Insurance companies generally argue that the five year statute begins to run from the date of loss, i.e. the date the storm caused damage to the property. In some states like North Carolina and Wisconsin, this position is correct. In Florida, however, courts have generally held that the statute of limitations for breach of an insurance contract runs from the date that the insurer breached the contract. Therefore, the proper beginning of the five year timeframe should be the date the insurer breached the contract by failing to pay the amounts owed.

While the timeframe for filing a claim for breach of an insurance contract may seem clear in Florida, there are a number of other factors that need to be considered. Because most associations and board members are not familiar with insurance law, they may not realize when the breach actually occurs. Similarly, there can be issues raised with supplemental and re-opened claims that may cause the statute of limitation to run sooner than the policyholder thinks.

Hurricane Wilma was one of the most destructive hurricanes to hit the State of Florida. Many associations in southern portions of the state were significantly damaged. As the five year anniversary of Wilma approaches, associations should mark October 24, 2010 on the calendar. If you feel that you have not been properly paid for your damages, currently have an open claim being investigated, or are involved in an appraisal with the insurance company, I strongly suggest contacting an insurance coverage attorney now to ensure that your rights are protected. Waiting until it is too late may leave even the strongest claims unrecoverable.

Like California, Florida courts recognize a common law obligation of good faith and fair dealing in every contract. While many insurers argue that there is no such common law obligation of good faith and fair dealing in insurance contracts, this position is inherently flawed. While insurers are correct that Florida Statute § 624.155 is a potential remedy for bad faith conduct of an insurer, the assertion that a statutory suit is the sole recourse is incorrect. As numerous Florida courts have recognized, an action for breach of the common law obligation of good faith and fair dealing is a separate and distinct action from a lawsuit for statutory bad faith.

As the court pointed out in Tropical Paradise Resorts, LLC v. Clarendon Am. Ins. Co., No. 08-60254, 2008 U.S. Dist. LEXIS 66496 (S.D. Fla. Aug. 20, 2008), “a claim for breach of the implied covenant of good faith and fair dealing arises from contractual duties, while an action for statutory bad faith (pursuant to Florida Statutes § 624.155) arises from extra-contractual duties.” In essence, an insurer breaches the common law obligation of good faith and fair dealing when it makes a choice to proceed in a way that is counter to the best interests of the insured. Typically, this involves failing to promptly adjust and pay monies owed. Such actions violate the inherent obligation of good faith and fair dealing and breach the insurance contract by thwarting the intentions of the parties.

The main difference in jurisdictions that recognize common law bad faith and jurisdictions that recognize only statutory obligations is the time at which the action may proceed. As I discussed previously, most states that recognize only a statutory obligation of good faith and fair dealing only allow a bad faith action to proceed after liability has been determined through a breach of contract action or appraisal. In many states that recognize common law obligations of good faith and fair dealing, an insured may bring an action for bad faith at the same time as a breach of contract.

While there are many benefits to pursuing a breach of contract and bad faith action simultaneously, the most obvious benefit to the policyholder is that the time necessary to reach a final judgment is generally much shorter. Insurance companies are notorious for dragging out litigation in hopes of forcing the insured to take a lower amount than they are entitled to. While this tactic is used in breach of contract and bad faith actions alike, forcing a policyholder to institute two different lawsuits can cause the process to go on much longer than necessary. This is delay in litigation is beneficial to the insurer and forces policyholders to wait longer to make themselves whole again. As many jurisdictions have concluded, this delay should be limited as much as possible in order to protect the policyholder from incurring more damages as a result of an insurer’s wrongful conduct.

While many courts in Florida have recognized a common law obligation of good faith and fair dealing, some have not. The Florida Supreme Court has heard oral arguments on the subject in the case of Chalfonte Condominium Apartment Association v. QBE Insurance Corporation, but has yet to issue a final opinion. Hopefully the Court will uphold the common law action in Florida and add further protections to policyholders in this state.

Many insurance policies do not provide coverage for property that has been vacant for more than 60 consecutive days. While many provisions are usually kept in place even after the property becomes vacant, damages resulting from vandalism, sprinkler leakage, broken glass, water, theft, or attempted theft are often excluded. Further, some policies reduce payments for covered losses to vacant property, leaving the policyholder without enough money to make necessary repairs.

