Caribbean Adjusters International Hosted Condominium Insurance Forum in Puerto Rico

On March 14, 2018, Caribbean Adjusters International hosted the “Condominium Insurance Forum” at the Marriott Hotel in San Juan, Puerto Rico. The forum was divided in two groups of panelists formed by adjusters, brokers, producers and local attorneys with special guest speakers such as Puerto Rico’s Insurance Commissioner (via Skype) and our own William “Chip” Merlin. Important topics were discussed related to claim issues for condominiums on the island.

The forum had two sections. During the first section, panelists discussed the steps that the Board of Directors should follow for their insurance claims and how to avoid fraud. The emphasis was a call for an assembly between the Counsel of Honors and the individual owners and to secure a fidelity bond. A claim by any owner has the power to stop any process or plans made at this assembly. Puerto Rico’s Insurance Commissioner, Javier Rivera, requested all Board of Directors send their claims to his office for him to keep track and work on better alternatives for condominiums to recover and attract new investors.

The second section was by a group of attorneys, including Chip Merlin. Local attorneys expressed their concern for lack of knowledge and capacity for attorneys in Puerto Rico to represent clients on insurance claims. Local attorneys and insureds present at this forum admitted this is a new process for them and made emphasis on the need to acquire professional services from adjusters and attorneys with experience in insurance claims.

On this topic, one of the main discussions was the limitations for insureds to settle claims because arbitration is not an option and mediation in many cases would not be successful, forcing insureds to litigate their claims. Mr. Merlin explained that even when litigation could be the last option for many insureds, for many cases in the past it has been the only successful alternative for recovery and also the best method for obtaining mediation results.

Reimbursement for Urgent Repairs Under Puerto Rico's Condominium Act

It is important for insureds to know that Puerto Rico’s Condominium Act provides reimbursements for repairs considered “urgent” and made at their expense. This will only apply for urgent repairs needed in common areas of the condominium.

Payment for urgent repairs; recovery from other co-owners:

When the building or its common elements require urgent or necessary repair, security, or preservation works, any owner may perform them at his/her own expense and recover from the other owners the proportional payment for the expenses incurred, by means of the pertinent explanations with supporting data.1

Many condominiums in Puerto Rico were affected by Hurricane Maria. Some of the damages call for urgent reconstruction or repair. When a Board of Directors has not acted promptly for reconstruction or repair in common areas of the condominium, owners may make these repairs at their expense and ask for reimbursement from the Board. If the Board meant to postpone or not do the repairs, then the owner will not be refunded. The Condominium Act states that the owner should claim his or her reimbursement no later than thirty (30) days after the expenditure and, if applicable after reviewing, the Board will make the payment within a period of thirty (30) days. An alternative is for the Board to forgive the maintenance debt.

In the event of disasters such as Hurricane Maria, insurance companies are adjusting a great number of claims, and delays in acting promptly can occur. Condominium property owners must maintain and secure property for a larger number of people, and when urgent repairs are needed they must act promptly, even if that means at their own expense. By providing reimbursement, Puerto Rico’s Condominium Act incentivizes owners to act quickly.

1 2003 Condominium Act, 31 L.P.R.A. sec. 1291o (Translation by the Translation Office of the Puerto Rico Government).

Water Leak Repairs Under Puerto Rico's 2003 Condominium Act

Puerto Rico’s 2003 Condominium Act has established how to proceed in circumstances where the responsibility for maintenance and repairs is unclear. As I mentioned in my prior blog, the Board of Directors is responsible for the insurance and repairs of general common areas in condominiums such as stairs and lobby. All unit holders are responsible for their own insurance coverage, maintenance and repair of the unit’s interior.

When a water leak problem occurs, the owners have a duty to notify the Board of Directors and they should proceed to hire an expert, such as a plumber, to determine the origin of the leak.1

Once the expert has completed his analysis he should then notify the Board and the owner of the origin of the problem. When the origin comes from a general common element, the Board of Directors should repair the common area immediately and notify other unit owners who may suffer from it. On the other hand, if the origin of the problem comes from a private area belonging to the owner, the Board of Directors will not be responsible for the repairs and the owner should notify his insurer or repair it at his own cost.

Article 15 (d): Rules governing use of apartments; violation as ground for civil action.

