The scenario above was common to a large number of condominium associations over the past few years. This has led insurance carriers and their attorneys to come up with ways to attempt to avoid payment, many of which have relied on so called “late notice” defenses to fight coverage.

Recently, in Ocean View Towers Association, Inc. v. QBE Insurance Corporation, a federal trial court in the Southern District of Florida heard argument on competing motions for summary judgment. One of the main issues was whether the association was barred from recovery because it had not notified QBE of the additional damages and instead filed suit for breach of contract.

The court rejected QBE’s “late notice” arguments, finding that the clear and unambiguous language of the policy controlled the obligations of the policyholder. The policy, like most policies, required Ocean View to “[g]ive [QBE] prompt notice of the loss or damage” and “[i]nclude a description of the property involved.” Based on this requirement, the court determined that since Ocean View undisputedly provided prompt notice that Hurricane Wilma had damaged the property and had included a description of the damages known at that time, Ocean View had fulfilled its requirements under the policy and was not required to do more. As the court noted, QBE had ample opportunity to inspect and adjust the loss after the Hurricane and simply chose not to utilize all the means at its discretion.

This is an important case that all adjusters, attorneys, and insurance professionals should read carefully. Numerous other issues are addressed in the opinion, aside from the notice issue, however, those are highly technical and do not lend themselves to a single post. This decision will undoubtedly be cited by both sides in legal briefs for a long time.

If you or your association see a rate increase, I suggest you contact your state representative or senator. With re-elections looming, your input may have more of an impact than ever before.

Luckily for directors and associations alike, Florida law strictly limits the situations in which a director can be held personally liable for actions taken in furtherance of their position on the board. The longstanding precedent discussed in Munder v. Circle One Condominium, Inc., 596 So.2d 144 (Fla. 4th DCA 1992), provides that directors are immune from individual liability unless a crime or fraud has been committed or there has been self-dealing or unjust enrichment. Thus, negligent actions are not individually actionable, even if such actions are clearly wrong.

This rule has been applied in numerous situations. Personal actions for failing to correct construction defects, failing to provide workers compensation insurance, and failing to properly administer insurance proceeds have all been rejected by various courts.

While boards of directors have a fiduciary duty to the association, mistakes will happen. Luckily, the law protects the individuals involved in most situations and unit owners can run for office without fear of personal liability. All boards should check their Errors and Omissions policies and ensure that it is effective and adequate to cover any situation that may arise. Boards should also ensure that they have coverage to defend any individuals who may be wrongly sued for actions taken in furtherance of their positions.

All repairs to be specified per estimate and scope as furnished by the insurance co., or furnished by the company and approved by the insurance co. No changes may be made by either party without written approval by both parties.

After payment was tendered by the carrier, a dispute arose between the association and Sunmark Restoration regarding the scope of the contract. The association argued that the contract only covered Sunmark’s authority to negotiate the scope of the loss with the insurance carrier, while Sunmark Restoration argued that the contract allowed them to negotiate a final settlement and then perform the work. When an impasse was reached, Sunmark Restoration sued the association for breach of contract.

The Third District Court of Appeals found the contract was indefinite and could not be enforced. Because the proposal/contract allowed Sunmark Restoration and a non-party to the contract (the insurance carrier) to determine the price terms, the court found there was no “meeting of the minds” and thus no contract. The court advised that in the absence of a definite price or definite method of determining the price not left solely to Sunmark Restoration’s discretion, the contract was not binding.

Associations should always read contracts carefully and make sure that both parties have a clear understanding of what is contained therein. The repercussions of not doing so can be harsh and could lead to needless litigation that will further delay the repair process.

While state law generally dictates the amount of time after a loss before a suit is barred, some states allow the statute of limitations to be contractually altered by the policy. In Georgia, for instance, an insurance contract may shorten the statute of limitations “provided the period fixed be not so unreasonable as to raise a presumption of imposition or undue advantage, in some way.” Darnell v. Fireman’s Fund Ins. Co., 154 S.E. 2d 741 (GA Ct. App. 1967). In Georgia, it is important for a policyholder to read the “Suit Against Us” provision of the policy carefully to determine whether the statute of limitations period has been shortened.

