In light of the recent condominium collapse in Surfside, Florida, condominium associations may find themselves questioning whether they are adequately insured for catastrophic casualty events and/or allegations of mismanagement of the condominium. In this article, Randy Opotowsky and Margaret Glass provide an overview of the types of insurance condominium associations are required to have under the Louisiana Condominium Act as well as the types of insurance condo associations should consider, such as coverage for large scale disasters.
Louisiana Condominium Act Provision on Insurance
In Louisiana, condominium associations are required to maintain certain types of insurance covering the condominium property, the association and the unit owners. It is important for the board of directors of the association and the association’s insurance agent to be aware of the Louisiana Condominium Act provision on insurance, La. R.S. § 9:1123.112. This statute requires the association to maintain, to the extent reasonably available, two types of insurance:
- Property Insurance. Associations must maintain property insurance covering both the common elements and the units, except this insurance is not required to cover “betterments and improvements,” i.e. upgrades that are of a higher quality than originally constructed, within the units. This insurance must provide casualty coverage for at least 80% of the actual cash value of the property, but associations should consider obtaining coverage for the full replacement value of the insured property.
- Liability Insurance. Associations must also maintain comprehensive general liability insurance which provides coverage for death, bodily injury, and property damage arising out of or in connection with the use, ownership, or maintenance of the common elements. This policy must cover the association and also the unit owners with respect to liability arising out of the unit owners’ ownership interest in the common elements or membership in the association. The statute does not require a specific amount of insurance; associations should consult their insurance agents about appropriate amounts.
The above policies are subject to various requirements set forth in the statute, including requirements that the insurance company waive subrogation against individual unit owners and that coverage cannot be voided by the acts of unit owners acting in their individual capacity. In the event of a claim under the association’s insurance policies, the association will generally work with the insurance company in the capacity as a trustee for the unit owners, who have interests in the policies as described above.
The Louisiana Condominium Act, La. R.S. § 9:1123.113, also requires associations that collect assessments for common expenses to maintain a blanket fidelity bond or equivalent insurance providing coverage in the amount of the lesser of (i) $1,000,000 or (ii) the total amount of reserve balances of the association plus one-fourth of the aggregate annual assessment of the association, but no less than $10,000. However, this requirement is considered satisfied if the association’s third-party manager carries a bond or insurance satisfying these requirements and names the association as an additional insured. Associations should further confirm that any third-party manager or management company maintains its own separate liability and errors and omissions insurance.
Other Types of Insurance Condo Associations Should Consider
In addition to the above, the association is permitted, but not required, to carry any other insurance it deems appropriate. Associations should seriously consider maintaining directors and officers liability insurance, flood insurance, workers compensation and employer liability insurance if they have employees, builder’s risk insurance in the event of any construction, personal property coverage if not included in the property policy, and an umbrella liability policy. Particularly in the case of a large scale disaster which involves potential allegations that the association failed to address existing problems, as is occurring in Surfside, adequate directors and officers liability insurance and an umbrella liability policy would be extremely important.
The condominium declaration may also require each of the individual unit owners to carry their own separate insurance policy, sometimes referred to as an HO-6, which typically covers damage to the “betterments and improvements” within the unit, as described above, and provides personal liability coverage to the unit owner in the unit owner’s individual capacity. La. R.S. § 9:1123.112 provides that this insurance is primary with respect to betterments and improvements within the unit owner’s unit, while the association’s property insurance policy is primary with respect to common elements, structural elements and components, and fixtures and improvements of the condominium units that are not classified as betterments and improvements.
If a condominium allows short-term rentals, any unit owner conducting short-term rentals should consider obtaining an endorsement to provide coverage for those activities, which are often not covered by standard homeowners or HO-6 policies and also not by association master policies.
Learn More About Legal Requirements for Condominium Association Insurance
One of the greatest responsibilities of a condominium association is selecting and maintaining insurance to respond to unexpected events. Please contact our office if you are interested in learning more about the legal requirements for condominium association insurance.