Vacancy exclusions can affect unit owners and associations alike. While it is unusual for entire condominium buildings to be vacant, many times, total vacancy is not required for the exclusion to apply. Many policies consider a building “vacant” if at least 31% of the property is not being used for its intended purpose. Therefore, even though a handful of tenants may actually reside in the building, the property may still be considered “vacant” for insurance purposes.

Given that many condominium associations are beginning to resemble the “ghost towns” of old westerns, many insurers are taking advantage of a growing need for coverage. Insurers, such as American Integrity Insurance Group, based in Florida, are writing specific policies for vacant properties. These policies do not make a distinction between occupied and vacant properties and will generally provide the same coverages in either situation.

With hurricane season in full swing, it is important that associations and unit owners check their policy for vacancy exclusions. If you are unsure whether your property meets the definition of vacancy, contact your agent or insurance company directly. If you have a property that is vacant, make sure to contact your agent and inquire about potential policies that will provide coverage. Doing so now will save you a lot of headaches later.

Unlike many states, however, the Florida legislature has created a statutory cause of action for an insurer acting in bad faith. This is codified in Florida Statute §624.155 and contains a long list of violations that are considered “bad faith” pursuant to the statute.

While this list is too long to list here, some common violations are:

1. A material misrepresentation made to an insured or any other person having an interest in the proceeds payable under such contract or policy, for the purpose and with the intent of effecting settlement of such claims, loss, or damage under such contract or policy on less favorable terms than those provided in, and contemplated by, such contract or policy; or
2. Failing to adopt and implement standards for the proper investigation of claims;
3. Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
4. Failing to acknowledge and act promptly upon communications with respect to claims;
5. Denying claims without conducting reasonable investigations based upon available information;
6. Failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the insured within 30 days after proof-of-loss statements have been completed;
7. Failing to promptly provide a reasonable explanation in writing to the insured of the basis in the insurance policy, in relation to the facts or applicable law, for denial of a claim or for the offer of a compromise settlement;
8. Failing to promptly notify the insured of any additional information necessary for the processing of a claim; or
9. Failing to clearly explain the nature of the requested information and the reasons why such information is necessary.
10. Not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests

While it may seem odd, these violations may give rise to a claim for bad faith under Florida Statute §624.155 but they do not necessarily mean that a policyholder can recover, or even file suit for that matter. For a claim based on statutory bad faith to be actionable, there must first be a determination of liability. Basically, it must be determined that the insured was entitled to proceeds under the policy which were not previously paid. Based on this requirement, a claim for statutory bad faith is not ripe until after a breach of contract action or appraisal is completed. See Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So. 2d 1289 (Fla.1991).

Based on these requirements, a claim for statutory bad faith must be brought in a second and separate lawsuit after liability is established. Also, even the most egregious misconduct by an insurer will not allow a policyholder to bring an action under the statute if the policyholder is not able to recover under the policy.

There are quite a few misconceptions about Florida law regarding bad faith actions. I constantly get questions about these issues from policyholders, board members, adjusters, and attorneys alike. In order to help clear the air, I will regularly post about some of the important issues in this area of insurance law and explain how associations can overcome being treated unfairly by their insurer.

If a property does not have enough insurance coverage to equal or exceed the coinsurance provision, the insurer may reduce the amount of recovery even if the cause and amount of the loss are undisputed. This is a harsh effect and may leave an association without the funds to properly repair the buildings.

There are two basic ways that an insurer will reduce payments under coinsurance provisions. First, an insurer may only pay the actual cash value of the damage instead of the replacement cost normally covered under the policy. While this may not seem too harsh for newer properties, failing to recover the depreciation can be a huge problem for older associations.

The second, and more common, coinsurance provision states that if the property is not insured to the required percentage, any loss can be prorated to the percentage of the insurance purchased. For example, if a policy had a 100% coinsurance provision, the building would need to be insured to 100% of its replacement cost value at the time of the loss. If only $100,000 worth of insurance was purchased but the Replacement Cost Value of the property was $200,000, the insurer would only be liable for 50% of the loss.

Thus, if there was a policy limits loss of $100,000 dollars in the above scenario, the insurance company would only be required to pay $50,000 because the property was only insured to 50% of its replacement cost value.

