Condominium Leadership Before & After a Hurricane Catastrophe

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1 Condominium Leadership Before & After a Hurricane Catastrophe By William F. Merlin, Jr., Esq., Suzanne Harris, Lawrence Keefe, Esq. & Mary Kestenbaum, Esq. Earthquakes, hurricanes, floods, fires, and tornados often involve catastrophic damage to property. These occurrences are initially reported by the media, and gain widespread attention as a result of devastating consequences to those in harm s way. While the leadership of condominium associations and property managers contemplate these catastrophic events happening, many have not considered the leadership and communication skills necessary to prepare for and recover from the catastrophe, and to alleviate the fears and distress owners of condominiums naturally suffer following the event. Important skills are required to effectively act as a leader during the recovery process. There are many considerations for the property manager to address prior to the loss, as well as following the loss, in order to ease the chaos and stress that can arise. The following are some groups or individuals that must be dealt with: 1. Association Board Members; 2. Individual Owners; 3. Insurance Company Claim Representatives; 4. Contractors; 5. Government Officials; 6. Condominium Staff and Maintenance Personnel; 7. Banks and Financial Institutions; 8. Public Adjusters; and 9. Attorneys. Property managers and condominium associations need to develop strategic plans to put in place prior to a catastrophe so that they are able to cope with the situation after the loss. Effective communication techniques are of utmost importance and will assist in moving the recovery process along. Large natural disasters causing significant damage to condominium property can threaten the financial livelihood of many individuals if not properly handled. Owners are naturally concerned about whether their financial interests are protected. Proper communication is paramount to reduce this burden and prevent a second catastrophe with the owners from happening. Appropriate Insurance Coverage Before a storm begins to approach, it is important to review and assess the insurance coverage available to protect the condominium property. This is true since

2 once the storm is in the box, carriers will not write additional coverage for the condominium property. Insurance coverage should be periodically reviewed to ensure that adequate insurance is maintained on the property, in light of the various changes being made in the law concerning condominium insurance coverage in various states. Moreover, with rising property values, it becomes essential to conduct this periodic review. It has become apparent that most properties are undervalued and under insured. For example, Florida s statute addressing insurance coverage for condominium associations, section , was broadly revised to impact policies issued on or after January 1, Those changes were instituted so as to attempt to alleviate the confusion over what items were to be covered by the association policy or by a unit owner s policy. The statute had previously attempted to divide up coverage responsibilities by the use of a definition of the word building, and also required a review of the policy s declarations to determine coverage responsibilities. The newer version seeks to more clearly use the term condominium property. The statute s intent is to clarify which party is to be responsible for insurance coverage over what item, so that it should no longer be necessary to consult the condominium declarations to determine whether an item is to be covered under the association s insurance policy or that of the unit owner. Because there have not been much in the way of reported decisions on the revised version of Florida s statute, it is uncertain how the statute s revisions will be interpreted by a court. Each state has different statutes and regulations affecting condominium insurance and they have to be periodically reviewed with counsel and qualified insurance agents. In reviewing coverages under the policy, it is important to ensure there is adequate coverage for all areas of the condominium property, such as landscaping, tennis courts, swimming pools, gazebos, walkways, etc. Other important coverages that may be missed include coverage for business income, ordinance and law, and flood coverage. Recent problems in the adequacy of insurance coverage have come to light since Hurricane Katrina. Specifically, it turned out that many individuals and businesses had not obtained flood policies, under the belief that such coverage was unnecessary since the building was not in a flood zone. Flood coverage needs to be purchased as separate National Flood Insurance policies sold either through FEMA or by individual insurance carriers authorized by FEMA. However, excess flood policies are also available through private markets, and condominiums near the water should purchase excess flood coverage. Business income/business interruption insurance is also necessary for owners or managers who are involved with properties used for vacation rentals. Many policies contain exclusions for loss or damage caused by the enforcement of any ordinance or law that regulates the construction or repair of the property, or that requires the tearing down of property. These types of exclusions are intended to address building codes that can require the use of more expensive building materials or construction methods. Because these types of building code requirements can add tremendous extra costs to the repair and reconstruction of a building after a loss, it 2