There are other states that do not allow the period to be shortened by an insurance contract. Some states rely on case law to prohibit such an occurrence and others have statutory provisions which expressly forbid it. For instance, Florida Statute § 95.03 provides:

Any provision in a contract fixing the period of time within which an action arising out of the contract may be begun at a time less than that provided by the applicable statute of limitations is void.

With the large area of potential damages, many professionals will be working in more than one state for the foreseeable future. Associations should be aware that the adjuster assigned to their claim may be working in their state one day and in another state the next. With differing laws in each jurisdiction, it is important for insureds and claims professionals to make sure that an otherwise valid claim is not barred.

The design defect exclusion clause in the Swire-Zurich Builder's Risk Policy is not ambiguous. “Loss or damage” as used in the first prong of the clause clearly means loss caused directly by the design defect. This type of loss is not covered under the policy. Further, the only reasonable definition for the term “physical loss or damage” as used in the ensuing loss provision of the clause is damage that occurs subsequent to, and as a result of, a design defect. This type of loss is covered under the policy.

Plainly stated, an ensuing loss is a covered damage that results from an excluded peril. This means that if there are two different losses, the first excluded by the policy and the second covered, the second loss will be covered if it results from the first.

For instance, if a pipe inside a wall breaks because it is old and deteriorated, the damages to the pipe would not be covered if there is an exclusion for deterioration and/or wear and tear. However if water is discharged from the broken pipe and results in significant water damage to the drywall, floors, or other covered property, these water losses may be covered if the appropriate ensuing loss provision is contained in the policy.

Another example is if an association’s roof is damaged by wear and tear and subsequently begins to leak into the building. Assuming that the damages to the roof (wear and tear) are excluded, the subsequent water damages could still be covered if such a provision applies.

Ensuing loss clauses are important for associations and unit owners alike. Both should read their policies carefully and understand how ensuing loss clauses affect the coverage they purchase.

Valuation

We will determine the value of Covered Property in the event of loss or damage as follows:

a. At actual cash value as of the time of loss or damage, except as provided in b., c., and d. below.

The policy expressly provides that actual cash value is determined as of the date of loss, not as of the date the estimate is written or the claim is submitted or re-opened. In many situations, this may seem trivial because price lists used in estimating do not generally change drastically from year to year. However, in some instances such as Hurricane Wilma claims, this could mean that the policyholder receives a lesser amount than is actually owed.

Consider the following example:

During a hurricane, an association’s roof is damaged. At that time, the price for replacement of the roof was $100,000.00.

After the storm, the association’s insurer determines that the roof is not significantly damaged and can be repaired for less than the deductible.

A year later, the association is continuing to suffer leaks despite the fact that the repairs suggested by the insurer have been performed. So the association asks for the claim to be re-opened.

After re-evaluating the roof, the insurer’s engineer agrees that the roof should have been replaced due to the storm and the insurer, using current price lists, estimates replacing the roof at $80,000.00.

Taking 20% depreciation, the insurer tenders a check to the association for the actual cash value of the roof in the amount of $64,000.00.

In the above situation, the amounts paid by the insurer for the actual cash value are incorrect because the express terms of the policy state that the actual cash value is calculated as of the time of the loss. Had the insurer calculated the actual cash value in accordance with the valuation provision, the amount owed would be the full $80,000.00 (representing 80% of the $100,000.00 it would have cost to replace the roof at the time of the storm).

Calculating the amount owed in accordance with the policy provisions is an important part of indemnifying an insured. Policyholders and professionals on both sides should read the policy carefully to determine whether amounts paid are sufficient and in accordance with the provisions of the policy.

Like many associations, Devon Neighborhood Association suffered hurricane damage to its property in 2004. Unfortunately, Devon’s insurer at the time, Southern Family Insurance, became insolvent and the policy and claim were taken over by the Florida Insurance Guarantee Association (FIGA).