Many associations carry high coinsurance provisions for a number of reasons. Higher coinsurance provisions reduce premiums, which is enticing to many associations looking to save money in tough financial times. Also, many associations cannot imagine a total loss and believe that there is no need to fully insure the property. Others may not even know that the provision is in their policy. No matter what the reason, associations should always check the amount of the coinsurance provision and ensure that they are adequately covered.

If the association policy includes a coinsurance provision, it should be between 80 and 90%. Having a 100% coinsurance penalty is almost never recommended. Also, no matter what your coinsurance provision says, an association should make a habit of having professional appraisals performed on a regular basis. Having a qualified and unbiased third party determine the replacement cost of the property every few years will ensure there is adequate insurance on the property.

In Goldman v. State Farm Fire General Insurance Co., 660 So.2d 300 (Fla. 4th DCA 1995), the Court held that when an insured makes a claim under a policy in which one of the conditions precedent to filing suit requires that the insured comply with a request by the insurance company for an examination under oath, failure to do so may be a material breach of the policy. In Goldman, the insured filed a claim for a burglary and submitted a proof of loss setting forth the amount of losses claimed. State Farm requested an examination under oath in accordance with the policy conditions.

When the date for the examination under oath grew near, however, the insured rescheduled the examination for another more convenient time. After State Farm had agreed to this extension, the insured filed a lawsuit alleging that State Farm breached the contract by failing to pay the amounts claimed under the policy.

In the end, the Court ruled that because the insurer had requested the examination under oath prior to the lawsuit, the examination under oath was a condition precedent to filing suit. Therefore, the Court determined that the insured had breached the contract and was not entitled to payment under the policy.

A much different scenario exists when the insurer does not request an examination under oath prior to the lawsuit being filed. This situation arose in Willis v. Bankers Insurance Company, 736 So.2d 1272 (Fla. 4th DCA 1999). In Willis, the Court distinguished the facts in Goldman because of the time when the examination under oath was requested. Since the insurer did not request the examination under oath until after the suit was filed, the court held that the examination under oath was not a condition precedent to filing suit. Therefore, the insured in Willis did not breach the contract by refusing to sit for the examination under oath.

The important part of the policy language in both of these instances is the wording of the examination under oath provision. The provision generally reads that the insured must submit to an examination under oath when the insured requests it. The examination under oath is not always a requirement during the investigation of the claim. If the insurer does not request that one be taken, it would not make sense to allow them to come back after litigation is filed and claim that the insured has violated the policy conditions by not sitting for one.

Examinations under oath are important parts of insurance claims and should be taken seriously. Before making any decision about whether you or your clients must attend an examination, it is always best to check with an attorney. That way you can be fully informed about your options and do not risk the insurer claiming that there has been a material breach of the policy.

Most requests for an EUO come with a long list of general areas that the carrier wishes the insured to testify to. With a simple homeowner claim, determining who should be designated (if the request does not cover all of the individual homeowners) is pretty simple. For associations, however, the task of designating the person most knowledgeable about each area becomes more confusing.

Often, the requests center on the person most knowledgeable about current damages and previous repairs and construction projects. Due to the fact that many associations change boards quite frequently, there may be no current board members who have knowledge of both the current damages and previous repairs. This may lead to a situation where the board must designate more than one individual to testify to the areas requested.

Once an individual is identified as the person most knowledgeable about a certain area of inquiry, it is important to understand the basics of an EUO. First, attendance at the EUO should be taken very seriously. An insured’s refusal to submit to an examination under oath has been found to be a material breach of the insurance contract in some instances. Stringer v. Fireman’s Fund Insurance Company, 622 So.2d 145 (Fla. 3rd DCA 1993).

Second, it is important to remember that this examination is conducted under oath and will be transcribed by a licensed court reporter. Anyone sitting for an examination under oath should be careful to answer every question honestly and to the best of their ability. One problem frequently encountered is that some individuals are afraid to admit that the do not remember something that is asked. Before every EUO, I remind my client that “I don’t know” is not a bad answer if it is truthful. If you don’t understand a question, ask the individual to repeat it. If you think that the correct answer may hurt your claim, don’t attempt to hide anything. While the truth may cause problems for your claim, there are things far worse than having a claim completely denied because of an insurer’s assertions of misrepresentation or fraud. That is an uphill battle that many times could have been avoided.

