Condo owner fears 'best efforts' language in law allows HOAs to scrimp on insurance protection

Live in a home governed by a condominium, co-op or homeowner's association? Have questions about what they can and cannot do? Ryan Poliakoff, an attorney and author based in Boca Raton, has answers. 

Question: I am troubled by your recent advice concerning condominium association insurance requirements. Your response stated that "the Condominium Act, at Section 718.111(11), provides that the association must secure 'adequate' property insurance, which insurance must be based on the replacement cost of the property ..."

Actually, the statute doesn't quite say that. It says that "an association controlled by unit owners operating as a residential condominium shall use its best efforts to obtain and maintain adequate property insurance."

Florida's 8 types of home insurance: What kind of homeowners insurance do I need?

Those are not the same thing, and I'm sure you can appreciate the difficult situation that condo boards, and in fact nearly all property owners in Florida, are facing. I'm concerned that it misleads the reader into believing that the condo association must obtain an all-risks policy, or separate policies for all named perils. I don't believe that is true.

F.S. 718.111(11) does not require that any particular peril be covered, and further, it is poorly worded and ambiguous. There is no reference to requiring “windstorm coverage,” or flood or sinkhole.  Which set of these coverages constitutes "adequate coverage?" Condo complexes that are not located near the ocean do not risk having every building demolished. The same goes with other perils. In fact, the only type of insurance that is mandated by F.S. 718 is a fidelity bond for persons who manage the association funds.

As you know, this is an extremely important topic in Florida and people are looking to you for accurate guidance.  We read your column each week and look forward to further clarification on insurance requirements. Signed, K.G.

More from Poliakoff: Expert says new law muddies what associations can forbid owners put in their backyards

Dear K.G.,

I disagree with your interpretation of the statute. You are interpreting the “best efforts” language as giving a condominium board the latitude to choose not to insure the property, at all, presumably for cost reasons. While the statute does not define that term, there are several reasons to believe otherwise.

The word shall, when used in a statute, typically means “must.” Here, that mandate is qualified by the admittedly undefined “best efforts” language, but its far more likely that was intended to cover situations when insurance was unavailable in the marketplace. Also, the statute is expressly intended to “protect the safety, health and welfare of the people of the State of Florida.” It’s questionable how that would be accomplished if the insurance obligation were optional.

Consider further that while the statute says an association shall use its “best efforts” with respect to most insurance, it also says the association “may” obtain directors and officers, employee and flood insurance. Flood insurance is property insurance, no different than windstorm or hazard insurance. If, as you argue, property insurance is effectively optional, what would be the point of listing flood insurance separately? Your interpretation obviates this separate “may” section entirely, and that violates general principles of statutory construction.

Further, how can a board argue that they used their “best efforts” to obtain insurance coverage if the only reason they did not obtain coverage is to avoid the cost? While the economic hardship on owners is very real, from the association’s perspective, as a corporate entity, that shouldn’t matter.

More neighborhood news: Northwood Shores divided: Will a 'historic' designation ward off rampant development?

While I could not find any arbitrations or case decisions that were directly on point, I did find language in a couple of cases that strongly suggest courts would agree with my interpretation. For example, the arbitrator in Moriarty v. Glades Golf & Country Club wrote, with respect to Section 718.111, “this provision and its subsections clearly require an Association to carry hazard and casualty insurance to protect the association and property.” And the Fourth District Court of Appeal, in Universal Property & Casualty Insurance Co. v. Loftus, wrote “in simplified terms, section 718.111(11)(f) requires that all condominium property outside of an individual unit must be insured by the condominium association.” These statements were dicta (the cases didn’t turn on that specific issue), but they’re certainly instructive.

I agree that the failure to state exactly what types of insurance are required is a significant hole in the statute. I think, however, that it’s hard to argue that obtaining windstorm insurance is not part of the “adequate insurance” that the statute requires. You say in your letter that condominiums that are not near the ocean “do not risk having every building demolished,” but I think the many inland condominiums that were decimated by Hurricane Andrew would disagree.

I am very sympathetic to the extreme financial hardship the current insurance market has created for condominium unit owners. This is a universal problem that affect every single condominium client I have, and they are all struggling to find solutions. But I think that the most likely interpretation of the “best efforts” language is to allow for situations where insurance is flatly unavailable, rather than to make it optional — if they had intended for it to be optional they would have used “may,” just as they did for D&O, employee and flood insurance.

Ryan Poliakoff, a partner at Poliakoff Backer, LLP, is a Board Certified specialist in condominium and planned development law. This column is dedicated to the memory of Gary Poliakoff. Ryan Poliakoff and Gary Poliakoff are co-authors of "New Neighborhoods — The Consumer’s Guide to Condominium, Co-Op and HOA Living." Email your questions to condocolumn@gmail.com. Please be sure to include your location.

This article originally appeared on Palm Beach Post: HOA advice: Condo association insurance requirements in Florida