As with most important rulings, a recent appellate court decision in favor of a Florida condominium association has been making the rounds through the national insurance news. In Slow, Late, and Delayed Replacement or Repair – – A Case That Helps Policyholders, Chip Merlin wrote about a recent Florida appellate decision in Axis Surplus Insurance Company v. Caribbean Beach Club Association.1 While the trial court rulings in favor of the association were upheld on multiple grounds, the appellate court wrote to highlight why the insurance carrier waived certain time limitation provisions in the policy.
There are many things to take away from the trial and appellate court orders, some of which will significantly impact insurance law for years to come, one important piece of information that should stand out to associations, boards, and managers, is contained in the last sentence of the opinion.
As a result, Caribbean is entitled to receive the increased cost of construction in the stipulated amount of $1,800,000.
For the uninitiated, the “increased cost of construction” is the amount required to bring a building up to current building code after a loss occurs. Often, as in Caribbean Beach Club¸ the local and state authorities have significant building code requirements that must be met to repair or replace a damaged building. These “increased costs” over and above what it would cost to rebuild with “like kind and quality” can be significant and are not typically covered in a basic property insurance policy.
Associations, especially those with older properties, should be familiar with the code requirements for their jurisdictions. If you are in coastal areas, for instance, do your buildings meet the current flood elevation requirements? If not, you may be required to raise the building to obtain a permit to rebuild after even a small loss.
Associations should also speak with their insurance brokers and/or agents about the availability and limits on coverage for bringing the buildings up to code. If your policy does not cover the increased costs of construction, or has a very low limit, you may find yourself footing a large bill with no insurance to lessen the blow.
In Caribbean Beach Club, the fire that damaged the building was severe, but undoubtedly repairable – if not for the requirement to bring the building up to meet the current flood elevation requirements. Had the association not purchased the additional coverage for the increased costs of construction, and not had limits that could accommodate the $1,800,000 bill, the association would have likely never been made whole.