Finally, anyone sitting for a EUO should remember that while it is not a “legal proceeding,” it is about as close as you can get. The insurance company’s representative asking the questions will undoubtedly be an attorney, and you should plan for some tough questions. I never recommend that anyone sit for an EUO without their own legal representation there as well. While there are very limited instances where an attorney can jump in during an examination, having someone there to protect your rights is extremely important. When choosing an attorney for this process, it is important to pick someone who is experienced with examinations under oath. Because the rules of an examination under oath and a deposition are very different, the best way to protect yourself and your association is to find a well versed insurance attorney to accompany you.

Due to these vast budget deficits, the National Flood Insurance Program was allowed to expire by Congress earlier this year. Policies that were already in place at the time of the expiration were allowed to continue, but until the program is renewed, there will be no new policies issued. This is a scary proposition after the 100 year floods which have recently devastated the Southeast and Midwest, as well as the large number of predicted hurricanes I wrote about in Hurricane Expert Revises Prediction.

Since the expiration, Congress has made numerous attempts to renew the Flood Insurance Program, each time failing to do so. This week, Congress again failed to pass a bill which would allow the Program to begin writing policies again. Thus, if you don’t have current flood insurance under the program, there is likely little that can be done, unless you seek expensive coverage from a private surplus lines carrier. For those of you who have policies in place, it is important to make sure that you do not let this coverage lapse. If you do, it is unclear when, if ever, you can purchase it again.

In a memo to participants in the “Write Your Own” flood program, NFIP Director of Claims, James A. Sadler, stated that if oily flood waters were to make landfall, the damages would be covered -- assuming that the “flood” met the appropriate definition spelled out in the Standard Flood Insurance Policy.

There were, however, other qualifications set forth in the memo:

1. Coverage for commercial buildings and contents must be purchased separately and the limit for damage caused by pollutants is $10,000.

2. Homes and contents are covered up to the policy limits.

3. NFIP only pays for direct physical loss by or from flood.

4. Condominium contents are covered to the policy limits.

5. Damage to ground, soil, or land caused by flood, oil, or flood water mixed with oil is not covered.

6. The cost of complying with any local or state ordinance including one that requires special removal methods for oil is specifically excluded.

7. There is no coverage for testing for or monitoring of pollutants unless there is a law or ordinance requiring it.

8. If the policyholder makes any claim against any person who caused the loss and recovers any money, the policyholder must pay FEMA or the WYO back first before the policyholder may keep any of that money.

With the uncertainty surrounding the long term effects of the oil spill and lingering questions about potential coverage under property insurance policies, FEMA’s position on coverage under the Standard Flood Insurance Policy is a small ray of hope in the ongoing fight to protect the way of life of those who live and work on the gulf coast.

(1) Any statement or description made by or on behalf of an insured or annuitant in an application for an insurance policy or annuity contract, or in negotiations for a policy or contract, is a representation and is not a warranty. A misrepresentation, omission, concealment of fact, or incorrect statement may prevent recovery under the contract or policy only if any of the following apply:

(a) The misrepresentation, omission, concealment, or statement is fraudulent or is material either to the acceptance of the risk or to the hazard assumed by the insurer.

(b) If the true facts had been known to the insurer pursuant to a policy requirement or other requirement, the insurer in good faith would not have issued the policy or contract, would not have issued it at the same premium rate, would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss.

It is important to note that the insurer does not have to prove that the misrepresentation was intentional or intended to deceive. Even an honest mistake may result in a claim denied. The insurer could argue that if the true information had been disclosed, it would have issued the policy at a higher premium or a lower policy limit.

While the burden is on the insurer to prove that it actually would have changed its determination of premiums, limits, etc., it is important to note that this statute is very broad. Even an unintentional or seemingly minor error in an application can be devastating to a claim. Thus, it is always important to have open and honest discussions with your agent both before and after the policy is in effect. If you find that there has been a mistake, let your agent know and find out what to do in order to correct it. While the premium may increase in the short term, an association is much better off with a higher payment than with no coverage after a large loss.

Don’t wait until it is too late; there are many precautions that you can take now which may minimize damages and help limit the amount of time it takes to get back up and running.

First, check with your agent to make sure that your insurance policy is in effect and that you have made all necessary payments. If there is a problem, make handling it your first priority. Check both the windstorm and flood insurance policies, as flood is typically an excluded coverage under normal commercial insurance policies. There is no time to procrastinate; if your association is not properly covered, board members and managers may be subject to liability if a loss occurs.

