Within days of the partial collapse of Champlain Towers South in Surfside, insurance companies sent letters to owners of condominiums 40 years and older in South Florida, asking for proof that their buildings have passed all inspections, or they will lose their coverage.
The deadly collapse of the 136-unit high rise has spooked an industry that had already considered older condos on the coast — with their hurricane exposure, their common ownership structure and reputation for delaying maintenance — a high risk, experts say.
Now, if a building can’t comply with the insurance requests, the insurer can cancel the policy with a 45-day notice, or choose not to renew the policy, said Isidro “Izzy” Guillama, CEO of ProCom Insurance Underwriters, a Miami-based independent insurance agent who specializes in condo insurance.
But many insurers are not waiting, he said.
“Everybody has moved very quickly because they have a lot of liability, and a lot of risk,’’ Guillama said. “They’re looking at any building that is showing more than 40 years of age, and they’re asking for the recertification of the building.”
Millions of homeowners
Miami-Dade and Broward counties are the only Florida counties that require aging high-rises to go through a reinspection after they reach 40 years of age. Those that fail to make needed improvements can lose their occupancy license.
But the action letters could have a ripple effect across the state if they result in policies being dropped and a tightening of the insurance market.
Half of all Floridians live in property covered by a condominium or home owners association, and there are more than 50,000 community associations in the state, said Travis Moore, lobbyist for Community Associations Institute.
“This is a game changer and the conversation has completely changed in a week,’’ he said.
The condo insurance industry “was already in disarray and has been in disarray since Hurricane Irma hit,’’ said Mike Clarkson, president of All Lines/Hilb Group Insurance in Clearwater, an independent insurance agent who represents 750 condominium associations throughout the state. Since January, two companies that insured condos left the state and one was declared insolvent, he said.
But after the unexplained collapse of a massive section of Champlain Towers South last week, companies are not only reviewing property insurance policies on older condos but are also requiring proof of recertification on liability insurance and umbrella policies that cover directors and officers, Guillama said.
“If the board, which makes the decisions for the whole association, did not make the right decisions on behalf of the safety and protection of the condo owners, those policies are going to be affected,’’ he said. “Because if the directors and officers knew of a problem and did not act, they are liable.”
Normally, the policy limits for a standard liability policy for all directors and officers on a condo board is $1 million, Guillama said. It is intended to cover issues such as “you picked the wrong contract on a painter’s job, or like little things. Nobody expects a building to go down.”
Costs likely to rise
If some carriers drop coverage for condo buildings because of their failure to show proof of recertification, that increases the possibility that costs will rise for everyone, Guillama said.
“The No. 1 budget issue for every condo is their insurance and as that goes up there is less money for other things,’’ Moore explained. “It’s constantly a threat because that market is shrinking.”
There are only five admitted carriers currently writing insurance for condos in Florida so property and liability coverage for many buildings are covered by the unregulated surplus line carriers, he said.
Guillama said many insurance carriers regulated by the state of Florida are increasingly avoiding writing policies in coastal areas because of the flooding associated with rising sea levels and “the high volume of water that is coming in that could affect the foundation of a building.”
If carriers drop condos, they could turn to Citizens Property Insurance, the state-run insurer of last resort. “Unfortunately, you’re probably talking three times the cost,’’ Clarkson said.
Guillama said he has received letters for his clients from insurance companies Sampo, Great American Insurance — which insures Champlain Towers South — American Coastal Insurance and ICat Insurance, each asking for proof of recertification for buildings that are 40 years or older.
“If the client doesn’t turn around and do what they want, they’re going to send out a cancellation notice even midterm,’’ Clarkson explained.
The Florida Office of Insurance Regulation did not have a role in the letters released by the insurers, said Alexis Bakofsky, director of communications.
“OIR is monitoring the Surfside disaster closely and stands ready to assist with any issues or questions,’’ she said. If a consumer has a question about a letter received from an insurer, they can call the Department of Financial Services Consumer Hotline at 1-877-693-5236 or email Consumer.Services@myfloridacfo.com.
Clarkson said that he is not aware of any insurance companies writing letters to condominiums that are 40 years old or older in other parts of the state, but, he adds: “It would not surprise me if they come.”