Unsatisfied with the amounts paid, Devon filed suit and FIGA responded by asking the court to stay the action and compel appraisal. Relying on a 2005 amendment to the Florida Statute § 627.7015, Devon’s attorneys successfully fought the appraisal process because Southern Home failed to provide notice that the statutory mediation process was available for disputed property insurance claims.

Despite the fact that the amendment allowing an insured to avoid appraisal if a carrier does not provide the statutorily required notice was passed after the policy was issued, the trial court and Fourth District Court of Appeals found that the statute was retroactive and held Devon did not have to participate in the appraisal process.

Reversing these decisions, the Supreme Court re-affirmed its previous determinations regarding what law applies to an insurance policy. As the Court noted:

We also made clear in Menendez that “[i]n our analysis, we look at the date the insurance policy was issued and not the date that the suit was filed or the accident occurred, because the “statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.

Based on this reasoning, any changes to the Florida Statutes made after a policy is first issued would not generally be applicable to a claim made on a policy. While this is the general rule, the Court also addressed instances where a statute may be retroactive and could apply to previously issued policies. The Court reaffirmed its two-pronged test to determine whether a statute may apply retroactively:

[I]n determining if a statute is retroactive, two factors are to be considered. The first factor is whether the statute itself expresses an intent that it apply retroactively, and if so, the second factor is whether retroactive application is constitutional. . . .[I]f the plain language of the statute does not evince an intent that the statute apply retroactively, the Court ―need not address the second prong. (citations omitted)

Determining whether retroactive application of a law is constitutional will require a more stringent analysis, and it is important for associations, managers, and practitioners to understand generally what laws may affect any given claim. Failing to do so could result in an outcome less favorable than it should be.

Appraisal

If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraisal and umpire equally.

If there is an appraisal, we still retain our right to deny the claim.

If your association’s insurance policy contains such a provision, appraisal can determine the appropriate amount owed for the damages, and, in some states, whether the damage resulted from a covered or non-covered peril.

The role of an appraiser is often a topic of conversation when I speak with association directors about these two options. The first comment I generally make is that the appraisal process is not the same as the typical property appraisal most associations have performed in the past.

While numerous courts have addressed the role of appraisers, probably the most insightful description came from Florida’s Third District Court of Appeals in Preferred Ins. Co. v. Richard Parks Trucking Co., 158 So. 2d 817, 820 (Fla. 3rd DCA 1963):

[A]ppraisers are generally expected to act on their own skill and knowledge; they may reach individual conclusions and are required to meet only for the purpose of ironing out differences in the conclusions reached; and they are not obliged to give the rival claimants any formal notice or to hear evidence, but may proceed by ex parte investigation so long as the parties are given opportunity to make statements and explanations with regard to matters in issue.

This quote clears up a lot of questions associations have about the role of an appraiser in an insurance claim context. The appraiser is an independent eye hired to inspect, investigate, and determine what damages exist (and in some cases what caused them). They may use prior estimates, investigation results, and other evidence to support their position, however, an appraiser is not usually bound by past inspections and estimates.

On the contrary, an appointed appraiser has the ability to investigate the claim independently, reach independent conclusions, and disagree with prior reports.

In regards to reporting requirements for hurricane damage claims, the new law provides:

Effective June 1, 2011: A claim, supplemental claim, or reopened claim under an insurance policy that provides property insurance, as defined in s. 624.604, for loss or damage caused by the peril of windstorm or hurricane is barred unless notice of the claim, supplemental claim, or reopened claim was given to the insurer in accordance with the terms of the policy within 3 years after the hurricane first made landfall or the windstorm caused the covered damage.

For purposes of this section, the term - supplemental claim or ―reopened claim means any additional claim for recovery from the insurer for losses from the same hurricane or windstorm which the insurer has previously adjusted pursuant to the initial claim.

While all insurance policies require notice of a loss to be provided, an insurer generally cannot refuse payment of a claim based on a late notice defense unless it can show that its investigation was somehow prejudiced. With the enactment of the new property insurance laws, Florida associations should be very mindful of the three year reporting deadline now required. Failing to do so, may result in the denial of a valid claim.