Next, begin formulating a plan for dealing with an oncoming hurricane. Speak with maintenance and other workers about steps that need to be taken before a storm arrives. Trees and bushes should be trimmed to reduce the possibility of damage from debris hitting the building. If you have satellite phones or other means of communication when phone systems are down, make sure that they are charged and distributed to the necessary individuals so that you can make contact during and immediately after a storm. Also, check any damage prevention devices, such as hurricane shutters, to make sure they are in working order

Have a discussion with employees regarding their specific jobs if a hurricane threatens. One important precaution is to make sure that potential projectiles are brought inside or tied down. Pool chairs, trashcans, signs, etc., can turn into missiles during a hurricane and could lead to property damage and injury if not properly stored or tied down.

Make sure that financial records and important data are stored in a safe place or backed up on an offsite server. After a loss, insurers will likely require much of this information in the investigation of the claim. Having this material backed up and safe can help the claims process go more smoothly and can help an association quickly get back on its feet.

Speak to vendors and contractors that you have a relationship with and make them aware that you will be contacting them immediately after a loss. Many times, hurricanes cause such widespread damage that contractors and water remediation companies are booked for weeks or even months. Contacting them early can help ensure that you get the help you need to mitigate damages and make repairs as quickly as possible and avoid delays.

Finally, create an emergency phone list for all relevant employees. If you can contact them as soon as it is safe and have them back to work cleaning up after a storm, you will get the work done more quickly. The extra expense you incur in paying these individuals may be recoverable under your association insurance policy.

Having a plan in place can make a world of difference after a loss. These preemptive steps can help ensure that your building promptly repaired and operational after a loss.

Far be it for me to speculate on the number of hurricanes that may form, but from his comments, it appears that the 8 hurricanes (4 major) predicted in the Project's April Forecast Schedule is out the window. When considering that a “major hurricane” has winds in excess of 111 miles per hour, the thought of a large number of such storms should concern everyone in coastal areas.

It has been almost five years since Hurricane Wilma severely damaged Florida, and has been even longer since Hurricanes Frances, Jeanne, and Charley. While in the grand scheme of things five years is only a brief moment, many in this part of the country have become complacent. As I stated in a previous post, Recent Earthquake Activity Causes Many to Wonder About Coverage, “[i]t is important for associations to have a good relationship with their insurance agent so that an open and frequent dialogue occurs.” Unfortunately, many times during these “off years” this dialogue breaks down. Policies are left unchecked, and new boards members are not familiar with insurance issues.

With Hurricane season just around the corner, now is the time to ensure that you have the appropriate coverage and that you understand what to do in case of a loss. This will help make sure you are fully protected in the event a hurricane damages your property, and prepare you for what to do in such an event.

I want to help begin this process with you. Over the next few weeks I will be writing about some of the common mistakes associations make in purchasing coverage and in complying with post-loss duties. While I certainly could not cover every issue, I hope this will provide a general overview of what you can do to protect yourself and your association.

Today I am excited to say that we have won a small battle in what appears will be a much larger war. Yesterday afternoon, Federal District Court Judge Casey Rogers issued two separate orders relating to our specific case. While Judge Rogers did grant BP’s request to stay the case until a final determination of venue is made by the Multi-District Litigation Panel, Judge Rogers also issued a second Order which grants our request for an emergency hearing on the preliminary injunction.

In accordance with the second Order, BP must respond to the request for injunctive relief by June 2, 2010, and the Court will hear arguments at an evidentiary hearing in Gainesville on June 18, 2010. This ruling is the first of its kind and, hopefully, will be the start of some relief for those affected by the massive oil spill.

A copy of this order is posted below, and you can find a copy of our Complaint here.
 

Earthquakes seem to be occurring more frequently over the past few years. California, Chile, Mexico, and Haiti have all felt the effects of these natural disasters in the past few months and many have been left wondering when the next big one will hit. Unlike hurricanes, tornados, and wildfires, earthquakes are unpredictable and may occur at any time. The devastation associated with earthquakes is particularly concerning for Condominium Associations and other large buildings or complexes, which are home to many people. It is important for associations to check their policies and speak with their agents frequently about earthquake coverage and whether the association’s property is fully covered.