Cities and Miami-Dade County have already launched their own review of aging buildings since the Surfside tragedy. Late Friday, the city of North Miami Beach ordered the evacuation of Crestview Towers Condominium after a building inspection report found it to have unsafe structural and electrical conditions, city officials said.
Need for reserves
Guillama, Clarkson, Moore and advocates who have tried for years to expand Florida’s building inspection laws for coastal property, all said one of the most important things the state can do is to require condominium associations to maintain reserves so they can promptly pay for needed building repairs.
Guillama and Clarkson said that most of the condos they work with have few, if any, reserves and that contributes to their inability to move quickly to manage maintenance problems.
The cause of the Champlain Towers South collapse is still unknown, and experts say it may take years for a forensic investigation to single out the source of the building’s failure. But a 2018 engineering report done for the building’s condominium association detailed “abundant cracking” in concrete columns, beams and walls and said that the lack of proper drainage under the pool deck had caused “major structural damage.”
Six engineering experts interviewed by the Miami Herald said that, based on the publicly available evidence, it appeared that a structural column or concrete slab beneath the pool deck likely gave way first on June 24, causing the deck to collapse into the garage below. That may have formed a crater beneath the bulky midsection of the tower, which then caved in on itself, the experts said.
Documents from the Champlain Towers South condo association show that board members disagreed over the assessment for its building repairs, which first were estimated at $9 million and, within two years, grew to $15 million.
In a court hearing on Thursday, lawyers for the condominium association and its insurers said the building has $30 million in property coverage, and $18 million in liability coverage, an amount Miami-Dade Circuit Judge Michael Hanzman suggested would not be enough to cover victims.
One Miami-Dade legislator’s efforts
For years in the state Legislature, former Rep. Julio Robaina, a Miami Republican, tried and failed to pass legislation to require more frequent inspections of condominiums on the coastline and to require condos to hold more money in reserve to prevent the type of maintenance delays that can lead to structural deficiencies.
Robaina said he now believes that if the Champlain Towers South association had money in its reserve fund when it learned of the structural deficiencies in its building, “I don’t think this board would have been so hesitant,’’ he said. “They would have had an account with money sitting in there.”
Florida law requires that condo associations produce an annual budget that determines how much to fund a reserve budget for “capital expenditures and deferred maintenance.”
Projects covered include roof repairs, elevator maintenance and cement and foundation damage and other life-safety issues. However, once the reserve budget has been determined, state law also allows a majority of the members at a condominium board meeting to waive the reserve requirement. When that decision is made, it must be disclosed to owners on the first page of the annual budget.
The concern, Robaina said, is that with every condo association it’s “a bunch of volunteers that don’t have any experience making decisions on the integrity, the structural integrity of these buildings.”
He said that most are reluctant to impose a special assessment that will raise maintenance payments on their members because, like politicians, they don’t want to be voted off the board of directors, Robaina said. “So every condo in Florida pretty much just waives their reserves.”
Robert Nordlund, whose company, Association Reserves, specializes in reserve studies and budget counsel for condominium homeowner associations, said boards must assess the rate at which their building is deteriorating to determine how much money needs to be set in reserves. He said boards are often made up of individuals who don’t necessarily have expertise on running a building.
“Fundamentally, it’s a not-for-profit organization, a multimillion-dollar not-for-profit organization,” Nordlund said. “They need to surround themselves with a team so they can make policy decisions.”
“Wake-up call’ for insurance industry
If state and local officials don’t update the state’s condo laws, the experts all agreed that the insurance industry would use its leverage to demand more frequent inspections and better maintenance records to retain coverage.
“What happened in Surfside is a huge wake-up call for the industry,’’ said Manny Rios, chief underwriting officer at Denver-based Honeycomb Insurance. Going forward, he said all insurance companies will be more diligent about scrutinizing maintenance logs and repair records.
“We work with insureds to help manage risk,’’ he said. “When I look at a building and there’s no maintenance logs, when I look at a building and the HVAC or heating system hasn’t been updated in years, you got to wonder whether or not that’s a good place.”
Guillama predicts the Surfside tragedy will forever change the insurance industry.
“The insurance industry most likely is going to be more aware and probably ask for inspections, even on newer buildings,’’ he said. “But for right now, they’re focusing on their worst part, which is the buildings that show they are more than 40 years of age.”