3 is important to consider purchasing ordinance and law coverage to prepare for such contingencies. In addition, many unit owners do not maintain adequate coverage for their personal contents or for upgrades contained within their homes. Unit owners may need to consider loss assessment coverage, water seepage coverage, and improvements and betterments coverage, to name a few. These issues are extremely important if the Association policy is a bare walls form policy. It is also essential that deductibles are properly understood, since deductibles for certain perils can be much higher than the typical property insurance deductible. For example, the normal property deductible is often expressed by a dollar value. However, the hurricane deductible is typically expressed as a percentage of the coverage. In the case of a hurricane deductible, or even a large property insurance deductible, management will need to prepare for the contingency that a loss will occur and that the deductible must be met from the Condominium s funds. The Association Board should divide the amount of the hurricane deductible by the number of units and create an assessment to the owners to cover the hurricane deductible each year. An alternative to that type of funding is to include the unit owner s portion of the deductible in the yearly fees so a reserve can be maintained. The items mentioned above are not intended to be an exhaustive explanation of the needed areas of insurance coverage to consider. It is often appropriate to consult with an expert to assess risk management needs. Preparing the Property for a Hurricane or other Approaching Catastrophe To ensure that there is going to be enough money available to properly fund repairs after a catastrophic loss, property management and/or the condominium association can establish a line of credit with a local bank or financing institution, as well as obtaining loan capabilities already approved in advance. That way, following the event, the funds can be immediately made available and the board can meet and pass an assessment necessary to repay the loan, giving the owners a period of time, such as 90 days, to pay the assessment. Another suggestion is to make accommodations for a hurricane or catastrophe recovery company to work for the condominium in the event of a catastrophe. Arrangements should be made for the company to arrive as soon as possible following the loss, and if appropriate, even before a storm occurs, if evacuation is not mandatory. Sufficient funds must be available to pay these charges once they are incurred. The recovery company should be able to bring in generators, sand machines to scrape sand if the property is on the beach, pump to pump out water, and possibly even a recreational vehicle for use as a temporary office. 3

4 The following are some practical suggestions to prepare for an impending hurricane, as has been experienced on many occasions in the Gulf Coast states in the past several years: Management should be prepared to fill sand bags to block water across rooms on lower levels. Maintenance and housekeeping in a rental property should be prepared to go from unit to unit, and move patio furniture indoors. Pool furniture and garbage cans should be moved indoors as well. Gas should be turned off to restaurants and grills. Any sensitive records or documents should be moved away from the ground floor. A set of insurance policies should be stored in one or two secure locations offsite. Arrange to order equipment for debris removal following the storm, such as a front-end loader or sand scraper. Pack the pool with sandbags so that is not lifted out of the ground. Arrange for dumpsters to be put on property before the storm for debris. These should be picked up at least 3 days before the storm. Arrange for sand to be brought in after the storm, if necessary, to fill in any collapsed areas. Turn off the power in the building. Get gas cans filled with regular gasoline to run generators, Arrange for a drum of diesel fuel to run heavy equipment. In a rental property, arrange for housekeeping to check every sliding glass door in the complex to see if they are locked. If not, the doors need to be locked; otherwise the strength of the wind could force the doors open. Purchase items designed to soak up moisture, to be placed on the tracks of sliding glass doors inside the units. If the water blows under the door, they will absorb the water and keep the inside of the unit from getting wet and moldy. 4

5 Provide all employees a letter stating that they can return to the property following the storm, listing their employment status, along with a copy of their driver s license. Otherwise employees may be blocked from reentering the location of the property. Send a letter via to unit owners, including those who do not live in their units, beginning several days before the storm, to advise them on status. In a situation where mandatory evacuation will be in order, renters and/or homeowners should be prepared to evacuate 48 hours prior to the storm s expected arrival. Although the residents will likely complain about the necessity to do so at an earlier hour, they will likely thank you later when they were not forced to sit in hours worth of traffic to evacuate. If the evacuation will not be mandatory, give residents the option to remain, and advise them to fill their gas tanks. Evacuation information should be posted in all central areas including elevators. If not a mandatory evacuation, arrange for your recovery company to send someone to remain on site during the storm. In a rental property, housekeeping should go through every unit to clean out the fridge and throw away garbage. This will prevent rotten, smelling food in the unit once power is lost. Buy several cases of bottled water for the staff during the clean-up process. Arrange for a webmaster to host a website with phone numbers for unit owners to call into and obtain information. This should probably be arranged well in advance of an actual storm event. Make an inventory of all important documents and records, including the locations and account numbers for all bank accounts, a list of vendors and their contracts, a list of professionals including accountants, lawyers, insurance agents, and a list of names and addresses of unit owners and renters, including emergency contact information. Immediately Following the Loss The following are some practical suggestions for steps to be taken once a hurricane, or other catastrophe, has occurred. 5

6 Any heavy equipment that was previously reserved should be used to clean sand and debris from the first floor. The housekeeping and maintenance staff should arrive on site to begin clean-up work. In a rental property, housekeeping should check every unit, taking notes to document all damage. If the carpeting is wet, it is pulled back and the wet portions are removed, as is the padding. A company should be made available with anti-microbial units, de-humidifiers, and fans to begin the dry out process. A generator should be set up to work in at least one elevator. Before power is restored, all wet walls and floors should be dried as much as possible. The gas company should be called out to check for leaks before turning on the natural gas supply. Post digital pictures on the hosted website as soon as possible. Maintenance staff should move patio furniture back outside. Each unit must be inspected for mold and mildew, again with notes taken in order to follow-up with the insurance adjuster. The insurance company should be notified immediately, with arrangements made for an adjuster to visit the site. Any wet area rugs should be picked up and cleaned. Remove and store sandbags. Pump out elevators. Pump out driveways and use heavy equipment to clean out and prevent water from undermining the foundation of the building. Make arrangements for an engineer to inspect the building to ensure it is structurally sound. Utilize your disaster recovery service to make roofing repairs, fix garage floors, hand rail repairs, and any necessary immediate foundation work. 6