A recent study of California homeowners found that more than 90% of homes in that state are not covered for earthquake damage, and, while condominium associations are more apt to purchase earthquake protection, there is no doubt that the majority are underinsured in California and across the nation. There are a number of reasons homeowners and associations do not purchase proper earthquake insurance. First, in places like California, the coverage is extremely expensive. After the Northridge Earthquake in 1994, nearly all of the private insurance companies stopped writing earthquake coverage and those that continued charge very steep prices. The reason for this was simple: the costs associated with property damage from a major earthquake were deemed too high for private insurers. The 6.7 magnitude Northridge Earthquake damaged or destroyed more than 300,000 buildings and resulted in 600,000 claims filed. Insurers paid heavily for the damages associated with the quake. State Farm paid $3.5 billion in claims and Farmers paid around $2 billion, according to most reports.

While the cost of earthquake insurance is extremely high in areas like California, many individuals and associations also do not purchase earthquake coverage because they believe their location is immune from earthquake damages. Even though historically, many areas outside of the Western United States do not suffer from frequent earthquakes, it is important to know that the potential for earthquakes is prevalent in other places. The New Madrid Fault, which runs through Missouri, Tennessee, and Arkansas, is considered by many experts to be one of the most dangerous faults in the world. While this fault line hasn’t been as active as others, many experts predict that an earthquake on par with the recent earthquake in Haiti will occur within the next 50 years.

This would not be a first for the area. In 1811 and 1812, the New Madrid Fault shook so heavily that it caused church bells to ring as far away as Boston and even changed the course of the Mississippi River near Memphis, Tennessee.

Given the high potential for earthquakes in many areas of the country, it is important to be mindful of coverages and make sure that your association is fully protected. Almost all insurance policies specifically exclude earthquake damage, and the coverage must be purchased additionally. Luckily for most people outside of the Western United States, the price is relatively cheap. A few dollars a year could mean the world if and when a major disaster strikes.

For those of you on the “Left Coast,” there may be hope to bring you more affordable coverage. Congress is currently considering H.R. 4014 -- The Catastrophe Obligation and Guarantee Act, which would allow the California Earthquake Authority to offset the cost of expensive reinsurance by borrowing from private markets with federal guarantees. This could lead to a decrease in premiums for earthquake insurance in California by as much as 50% and could allow many more people to purchase the coverage they need.

It is important for associations to have a good relationship with their insurance agent so that an open and frequent dialogue occurs. Now is the time to speak with your agent and make sure that you are fully protected at the time that disaster strikes.

While this conference has informational seminars on a number of the day to day problems facing condominium and homeowner associations, I worry that the insurance aspects are under-represented. There were a few seminars on insurance which briefly touched on issues involving D&O coverage and property losses, but there seems to be a lack of relevant information regarding how an association should deal with claims.

Nothing can be more devastating to a community association than a catastrophic loss. A slow moving or unpaid claim will adversely affect associations and may lead to economic problems that extend for years. By not including more information about proper claims presentation practices and common problems, associations may be left vulnerable when disaster strikes.

The attendees at CAI Conferences have shown a lot of interest in learning about insurance issues which may affect them. In February, I attended the CAI Legal Conference and was repeatedly asked about first party property insurance problems. Losses happen all over, and the number of community associations is growing by the day. In Florida alone, over 25% of the population lives in some type of condominium or homeowner association run community. Since insurance issues and needs are typically different for an association than a regular property owner, it is important that these associations are properly educated to maximize and expedite their recovery after a loss.

The lack of an extremely active hurricane season for the past few years may play some role in the lack of insurance presentations, but I believe the down time is when the most vital preparation should take place. Now is the time to review insurance policies, discuss coverages, and make changes. After a loss, it will likely be too late.

CAI is an outstanding organization that does a wonderful job of promoting the interests and education of its members. I hope that many of you who deal with associations, or who would like to in the future, will join CAI and help me in bringing insurance issues back to the forefront.

In order to show loss of rents or business interruption, the condominium should keep detailed records of why individuals are cancelling their reservations. Reservationists should have a script to follow in the event of a cancellation and should inquire specifically about whether the oil is the ultimate reason. If so, the caller’s contact information should be taken and kept in a separate file kept in preparation for a claim. Associations should consider requiring cancellations in writing so that the cause of the loss is fully documented. These written statements will go a long way in proving a claim later.

