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January 19, 2006
Penny Wise - Pound Foolish
A condo in New England that burned down more than a year ago still hasn't been rebuilt. Condos in Florida and the Gulf Coast are sitting empty because the repairs necessary to rebuild or restore them are more than the insurance covers. An association that wants to replace their current windows with hurricane-resistant glass is assessing their owners $10-15,000 each to do it. And the Florida Condo Ombudsman says that reserves are too high and are prone to be mismanaged by boards.
The New England condo is $200,000 short because of code upgrades required for construction. A simple rider to their insurance policy, it was overlooked or rejected. With the number of fires going around this year, I think there will be a lot of associations facing the same problem. In Florida, you can opt out of funding your reserves with a vote of the owners. A lot of associations have and now the owners are paying the price for their decision. Associations that didn't read the fine print in their insurance policies are finding out that replacement coverage sometimes has a cap and with construction costs soaring, there isn't enough money to re-build.
You can't count on Mother Nature to always smile on you, or on your neighbors to not do something stupid which burns the place down. That's what insurance and planning are all about. But that's where it just starts. As these and many other people have discovered this year, just having insurance or some reserves is not nearly enough.
Do you know, know for a fact, what would happen if your association faced a major disaster? Given the numbers this year, the odds of something happening are getting more likely. Do you know if you have code upgrade coverage? Do you know if your replacement coverage is capped? Do your owners have loss assessment coverage? Do they know how long their living expense are covered if they can't live in their home? Do you even know if you're in a flood plain and have any coverage? Will your reserves cover deductibles or repairs to areas that are excluded in coverage?
If you can't answer these questions, then its time to have your insurance agent in and to go back over the policy. A simple set of questions: If the entire association burns/floods/gets flattened by an earthquake/gets blown down by a hurricane/etc. what is and isn't FULLY covered?
It's also time to take a hard look at your reserves. With construction costs spiraling upwards, what may have been barely adequate a year ago, may be short now. As too many associations have learned this year, its better to be safe than sorry, because the board is ultimately going to be held accountable for these decisions.
Posted by joewest at January 19, 2006 3:21 PM