The important lesson for associations is to report claims early, even if the damage seems minimal. If you think there is a possibility of damage to your property, contact your broker, agent, or insurer as soon as possible and let them know.

Aside from filing a claim immediately, an association should hire its own experts to determine the extent of damages and the costs of repair. Insurance adjusters and experts are often overworked after a large hurricane and may not take the time to fully and properly investigate your loss.

Finally, if you disagree with your insurer’s determination of damage or the amount of loss, you should let them know immediately and take steps to rectify the dispute. Waiting to request that the claim be re-opened may result in a bar to recovery under the new law, as it applies to all claims -- including supplemental and re-opened.

"The entire state of Florida is suffering from drought conditions and everyone should use extreme caution with any type of fire this weekend,” said Karels. “Under these current conditions, and without the proper resources, fires can get out of control quickly and may cause damage to property, homes and even lives."

Since January 1st of this year, 2,664 wildfires have burned 128,675 acres throughout Florida alone. This is more than double the amount of fires reported last year during this timeframe.

Associations should be aware of this threat and take the necessary precautions to ensure that Memorial Day celebrations do not lead to devastating effects. Currently, burn bans are in place for Baker, Citrus, Flagler, Glades, Hendry, Marion (voluntary), Martin, Nassau, Osceola, Palm Beach (East), Putnam, Seminole, St. Lucie, and Volusia County. If you are not located in one of these regions, you should check with your local government for further prohibitions.

Even if you are not in an area that has an imposed burn ban, best practices for associations dictate that associations should ensure that plenty of security personnel are on hand to ensure that any fire, including grilling, is done safely and in locations that are permitted by the associations bylaws and the Florida Statutes.

Memorial Day is a great time to enjoy with family and friends, however, holidays such as this almost always lead to an increase in property losses and injuries. Make sure your employees are alert and informed so that everyone is safe while enjoying the holiday festivities.

Associations especially should be careful to ensure that their insurer fully investigates each claim. Engineers, contractors, adjusters, and roofing consultants should be a common sight at almost every claim to find the subtle damages that can go unnoticed otherwise.

Unfortunately for policyholders, options in hiring professionals to work on their behalf is limited in Alabama. Public Insurance Adjusters are not permitted in the state and the negotiation of an insurance claim is generally considered the unlicensed practice of law by anyone who is not an attorney.

As board members, you have a fiduciary duty to act in the best interest of your unit owners. This means making sure that your insurance claim is given the attention that it deserves. If you do not believe that your insurance carrier is giving you the service you expect, you should immediately take action. Sometimes contacting a claims manager in charge of your individual adjuster can make a difference. If that does not work, you might want to consider contacting an experienced attorney.

Tornado claims can be complex and difficult, especially for condominium associations and HOA’S with large properties. Directors, managers, and owners must be proactive to make sure that their property is fixed properly and quickly so they can return to business as usual.

Within 60 days after the loss, send us a proof of loss, which is your statement of the amount you are claiming under the policy signed and sworn to by you, and which furnishes us with the following information:

a. The date and time of loss;

b. A brief explanation of how the loss happened;

c. Your interest (for example, “owner”) and the interest, if any, of others in the damaged property;

d. Details of any other insurance that may cover the loss;

e. Changes in title or occupancy of the covered property during the term of the policy;

f. Specifications of damaged buildings and detailed repair estimates;

g. Names of mortgagees or anyone else having a lien, charge, or claim against the insured property;

h. Details about who occupied any insured building at the time of loss and for what purpose; and

i. The inventory of damaged personal property described in [Article] J.3. above.

Strict adherence to proof of loss requirements is a condition precedent to recovery under the Standard Flood Insurance Policy. Substantial compliance is not sufficient; an insured must completely satisfy the proof of loss requirements before any monetary claim can be awarded.

Failing to adhere to these guidelines can relieve the insurer of its obligation to pay even the most obvious claims. Therefore, it is important to know your requirements under the policy before a loss occurs in order to ensure that your claim is not denied on a technicality.