(d) All owners shall execute, at their own expense, the modifications, repairs, cleaning, security, and improvements of their own apartments, without obstructing the rightful use and enjoyment of others. It shall be the inescapable duty of every owner to perform the repair and security works as soon as necessary, so as not to affect the security and appearance of the building. All owners or occupants of an apartment are legally bound to allow repairs or maintenance works required by the building in their unit, allowing entrance to the apartment for their completion.2

After disasters such as Hurricane Maria, water leaks may be more common and they can cause additional damage to condominiums. Repairs should be made promptly to avoid damage to other units and common areas. It is the owner’s responsibility to inform the Board of Directors on any issue related to water leaks even if the owner has insurance coverage for the damage.

1 Lcdo. Roberto A. Rivera Ruiz, Filtraciones y Responsabilidad, Asociación de Condominios y Controles de Acceso de PR, Retrieved 12/27/2017 (12:09 pm).
2 Puerto Rico 2003 Condominium Act, 31 LPRA §1291m.

Puerto Rico's Condominium Act: Recovery After Hurricane Maria

It was winter of 1996 when my family and I moved from New Jersey to Puerto Rico. Since then, I have witnessed how Puerto Rico has struggled to establish better construction codes and plans for home improvement and insurance. These attempts have been challenged by politics, economic issues and natural disasters. Puerto Rico does not have statutes or ordinances requiring homeowners to have property insurance; it is only a requirement for property owners with mortgages. Puerto Rico’s Insurance Code defines insurance as “the contract whereby a person is obligated to compensate another or to pay or to provide a specific or determinable benefit to the occurrence of an uncertain event foreseen there, the term safe includes reinsurance.”1

The 2010 census revealed that the Island has 1.6 million homes. The Insurance Commissioner of Puerto Rico, Javier Rivera Rios, stated that currently only 30% of the homes in Puerto Rico are insured.2 This represents a great obstacle for repairs and recovery after Hurricane Maria. Puerto Rico authorities estimated that a total of 250,000 homes suffered severe damages and 200,000 other homes suffered minor damages.3

Repairs and reconstruction are essential after catastrophic events such as Hurricane Maria. Puerto Rico’s 2003 Condominium Act provides coverage to protect common areas and other common benefits for the titleholders, including those that possess their own insurance. “Common areas” are considered as general common elements necessary to the condominium structure, not susceptible of individual ownership by the holders and subject to a legal compulsory unity, such as hallways, courtyards, stairwells, and lobby.4 Titleholders are required to pay communal insurance to the Board of Directors, even if the titleholders buy insurance for their apartment or have paid their mortgage. Any owner may request to inspect documents relating to communal insurance. All titleholders should inform the Board of Directors of the conditions and repairs needed in their apartments and common areas after damages occurred. The Board will then inform the insurer of all reconstruction needed and the indemnification process will begin.

After receiving an indemnity offer from the insurer, the board of Directors will prepare a distribution plan for the reconstruction funds, detailing the specific amounts to be allocated to the Reconstruction of each apartment, according to the appraisals carried out, and the other common areas of the property.

The report shall be circulated to the holders not less than fifteen (15) days prior to the holding of an extraordinary assembly, convened to consider, exclusively, the offers presented and the report. The Board of Trustees shall finally decide, by majority vote, everything related to the indemnity, including acceptance of the sums offered by the insurers companies and the priorities of the works to be carried out.5

If the condominium is not insured or the indemnification does not cover the total value of the reconstruction, the Condominium Act provides the following article:

When the property is not insured or the indemnity of insurance does not reach to cover the value of what needs to be rebuilt, the new cost of construction will be paid by all the owners who directly affect the damage, in provide the percentage of their respective apartments; And if one or more of those who integrate the minority refuse to do so, most will be able to do so at the expense of all, as soon as the works benefit them, taking the appropriate agreement, which will fix the particulars of the case and include the price of the works with intervention of the Council of headlines. The provisions of this article may vary by unanimous agreement of the interested parties, adopted after the date on which occurs the claim.6

In the last decade, natural disasters have increased and caused major damage and loss all over the country. Property owners should be strongly encouraged to purchase insurance coverage in Puerto Rico and other vulnerable areas. Property owners, are responsible for choosing insurance coverage wisely and complying with all policy. We must continue the efforts to secure and protect our homes against natural disasters, such as Hurricane Maria.

1 Puerto Rico Insurance Code, 26 L.P.R.A. §102.
2 Benjamin Torre Gotay, Minima la Cantidad de Casas Aseguradas (Last updated: November 20, 2017)
3 Benjamin Torre Gotay, supra note 2.
4 2003 Condominium Act, 31 L.P.R.A. 1291i.
5 2003 Condominium Act, 31 L.P.R.A. §1293h.
6 2003 Condominium Act, 31 L.P.R.A §1293i.