Furthermore, an association cannot take too many pictures. Areas which may be affected by the oil should be diligently photographed both before and after the event. Before the oil comes ashore, areas which may be affected should be cleaned, if appropriate. Sand, lawns, etc., should be cleared as much as possible. It seems counter intuitive, but it is much easier for oil to be removed from clean areas than areas full of debris or other things.

Yet, self-help can be a tricky situation. The current position on what precautions an individual or association can take is unclear, but it seems unlikely that using sandbags or bails of hay in an attempt to absorb the oil would be a problem. Check with local officials about what is allowed or encouraged, and make sure not to interfere with the efforts of the local, state, or national governments. If and when you do take preventive actions, it is important to photograph the process, and anyone who is working on or observing the efforts should be asked to give a written statement.

Finally, any expenses incurred before or after the oil comes ashore should be documented. Keep receipts for materials and time logs for individuals who perform work. Anyone, including owners, volunteers, renters, or employees, should be compensated for their time and efforts in preventing or mitigating the damages. Keeping time logs can be very important to make sure that everyone is fully reimbursed for their time.

God willing, this oil will never reach the shore, but if it does, an association should have a plan in place to deal with such a situation. It is important to remember that even if the oil stays offshore and does not affect your area, money expended to prevent damages should hopefully still be recoverable. Again, accurate documentation now can be crucial in ensuring that you are properly reimbursed in the future.

The consequences of the current oil spill will continue long after the spill is stopped or contained and will affect almost every aspect of life in this area. It seems inevitable that the oil slick will reach this area at some point, and the timing could not be worse. A decline in tourism during the summer months will almost surely cripple the condominiums, hotels, restaurants, beach services, retail shops, and many others who depend on the influx of vacationers during this time of year to make a living.

The question I have been asked most often during the numerous phone calls and meetings today is “what can we do to protect our business and our employees?” First, it is important to realize that even though the oil has not made landfall, its effects are far from small. From day one, the spill has created documented damages to businesses and homeowners, and these losses will grow exponentially.

Second, it is crucial that condominiums and other business diligently document the losses that are incurred. If a renter calls to cancel a reservation, the reservationist should specifically ask whether the cancellation is due to the oil spill. If so, the potential renter’s information should recorded and saved in order to document the lost income.

Also, everyone should be proactive in protecting the financial security of the association and the other businesses that are being adversely affected by this disaster. Many condominium associations and other businesses have already contacted the Merlin Law Group and we are in the process of filing a class action lawsuit in order to protect the livelihoods of the hundreds of thousands of people in this part of the country who depend on tourism to survive.

This Tuesday, May 4, 2010, we will be hosting an informational seminar at the San Destin Hilton in Destin, Florida. Beginning at 1:00 pm, a select group of attorneys, accountants, and other professionals will be on hand to answer questions about the steps that are being taken to protect this fragile economy and environment. So far, we have had over 100 businesses, associations, and individuals express interest in this event and we hope that you will be able to join us as well.

In order to deal with the current crisis, we have started a new website to keep the public informed. If you have any questions or wishes to speak to us about representation, you can contact us at the number listed on the website, or you can contact me directly at 813-373-9598.

As many of you know, the condominium statutes in Florida are more detailed than most other states. This should come as no surprise, given the fact that over 30% of Floridians live in some type of community association.

Florida Statute § 718.111 states:

(f) Every hazard insurance policy issued or renewed on or after January 1, 2009, for the purpose of protecting the condominium shall provide primary coverage for:

1. All portions of the condominium property as originally installed or replacement of like kind and quality, in accordance with the original plans and specifications.

2. All alterations or additions made to the condominium property or association property pursuant to s. 718.113(2).

3. The coverage shall exclude all personal property within the unit or limited common elements, and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, built-in cabinets and countertops, and window treatments, including curtains, drapes, blinds, hardware, and similar window treatment components, or replacements of any of the foregoing.

This statute makes determining what is covered by the association’s policy much less difficult. In most circumstances, the unit owner is responsible for insuring everything inside the bare walls, floors, and ceilings. This means that while the association policy may provide coverage for water damaged drywall and ceilings, the unit owner will probably be responsible for replacing the paint or wallpaper. Similarly, while the association will be responsible for damage to the bare floors, any carpet or hardwood covering the bare floors may not be covered.

