A presentation to Community Association Institute Chesapeake Chapter by Peter Philbin, Richard...

A presentation to Community Association InstituteChesapeake Chapter

by Peter Philbin, Richard Gemmell, Connie Phillips & Orlando Dorsey

April 15, 2015

Understanding Insurance For CoveringYour Ass…ociation – More Than Just The Basics

Topics Covered Today Why you need insurance

Homeowner and Condominium Statues

Governing Documents

Best Practices

Claims

Cancellations

Insurance

HO-6 Polices

Question & Answer

Insurance Presentation

Why you need insurance


Homeowner and Condominium Statues

Governing Document Requirements

Best Practices

Homeowner and Condominium Statutes


A. CONDOMINIUM

1. Property Insurance 11-114 MD Condominium Act

a) Single Entity

b) Exclusive of Betterments and Improvements

2. Liability

3. Fidelity

Condominium Statutes


A. DEDUCTIBLE

1. Up to $5000 may be assessed to the owner of the unit where the insured loss/damage ORIGINATED –Section 11-114 Condominium Act

2. Annual Notice of Deductible Responsibility & Amount Section 11-114 Condominium Act

3. Resale Packet Disclosure- Section 11-135 Condominium Act

Condominium Statutes


A. DEDUCTIBLE (continued)

1. Was my Condominium created before July 1, 1981?

a) If yes, your Association documents may vary the requirements of 11-114; otherwise 11-114

controls.

b) BUT remember that HUD (FHA) eligibility may depend on 100% replacement cost insurance even if

documents do not require

Governing Documents


Association Declaration and Bylaws

• Created before 7/1/81; declaration and bylaws control insurance

• Created after 7/1/81; MD Condo Act controls insurance

• sometimes will specify coverage in addition to Act (e.g., may require Betterments and Improvements or limit deductible).

Rely Upon Your Insurance Professional

Best Practices


A. Best Practices doesn’t mean freedom from problemsB. History of defects for Bad Press CondominiumsC. History of funding to finance construction defectsD. History of downward spiral of high losses and non-renewalsE. 114% increase in premiumF. The slow progress of construction defect corrections

Best Practices


G. Try to regain a favorable standing with insurance carriers1. Not making any claims other than catastrophic2. Financially absorbing claims /self-insuring3. $70k in 2014 expenses that would of normally been claims4. Making repairs based on a priority list5. Educating resident: Condo living is not maintenance free living

H. How long can the association sustain being self-insuredI. The Maryland HO-6


J. Brief summary of claims from loss history report• 2002-2003 $65,600• 2003-2004 $63,900• 2004-2005 $0• 2005-2006 $6,031• 2006-2007 $0• 2007-2008 $5,718 (First warning sign. Not renewed but then

reinstated) • 2008-2009 $0• 2009-2010 $44,570• 2010-2011 $0• 2011-2012 $0• 2012-2013 $29,151• 2013-2014 $42,084 (Not renewed. Had to get new carrier)

Claims


A. Deductible

1) Claims history/Loss Runs

2) Financial burden

B. Multiple Deductibles

C. Self Insurance (board determines policy)

D. Claims Process

1) Master Policy vs. HO-6 vs. Landlord vs. Renter

Claims, To File or Not to File???


But he left the heat off in the unit and the pipes froze???

But she fell asleep with the tub running???

KEEP INSURANCE AND MAINTENANCE/REPAIR OBLIGATIONS SEPARATE –INDEPENDENT OBLIGATIONS

STUPIDITY OR EVEN GROSS NEGLIGENCE IS NO BAR TO RECOVERY UNDER MASTER INSURANCE POLICY (waiver of subrogation)

Cancellations


A. Notice of claims/Failure to notify

B. Property Claim vs. Liability Claim

C. Notice of cancellation

D. Be Prepared

1) Cancellation due to claims

2) Insurance Deductible to $25K or $50K

3) Premiums increase 2x, 3x or 4x To: Your Association

Insurance


A. Property and Casualty Coverage

1. Property

a) Sharing Reserves Study with Agents

b) Proactive approaches for loss prevention

2. Liability

a) Proactive Approaches for Loss Prevention

b) Frequent Inspection

c) Additional Insured

Insurance


A. Property and Casualty Coverage

3. Checklista) Blanket Coverage vs. Specific Limits on Buildingb) Agreed Amount Coverage / No Coinsurance vs. 80% coinsurancec) Deductible per Occurrence vs. Special $25K or $50K Water Deductible vs. Deductible per Unitd) Guaranteed or Extended Replacement Cost Coverage vs. Actual Cash Value

Insurance


e) Additional Insured endorsements - Need 3f) General Liability

g) Fidelity Bondh) Directors and Officers Liability

i) Flood and Earthquake Coveragej) Back up of Water, Sewer or Drain Coveragek) Building Ordinance or Law Coveragel) Equipment Breakdown Coverage

Insurance


B. Fidelity Insurance

1. Why fidelity coverage?

2. How much is required by the state? The MD Condo Act defines the amount of the bond as:

a) 3 months’ worth of gross annual assessments and total amount held in all investment accounts at the time the fidelity insurance is issued; or

b) $3,000,000.

Insurance


B. Fidelity Insurance (bond calculation)

Annual Budgeted assessments (income) $____________

(divided by 4) /4

3 months assessments $___________

Add Reserves in Account $___________

Required Fidelity Bond $___________

Actual Fidelity Bond Coverage $___________

Additional insurance required $___________

Upon your calculation of the required coverage, if there is

not enough coverage, please increase prior to resubmitting to HUD/FHA for review.

Fidelity Bond coverage analysis (MD law under 4 units or under$2,500 for 3 month assessments ):

The FHA fidelity coverage minimum is computed as follows:

• Three months assessment from the Budget.

• Total of the Reserves and also Balance Sheet

• One month's Reserve Contribution• These total to an FHA minimum

Insurance


C. Directors and Officers Liability

1. Additional Insured

2. Non-Monetary Claims

3. Comparison of Coverage

Insurance


D. Workers Compensation

1. Volunteer Actives

2. Uninsured Contractors

a) Certificate of Insurance

Insurance


E. Certificate of Insurance

Insurance


F. Umbrella Liability

1. Determining Limits

Protect your assets with an HO6 Policy (Condo Owner Insurance)


When disaster strikes…

HO6 Policy (Condo Owner Insurance)


A. Managers/Boards Educating Unit Owners

B. Improvements / Betterments

C. Loss Assessment Coverage (Master Deductible)

D. Condominiums can require unit owners to purchase HO6 provided bylaws are amended. Current statute requires 51% vote to amend.

E. HO-6 vs. Landlord vs. Renter

HO6 Policy


KNOW your choices:

•Coverage A – Building

•Coverage C – Personal Property

•Coverage D – Loss of Use

•Coverage E – Personal Liability

•Loss Assessment Coverage

Question & Answer


Peter S. Philbin, EsquireRees Broome, PC4800 Hampden Lane, Suite 200Bethesda MD 20814(301) [email protected]

Connie PhillipsConnie Phillips Insurance-Financial605 West Patrick StreetFrederick, MD [email protected]

Richard GemmellProperty Management People, Inc.92 Thomas Johnson Drive, Suite 170Frederick, MD 21702301-620-0782 ext. [email protected]

Orlando DorseyConnie Phillips Insurance-Financial605 West Patrick StreetFrederick, MD [email protected]

Thank You For Attending!

mailto:[email protected]




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