While each conversation with the insurer or its representatives should be documented and, if possible, confirmed in a letter back to the adjuster, this is vital when there is any type of agreement reached.

While many policyholders are hopeful when an insurance adjuster agrees that a loss is covered or that a certain amount will be paid, occasionally the carrier may disagree and attempt to back out on the deal. This can delay a claim even further and can cause frustration and confusion in a delicate time that should be devoted to repairing the property.

As courts have recognized, “[a]n adjuster by definition is a “representative of the insurer who seeks to determine the extent of the firm's liability for loss when a claim is submitted.” See Bankers Sec. Ins. Co. v. Brady, 765 So. 2d 870, 872 (Fla. 5th DCA 2000). If an adjuster holds himself out as a representative of the insurer with full authority to make decisions and act on the insurer’s behalf, the insurer is bound by these agreements.

In Bankers, the issue arose when the insurance adjuster and policyholder’s retained public adjuster agreed on the amount due under the contract. Unfortunately, the insurance company dismissed its adjuster shortly thereafter and refused to honor his previous agreement.

The court denied the insurance carrier’s attempt to revoke the previous settlement agreement and found that the settlement was binding based on the oral stipulation of its adjuster. Thus, the carrier was required to pay the amounts previously agreed upon.

In large, complex, community association claims, it is important to document each conversation with the insurer. Doing so can help avoid disagreements later as to what was agreed upon by the adjuster and can prove invaluable if an agreement is later retracted.

Issues regarding the discovery of work product and attorney-client privileged materials in the context of bad faith claims have arisen because of the requirements a party must satisfy to pursue a bad faith action against an insurance company. In order for a party to bring a bad faith claim against an insurer, there must be an “underlying claim for coverage or benefits or an action for damages which the insured alleges was handled in bad faith by the insurer.” Ruiz, 899 So.2d at 1124. Consequently, the underlying claim materials are the evidence needed to determine whether an insurer acted in bad faith, which raises the issue of what materials are discoverable in bad faith actions. Because the underlying claim materials are “necessary to advance [a first-party bad faith] action ... [and] evaluate the allegations of bad faith,” see Ruiz, 899 So.2d at 1128-29, the materials fall within the confines of the exception to the work-product doctrine, and thus are discoverable.

Genovese v. Provident Life & Accident Ins. Co., SC06-2508, 2011 WL 903988 (Fla. Mar. 17, 2011) (Emphasis added).

An insured may proceed with a bad faith action if they have filed a claim for coverage under the policy and there are allegations of bad faith in the handling of that claim. The determination of liability does not mean the insured must have filed suit, it simply means that the insurance policy must provide coverage for the damages sustained. This makes sense, after all, given the statutes recognize claim delay as a separate act of bad faith than claim denial.

While the case did not involve a first-party property insurance claim, the law should apply in first-party cases because the bad faith action was based on Florida Statute § 624.155. The same principles should apply in a property claim.

Because associations sometimes choose to resolve large claims in the appraisal process, it is important to understand the effects that such a choice may have. Choosing to proceed with appraisal can affect the recoverable interest, attorney fees, and costs incurred. Therefore, a bad faith action can be important to put an association back into its pre-loss condition. Boards should speak with knowledgeable professionals before making such a decision in order to make sure they make informed choices based on all available information and do what is best for their community’s particular needs.

For condominium associations in particular, many times attorneys become involved in an insurance claim from the very beginning. In many instances, the independent or insurance adjuster is moved to the side early in the process and replaced by the insurer’s attorney, who ends up directing the adjustment and making the final determination of coverage.

For many years, insurers have claimed that all of the work that these attorneys performed in the adjustment of the claim was privileged because of the work product and attorney-client privilege. When insurers acted in bad faith by denying valid claims, the insurer could refuse to produce relevant documents which reflected this improper behavior during the bad faith litigation.

Fortunately, Florida courts caught on to this tactic and have stopped the insurer’s attempts to improperly hide its bad faith conduct by invoking attorney-client and work product privilege on materials in the claim file.

