condominium fees without a full understanding of how the fees are to be spent . Boards may feel intimidated into not raising fees , but aging buildings require money . Communicate with members and be transparent about the short- and long-term goals of the Association . Share reserve study and structural engineering reports early with members so that they understand the timeline for upcoming expenses . Be clear with owners about failures that can result by not reserving now and that , as a community , you are trying to avoid even more costly special assessments and loans .