With hurricane season coming fast, it is important for associations and unit owners alike to review their policies to ensure that the appropriate areas are covered under the respective policies. If there is a need to increase coverage, it is always better to act sooner than later.

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.

There has been some debate over whether the Court’s ruling in Ruiz prevented insurers from relying on attorney-client privilege to keep from producing documents related to the underlying breach of contract action or adjustment process.

This was the exact question which Sandalwood Estates Homeowner’s Association recently faced in the Southern District Court of Florida. After Hurricanes Frances and Wilma, Sandalwood suffered significant damages. When the insurer did not promptly pay the full amounts due under the policy, the parties proceeded to appraisal. The result of the appraisal was an award of around $5,000,000 more than was originally offered by the insurer.

Sandalwood filed suit alleging that the insurer had acted in bad faith in handling the insurance claims. During the discovery phase of the lawsuit, the insurer claimed that many of the documents requested did not have to be produced because they were protected by the attorney-client privilege.

The District Court disagreed, holding that while the documents may have privileges attached to them in a breach of contract action, documents dealing with the handling of the claim were part of the claim file and discoverable in a bad faith action. As the court stated, “…courts in Florida have consistently held that the Florida Supreme Court intended Ruiz to extend to claim file materials that would otherwise be protected by attorney-client privilege.” Sandalwood Estates Homeowner’s Assn’s Inc. v. Empire Indemnity Insurance Company, No. 09-80787, 2010 WL 411088 (S.D. Fla. January 28, 2010)

With the complexity and amount of money involved in condominium claims, there is a growing trend of insurers bringing in attorneys very early in the process. When acting in this capacity, the materials in the claims file should not be privileged simply because the attorney is involved. While this is obviously not the first time a court has found that these documents should be produced, the Sandalwood case is an important victory for condominium associations and other policyholders who are at the mercy of the insurer after a devastating loss.

The insured, as often as may be reasonably required, shall produce for examination all writing, books of account, bills, invoices and other vouchers or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by the company or its representatives, and shall permit extracts and copies thereof to be made.

An insurer has numerous motives for reviewing an association’s documents. Often, the insurer is looking for evidence of pre-existing damages. One large condominium insurer in Florida, for instance, has made a practice of conducting exhaustive document inspections. When a loss is reported, the insurer’s legal team rolls into the condominium association with much the same velocity as the windstorm that caused the damage in the first place. Every document available is copied and combed through line by line. This particular insurer even has its own portable copy machines to make the process more efficient.

Condominium associations are a different animal when it comes to documents. Typical associations have a high turn over rate with employees, managers, and even board members. Many times, one hand does not know what the other is doing, and new managers may completely change the filing system. Thus, keeping track of all of the documents can be a consuming process.

Part of cooperating with an insurer in adjusting the loss involves making requested documentation available for inspection and failing to do so may give an insurer a chance to deny the entire claim. In Florida Gaming Corp. v. Affiliated FM Ins. Co., for instance, the insurer argued that Florida Gaming Corp. was not entitled to insurance proceeds for damages resulting from Hurricane Wilma because it had allegedly failed to produce some documentation requested. The policyholder responded that it had made available all documentation in its possession and that it had complied with all of its post loss obligations under the policy. Fortunately for the policyholder, the court agreed that the hundreds of pages of documents produced were sufficient, and the insurer’s motion for summary judgment was denied. Florida Gaming Corp. v. Affiliated FM Ins. Co., 502 F.Supp.2d 1257, 1264 (S.D. Fla. 2007).

While the policyholder in this instance was benefited by a favorable ruling, there was a substantial risk to the solvency of the company if the court had found differently. The claim at issue was in excess of $17,000,000, a substantial potential blow to any organization.

While the revolving door is constantly in motion when it comes to condominium association employees, owners, and directors, it is important to have a plan in place to maintain appropriate records. Some associations believe that they have great insurance and will have no problem if they submit a claim, and in some instances, this may be true. But, as we have seen with the results of the active 2004 and 2005 hurricane season, condominium associations are at great risk of large scale damage.

Having a consistent plan in place to maintain and preserve documents over the years will save a great deal of time. After a loss, the documents will be readily accessible and can be sorted through and produced when necessary to support a claim. This can help large claims be paid more quickly and can help an association get back on its feet faster after a devastating loss.