FORT LAUDERDALE, Fla. — The disastrous collapse of the Champlain Towers South condo in Surfside has panicked condo owners across Florida who fear their insurance policies wouldn’t protect them against a financial catastrophe.
In many cases, their fears are justified.
Condo insurance can be an arcane world to understand, and many condo owners may lack sufficient coverage to avert financial ruin, insurance experts say.
Here’s what analysts and financial advisers suggest to protect your most valuable asset: the roof over your head.
Types of protection
For condo owners, insurance coverage is generally broken down into two main segments:
A master insurance policy bought by the condo association to cover building exteriors and common areas such as the garage, swimming pool, tennis courts, gyms, and community and recreation rooms. Condo owners pay a portion of the cost through monthly association fees.
Condo insurance, which covers items inside an owner’s living space and can be written to cover a buyer’s purchase price. By and large, the protection covers items that the association’s master policy does not.
The association’s coverage determines how much coverage the condo owner needs. Associations often pick between two options:
“All-in,” or “all inclusive,” which insures all property in the complex and the fixtures in the owners’ units. Condo owners need only to cover their personal belongings. The extent of the association’s policy can affect how much an owner might need to cover what they spent to buy the condo.
”Bare walls” coverage, which protects the common areas including property owned by the association. It does not include a unit’s walls and fixtures and would not go far in helping to cover an owner’s investment.
Florida is known in the industry as a “bare walls” state, which means condo owners have to cover more items on their own unless an association’s bylaws say otherwise, said Robin Manougian, vice president of the John Manougian Insurance Agency, a division of JGS Insurance in Silver Spring, MD.
Experts say owners should find out which policy their association is carrying before they buy policies for their own condos.
Condo insurance for individual owners takes the form of a so-called HO-6 policy, which covers items the association’s policy doesn’t.
HO-6 is an insurance industry classification that specifies a type of homeowner coverage for condo owners. “HO” is short for homeowners. The policy is similar to insurance on a single-family home, often called HO-3.
Fernando Alvarez, a principal at JAG Insurance Group of Coral Gables and Delray Beach, said owners can buy enough coverage to replace a destroyed condo, which became a sudden concern of many owners after the Surfside collapse.
During a court hearing last week, a Miami-Dade Circuit Court judge declared that the insurance bought by the Champlain Tower South association — property coverage of $30 million and liability coverage of $18 million — was insufficient to cover the expected losses.
An HO-6 policy could help cover the difference, Alvarez said. For example, an owner might take out a $750,000 policy that covers his investment in the condo as well as his possessions.
How much to buy
“A lot of it depends on how the master policy is written,” said Mark Friedlander, the Florida spokesman for the Insurance Information Institute. “It’s up to the individual to discuss with their insurance agent what type of coverage they need” so that if the building is destroyed, they are not financially devastated.
One way for people to find out, Friedlander said, is to examine the so-called declaration page toward the front of the association’s insurance policy. It will summarize the building coverages, allowing the owners and their agents to figure out what is needed to include in the condo insurance, based on their investment and the value of their possessions.
The money from the owner’s condo policy can be used to buy another home elsewhere, Friedlander said.
“The statutes are clear in Florida that you can take the money from the HO-6 policy and use it to buy another property,” he said. “It would have to be a replacement.”
Owners are advised to update their policies every 36 months as their property’s value increases and replacement costs rise.
“If we look at property insurance in general, when you buy a home you buy homeowners insurance and it covers you for the amount it would cost to replace the home,” said Janet Ruiz, director of strategic communications for the Insurance Information Institute. “It’s not about your purchase price. It’s about the cost to rebuild the home. Recently, the price to build has kept going up. Those numbers can all vary.”
Required condo insurance
Most association bylaws require owners to carry HO-6 insurance regardless of whether they have a mortgage, Friedlander said.
“Most require each individual owner to have coverage in addition to what the master policy covers,” he said. “It’s a good time to review your coverage with your insurance professional if you own a condo.” If there are gaps, discuss what to do about it and what to change.
