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INSURANCE APPRAISALS FOR COMMMUNITY ASSOCIATIONS
September 1, 2007
With the rapid rise in property values, associations are
potentially putting themselves in danger if they have not
had a recent Insurance Appraisal for their structures.
Though an association is run by volunteers, the Board is
still required to use good business judgment when covering
the association’s structures with proper insurance and
accurate amounts.
Currently, these structures may be underinsured and the
current replacement amounts could be inaccurate and if this
is the case, this may be placing the Board of Directors in
a precarious position. If the current replacement amount
stated in the policy was inadequate and there was a loss
that was not covered, the Board could be held liable for
not having the proper insurance. Conversely, if the
structures are over-insured, the association is wasting
money by paying extra insurance premiums.
In order to avoid such problems, the Board of Directors can
have an Insurance Appraisal performed at a nominal cost
that will provide the Board and their insurance agent with
guidelines for securing adequate and proper insurance
coverage. In addition, the insurance underwriters are able
to provide accurate costs when having this type of
documentation. The appraisal determines the replacement
cost as of a certain date (the date of the report when it
is prepared) of all association structures and amenities
that are required to be covered by the association
documents, state laws and by good business judgment by the
Board of Directors. In this manner, the Board is using
sound business decision making to provide adequate coverage
for the association and minimizing any potential risk and
liability.
One way for an association to avoid any of this is to
secure Guaranteed Replacement Cost coverage. This type of
coverage pays whatever is needed to rebuild the
structure(s). This covers the association in times of
rapid inflation or in times of material shortages that
drive up prices. We saw this happen when we had the
hurricanes a few years ago. Suppliers took advantage of
the situation as materials were limited and as a result,
prices went up.
In the future, if your association added any new
structures, these improvements need to have new values set
and added to the existing insurance policy. We also
suggest that the policy protect the association for any
building code changes that will add to the cost of
reconstruction.
In addition, if possible and without too many exclusions
the Board should consider securing Mold Coverage for their
buildings. The insurance industry has made this coverage
difficult to get, but there are still some carriers
offering this type of policy.
Overall, an appraisal will guide the association in
securing the right amount of insurance. We all hear about
rising values of our homes but the property value usually
does not equal the replacement cost. To be properly
informed and protected, it makes great sense to have an
appraisal on your association improvements.
Copyright 2007© Associated Property Management of the Palm Beaches, Inc.
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