Condo Media - December 2017 - 32

The increasing frequency of intense
weather events like Harvey (and the
two hurricanes that followed swiftly
on its heels) should have convinced
anyone who still needs convincing that
disasters don't just happen to someone
else. They can hit anyone, anytime,
anywhere-hence Markel's emphasis
on the importance of disaster planning
for condominium associations, and his
awareness that too many condo boards
ignore the advice.
"It is human nature not to plan in advance," he notes, adding, "There were
a lot of things we have advised [our
condominium association clients] to
do that were on their to-do lists [before
Harvey] but hadn't yet been done."
ESSENTIAL BUILDING BLOCKS
A disaster plan has many components-
building blocks that form a comprehensive strategy for dealing with a disaster
and recovering from it. The most
important of those building blocks is
insurance. You want to make sure the
association's insurance will cover the
cost of repairing or replacing buildings
and building components that are damaged or destroyed. And the time to ask
those critical questions is long before a
disaster has struck or is expected.
"When they know tropical storms
are forming," Gregory Pierce, vice
president and director of business
development for NorthStar Insurance
Services, Inc., cautions, "many insurance carriers will put a binding moratorium on new coverage." So, don't expect
to acquire insurance or expand existing
coverage when you know a hurricane is
heading your way.
When reviewing the association's
master policy, Pierce suggests, coverage limits are key. "Having the right
coverage isn't helpful if you don't have
enough of it to cover your damages."
Construction costs increase over time;
you want to adjust your estimated replacement costs to reflect that trend.
Having the right kind of coverage is
also critical, and this is an area in which
boards often err, rejecting insurance
they should have because they think

CONDOMEDIA

it is unnecessary or too expensive.
Flood insurance is a prime example,
highlighted by the recent devastating
flooding in Houston, Florida, and other
hurricane-battered locales.
FLOOD INSURANCE BASICS
The first thing to know about flood
insurance, Pierce says, is that it is
almost always excluded from standard
property insurance policies; the second
point is that the coverage is required
for some property owners, but not all.
Condo associations located in designated flood risk areas are required to
have flood insurance; without it, lenders won't approve mortgages to finance
homes in those communities. But the
coverage isn't required for condo associations not located in flood zones
(unless their documents require it) and
most don't have it.
According to some estimates,
between 70 percent and 80 percent of
the damage from Hurricane Harvey
in Houston-somewhere between $18
and $27 billion-wasn't covered by
insurance of any kind. Associations
without flood coverage "have ended up
self-insuring for multi-million dollar
losses," Pierce notes.
Stephen Marcus, a partner in
Marcus, Errico, Emmer & Brooks,
emphasizes that risk when clients tell

him they are not buying the coverage or
have decided to drop it because of the
cost. "You have to consider how much
uninsured flood damage your community can sustain," he advises. The
comparison they should make: $50,000
or more for a flood policy, vs. $500,000
(or much more) for an uninsured claim.
The Federal Emergency Management Association (FEMA) provides
some disaster recovery assistance,
Marcus notes, but it is limited (to
a maximum of about $33,000 for
households). It also comes in the form
of a loan, which must be repaid with
interest, Marcus points out, and condominium associations aren't eligible for
the assistance; only individual homeowners can qualify for funds to repair
the damage to their residences. This
underscores the need for individuals
and associations to obtain flood coverage, he says, even if it isn't required,
and even if their property isn't in a
designated flood hazard area.
Flood premiums have been rising
as the National Flood Insurance
Program (NFIP), a federal program
that provides most flood coverage, has
struggled to cope with soaring claims.
But there are ways to reduce the costs,
Pierce notes. He advises condo associations to obtain an "elevation certificate," which may reduce their risk

Condo Media - December 2017

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