Flickr photo credit: everdred

[technorati tag afeuck6w4j] With hurricane season in full swing and hurricanes now kicking up throughout the Atlantic, condo associations might want to review and update emergency plans before facing a possible evacuation or shelter situation. If your property is located within a hurricane, tornado, or flood zone, it would be wise to review and reiterate to their residents what emergency plans are in place and what residents can expect during an emergency.

Prepare a list of actions for your residents to take in the event of an emergency. Some of the necessary information includes: 

• Updated residency status/contact information throughout the year. For instance, if your residents typically travel for work, encourage them to let someone in the office know of their whereabouts in case of an emergency. 
• Utility contact information. Residents should be instructed to turn off gas utilities and to secure any outdoor furniture, grills, etc. Also instruct residents not to light matches or use gas appliances during a storm. A leak could be undetected and could result in injury or death. 
• Any keys to cars or units should it be necessary to move a car out of harm’s way or enter the property for safety reasons. – Emergency supplies needed. 
• Copies of important documents. 
• Ample food and medicine for at least 5 days. Also, plan on 1 gallon of water per person per day.
• Evacuation plans, including reiterating that those choosing to stay behind when ordered to evacuate will not be rescued until it is safe to return to the property. 
• Agency contact information for those with special needs. 
• Pet preparedness, including medicines and evacuation plans.
• Safety precautions during the storm and after. 
• A list of emergency evacuation shelters. 
• A list of condo unit areas that homeowners are directly responsible for. 
• A reminder that some homeowner policies include coverage to stay elsewhere during renovation to a damaged home.

Check with your insurance broker to determine what your responsibilities are to your residents during an emergency event. Ask the following questions: 

• What information must I provide to residents? 
• How often do I need to inform them of emergency plans and other information? 
• Is our condo association required to force an evacuation prior to a hurricane or other natural disaster? 
• Can our condo association designate one area of our property as a shelter area during emergencies?

If you have questions, talk with your condo association insurance broker. Preparing for disaster long before it happens can save you money and save lives.

Flickr photo credit: MBK (Marjie)

Standard Property insurance forms, unless properly endorsed, specifically exclude monetary losses that arise from the enforcement of building ordinances, building codes, or similar laws.
 
You may have carefully set a 100% Replacement Cost limit on your policy that is adequate to cover inflationary increases, but that “replacement” is to replace your building with “like kind and quality” of design and materials. Upon applying for a building permit to start repairs after a loss, you may be advised you’ll have to:

A. Tear down the undamaged portion of your building; and/or
B. Pay for the cost of that demolition to the undamaged portion; and/or
C. Replace the damaged portion (and the torn-down undamaged portion, if applicable) with construction that meets current codes, including (perhaps) such things as sprinkler and alarm systems, ADA-compliant entryways and facilities, earthquake- or windstorm-resistant construction features, etc.

None of the additional costs of such items are covered by standard, non-endorsed Property insurance forms – regardless of the Replacement Cost limit of insurance you purchased.

Insurance coverage for these items is available (for example, the Insurance Services Office, or “ISO” form that provides coverage is CP 04 05 “Ordinance or Law Coverage”). That form covers the above listed items, and a limit can be selected for each one, Coverage A, Coverage B, and Coverage C (sometimes coverages B and C share the same limit).

Some Property forms automatically include as an “Extension of Coverage”, a modest amount of “Ordinance and Laws” coverage – and often the limits on that coverage can be increased at modest cost.

It is unlikely that your insurance agent or broker has access to the knowledge required to assess your exposure to such losses. Rather, periodic consultation by you with an architect and/or an experienced local builder (or construction industry attorney) may be required. They have the knowledge to advise you, based upon how old your building is and what features it has, as to how much extra you’d have to pay to “build it to code” today or tomorrow; with that information you can talk with your agent or broker about getting proper insurance against this potentially significant exposure.

photo credit: flickr snapman

These days, most insurance against direct risks of property loss is arranged on a Replacement Cost (or “RC”) basis. The main alternative that is sometimes used is to insure property on an Actual Cash Value (or “ACV”) basis, which is defined as “Replacement Cost (at the time of loss) less Accumulated Physical Depreciation”. ACV insurance may sometimes be the only alternative available, but it should be avoided if at all possible, and understood fully if adopted.

Total losses can, and frequently do, happen. Even a relatively small fire can involve so much smoke damage, and water damage from fire suppression that the cost to make everything right equals the cost to replace the entire building and its contents. A big wind and rain storm can take off a roof, blow out windows, and soak everything so badly that a total loss occurs. One of the basic rules of risk management is “Don’t risk a lot for a little”. If your insurance program is properly designed, you can insure to 100% of your property’s RC at little or no increase in cost over skimping on Property insurance limits.The workings of Property Coinsurance helps control the cost of insuring at full RC. I like to describe Property Coinsurance as a “quantity discount” whereby the insurance company lowers the rate per $100 insured, the closer you get to insuring at 100% of values. As an approximation, the rate applicable to insuring at 100% of RC is 10% less than the rate to insure at 80% of RC. So, if your building could be replaced for $1 million and the 80% rate to insure it was $0.20 per $100, the premium for that $800,000 limit would be $1,600. If instead you elected to insure the full $1 million using 100% coinsurance, the rate would be about 10% lower, or $0.18 per $100 insured and the premium for that $1 million limit would be $1,800… 20% more insurance for just 12.5% more premium. We’ll go a little deeper into the subject of Property Coinsurance in a later blog.

It is uncommon (but not unheard of) for commercial Property insurance policies to provide “Guaranteed Replacement Cost”, which is a coverage enhancement that is sometimes provided by Homeowners insurance companies in their “preferred” or “executive” policies. If you elect 80% coinsurance and insure for $800,000 in the above example, and if there is a total loss, you’re only going to get the $800,000 – which obviously leaves you $200,000 short of the amount needed to rebuild. If your commercial insurance company does offer “Guaranteed Replacement Cost”, you’re paying a bit extra for the feature (and they will be careful to ascertain that you are actually insuring with at least a 100% limit anyway).

Remember, it is you, and not your insurance agent or company, that is responsible for determining the Replacement Cost of your property. RC has nothing to do with what the property originally cost, or its market value, or how it is carried on your books. Rather, RC means what it would cost to actually replace your property on the day the loss occurs. A professional appraisal from time to time would be ideal; or an opinion from a knowledgeable local contractor.