Owners of beachfront condos such as the ones along Galt Ocean Mile in Fort Lauderdale are concerned about their ability to replace their real estate investments in the event of a catastrophe similar to the one that struck the Champlain Towers South in Surfside.
Owners of beachfront condos such as the ones along Galt Ocean Mile in Fort Lauderdale are concerned about their ability to replace their real estate investments in the event of a catastrophe similar to the one that struck the Champlain Towers South in Surfside. (Michael Laughlin / South Florida Sun Sentinel)
Condo association policies can contain coverage against a building’s collapse. The payouts depend on what’s included in the policy, said Manougian, the Maryland insurance executive. Coverage can be triggered by the following:
—The decay of a building or any part that is hidden from view, unless building officials knew about the decay before the collapse.
—Hidden insect or vermin damage.
—Weight of contents, people, equipment or animals.
—Weight of rain that collects on a roof.
—Use of defective material or methods in construction, remodeling or renovation if the collapse occurs during those procedures.
Manougian said it’s possible the Champlain Towers South collapse “won’t be covered given that the board had known of major structural damage and problems in the building.”
Collapse coverage is “typically excluded” under the owners’ condo policies, he said.
Paying off mortgages
If a building is destroyed, those who borrowed to buy their condos are still obligated to pay off their loans in full. The money from the insurance coverage can be used to pay off the remaining balance on the mortgage.
“You always want to make sure you have dwelling coverage that at the bare minimum covers your mortgage,” Friedlander said.
Lenders insist on it if a buyer puts down less than 20% on their purchase. The buyer will be obliged to take out private mortgage insurance, commonly known as PMI, which would be added to the owner’s monthly payment.
People who put down more than 20% or pay cash won’t be forced into PMI, so it’s up to them to make sure they’re adequately covered.
If an owner dies while owing on a mortgage, the unpaid portion of the loans would have to be settled with the lender when the estate is settled.
Mortgage term life insurance policies are available to repay the debt if the borrower dies. Mortgage unemployment insurance is available for people who involuntarily lose their jobs.
Manougian, said that while “we are likely months away from determining what will happen,” in the aftermath of the Surfside disaster, the association could exercise its rights to dissolve if its bylaws allow it.
“If that happens, lenders will expect at least some of the insurance proceeds,” he said. “Whether lenders will get in front of the estates of the deceased or survivors remains to be seen.”
Without a building, the owner fees that support an association’s business activities may also go away,
Owners are typically expected to continue to pay those fees if a loss is not complete or catastrophic, because the association’s budget is based on assessments from all members, Manougian said.
In Surfside, “I’m speculating, but without the existence of a building at this point, a fee abatement is likely.”
Typically, properties are assessed on Jan. 1 of each new year and tax bills are sent out in November. Currently, surviving owners of the Champlain Towers and representatives of the deceased victims’ would still get tax bills based on the assessments of the condo units before the building collapsed.
But Broward County Property Appraiser Marty Kiar said the state has a “calamity” statute that allows taxes to be reduced. The law was installed in 2004 to cover damages from multiple hurricanes. If a storm hits during the year, the assessment is adjusted downward and recorded on Jan. 1 of the following year.
Under the act, the Surfside assessments would be reduced effective Jan. 1, 2022.
Kiar said last week that he hopes the Legislature or Florida Gov. Ron DeSantis would step in and through a new law or executive order allow the assessments for the Champlain complex to be adjusted downward for the current tax year.
“In this situation — and thank God it’s never happened in Broward County — what would occur is we would have to go to the Legislature for a special session or executive order from the governor to allow us to treat the assessed value of the property as if it were destroyed on Jan. 1 of this year,” Kiar said.
On Thursday, DeSantis announced he would go further by suspending tax collections against the properties at Champlain Towers South, which have been reduced to piles of rubble.
“My goal is to suspend or waive any law I can under the state of emergency to forestall that and then we’ll probably ask the Legislature to remit any property tax liability from Champlain Towers South,” the governor said.