7 If hurricane shutters have been installed, it is essential that the owner leave a key on site, so that once they are closed they can be re-opened. For condominiums that are primarily owner occupied and seasonal, companies can be hired to come in before the storm and put up the shutters, and come back after the storm and take them down. Following the loss, the community will see the influx of companies and professionals seeking work for construction and/or public adjusting work. Unfortunately, some of these individuals may be seeking to make a quick profit from catastrophe recovery efforts without having the proper qualifications, licenses, or considerations in mind. Insurance Claim Presentation Following the Loss Following the loss, after the insurance company adjusters are contacted, in a complex loss situation, a claim should be presented. This presentation can be made by the property managers and/or condominium associations themselves, with the assistance of a public adjuster, or with the assistance of legal counsel. Public adjusters are individuals typically licensed by the state, although some states may not necessarily license public adjusters. They often charge a percentage of any recovery, and are available to assist the property owner in making an insurance claim. Although public adjusters are able to estimate and scope the loss, they are usually not able to interpret insurance policy provisions on behalf of the policyholder. Insurance coverage attorneys, such as Merlin Law Group, are also available to assist with claim presentation to the insurance company, as well as with coverage disputes. Certain concepts should be kept in mind when presenting an insurance claim. For example: 1. Do not sign a Release if you feel you are not receiving enough to properly fix the damages. Property insurance policies do not require that a release be signed. 2. Do not allow insurance company adjusters to write claims or based on normal circumstances, and not take into account the increased costs of materials and labor in a catastrophe climate. 3. Do not allow the insurance company adjuster to make the policy a selfserve policy by telling you what to do to determine the loss or damage, rather than promptly making a complete inventory and estimate of damages. 4. Do not allow an adjuster to write up to only 45% of the property s value in order to escape new building code requirements, which are potentially triggered at damages exceeding 50%. 7

8 5. Obtain your own independent quotes for fixing the damage to the property. 6. Call, confirm, and follow-up in writing with everything told to you by the insurance company adjuster. 7. Keep receipts for every thing repaired and replaced, as well as all other costs associated with the repair process. In addition, insurance policies need to be reviewed with respect to the requirements for a proof of loss form to be submitted. Typically, windstorm and property insurance policies either require that a proof be proactively submitted by the insured, or that a proof be submitted within a certain number of days after it is requested by the insurer. With National Flood Insurance policies, the proof of loss requirement of the policy is sixty days following the loss, unless a formal written waiver is given by FEMA. A verbal waiver, or a waiver by an adjuster will not suffice to circumvent the sixty-day proof of loss requirement. The failure to properly and completely fill out a flood proof of loss, or the failure to timely submit the proof of loss, will result in the failure to recover any flood benefits under a Federal Flood Insurance policy. Insurance policies also contain conditions requiring an insured to submit to an examination under oath, if requested by the insurer, and to allow inspection of books, records and documents in the possession of, or maintained by the insured. These requirements cannot be taken lightly, and must be completely complied with, so that there is no argument that the insured has breached the policy conditions. A breach of policy conditions by the insured can be used as grounds for the insurer to deny coverage for a claim. If a dispute arises between the insured and the insurer, the particular state s statute of limitations for filing a lawsuit must be recognized and complied with, with respect to a windstorm or property insurance policy. When it comes to National Flood Insurance, a one-year statute of limitations exists, and any litigation between the insured and the insurer must be filed in Federal Court. Communications Emotional distress and fear naturally follow significant catastrophe situations, so that communicating to the Association before and after the catastrophe reduces the emotional burden following a loss. The Association s members should be aware of the type of insurance in place at least on a yearly basis. The agent will often prepare a summary of coverages and personally explain the insurance coverages purchased so there are no surprises. The agent typically explains the types of coverages the owners may need and the markets available. Insurance is bought for peace of mind. Owners need to feel secure that they 8

9 are adequately insured before the unknown disaster ever happens. This information should be widely disseminated. Widespread catastrophes typically involve outages of power and communication lines. Some may consider purchasing satellite phones for this contingency, so that lines of communication can remain open. Conclusion Hurricanes and other natural catastrophes create havoc with the lives and the livelihood of entire communities. However, the more preparation that can be done before the loss will go a long way towards a quicker and less painless recovery process. 9