The Florida Supreme Court’s ruling in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005) set the precedent in preventing insurer’s from concealing bad faith activities with claims of privilege. Specifically, Ruiz overruled previous case law and found that work product documents created in the breach of contract action were part of the claim file and must be turned over in subsequent bad faith litigation.

After years of debate and speculation, the Florida Supreme Court has now clarified the scope of Ruiz and has announced that the attorney-client privilege remains intact. In Genovese v. Provident Life & Accident Insurance Company, the Court held:

In Ruiz, we held that in first-party bad faith actions brought pursuant to section 624.155, work product materials were discoverable. At the outset, the first sentence of our opinion in Ruiz makes it clear that the only issue involved in that case was the work product doctrine. In Ruiz, we reviewed the decision of the Fourth District Court of Appeal in Allstate Indemnity Co. v. Ruiz, 780 So. 2d 239 (Fla. 4th DCA 2001), “which expressly and directly conflict[ed] with a number of cases from other district courts with regard to issues concerning application of work product privilege to shield documents from discovery in the insurance bad faith context.” Ruiz, 899 So. 2d at 1122. In concluding that work product materials were discoverable in first-party bad faith actions, we then defined such work product as materials “contained in the underlying claim and related litigation file material that was created up to and including the date of resolution of the underlying disputed matter and pertain in any way to coverage, benefits, liability, or damages.” Id. at 1129-30. Moreover, following this description, we cited Florida Rule of Civil Procedure 1.280(b), which is the rule governing the work product doctrine. Thus, based on a reading of our language in Ruiz, it is clear that the only issue being decided in Ruiz was the discovery of work product pertaining to the underlying claim in first-party bad faith actions. However, Genovese suggests that although the facts of Ruiz only concerned the work product doctrine, we held broadly that both attorney-client communications and work product should be discoverable in first-party bad faith claims against insurers. Contrary to Genovese's suggestion, our holding in Ruiz does not apply to attorney-client privileged communications in first-party bad faith actions.

While this ruling does not come as a great surprise to many, the Court did not conclude its opinion there. Instead, the Court specifically addressed the growing trend of insurance carriers in retaining defense attorneys to act in the capacity of an adjuster rather than as legal counsel. The Court noted:

Although we conclude that the attorney-client privilege applies, we recognize that cases may arise where an insurer has hired an attorney to both investigate the underlying claim and render legal advice. Thus, the materials requested by the opposing party may implicate both the work product doctrine and the attorney-client privilege. Where a claim of privilege is asserted, the trial court should conduct an in-camera inspection to determine whether the sought-after materials are truly protected by the attorney-client privilege. If the trial court determines that the investigation performed by the attorney resulted in the preparation of materials that are required to be disclosed pursuant to Ruiz and did not involve the rendering of legal advice, then that material is discoverable.

In his concurrence opinion, Justice Pariente further stated:

I would, however, emphasize that where an insurer utilizes an attorney to investigate or evaluate the underlying claim, these communications or materials would not be protected. Rather, the rationale of Ruiz would apply. Cases may arise where an insurer has hired an attorney to investigate or evaluate the underlying claim and to render legal advice. Thus, the underlying file materials requested by the opposing party may arguably implicate both the work product rule and the attorney-client privilege.

Accordingly, where a claim of privilege is asserted, the judge should conduct an in camera inspection to determine whether the sought-after materials are truly protected by the attorney-client privilege or whether the attorney was consulted to assist in the investigation or evaluation of the underlying claim. To the extent that the materials would implicate the work product rule and not the attorney-client privilege, the rationale of Ruiz would apply and those portions of the materials would be discoverable.

Genovese is a very important opinion for policyholders and insurers alike in many respects. It protects the sanctity of the attorney-client privilege and warns insurance companies against improper attempts to conceal evidence of bad faith conduct by retaining an attorney to perform the traditional functions of an adjuster.

While this practice happens in all types of claims, large and complex condominium claims are the most common because of the amounts involved. If your insurer retains an attorney during the claim process, the association should seriously consider retaining counsel of its own to negotiate with the insurance company’s attorney and to ensure that the association and board is protected and well informed.