i hate condo coverage don’t you? hate condo covآ  dont do it -you dont know. besides, much...

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  • I Hate Condo Coverage… Don’t You?

    Sponsored By:

  • This program is designed to provide accurate and authoritative information in regard to the subject matter covered. It is

    provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional

    service. If legal advice or other expert assistance is required, the services of a competent professional person should

    be sought.

    With special thanks to the Insurance Services Office, Inc. for advance information, continued support, and permission

    to use their forms and information.

    I hate condo coverage…

    don’t you

    with

    Irene Morrill, CPCU, CIC, ARM, CRM, LIA, CPIW Vice President of Technical Affairs

    Massachusetts Association of Insurance Agents

    1

  • I am in the process of writing a HO6 policy for someone. The mortgage company that is requesting a binder is asking for specific wording on the binder. I spoke with my underwriter at the company and she said to not include that wording after she spoke with a supervisor. The wording requested is: Coverage is sufficient to cover unit in its condition prior to loss claim event or state guaranteed replacement cost.

    Since the HO6 only covers a minimal amount on Coverage A (usually to cover deductible under master) and the insured's personal property, and it does not provide guaranteed replacement cost, is this something they should be even asking from me? Who is supposed to determine what the insured needs for Coverage A under an HO6?

    Say what on binder?

    2

  • We have received the following language for a binder on new HO6 personal Condo purchases:

    HO-6 verification of insurance binder with sufficient coverage binder must state/comment "that the amount is sufficient to repair the condo unit to at least its condition prior to a loss claim event."

    Mortgage Underwriter tells me these are the 'New rules' that it is no longer 20% of assessed value. Is this Mortgagee specific? Or has there been a recent ruling change?

    Say what on binder?

    3

  • I am a real estate agent in Massachusetts and am selling a condo in Massachusetts.

    The underwriter for the loan is asking for ordinance and law coverage on the master insurance policy.

    I checked with the in insurance carrier and it is not part of the policy.

    Can you please tell me if this is required insurance or is this extra coverage. Is this mandated in Massachusetts.

    Say what on binder?

    4

  • So …Fannie Mae has “rearranged” its directives to the banking industry that wants to be able to sell their loans.

    January 2016 Fannie Mae updated its FAQS for Project Insurance requirements

    Does the master property insurance policy or a related endorsement have to state “100%” replacement cost?

    No, but the amount of coverage described in the terms of the policy and/or endorsements must equal 100% of the insurable replacement cost of the project improvements.

    (It doesn’t state that binders from the master policy must STATE the insurance is provided at 100% of replacement value.)

    Say what on binder?

    5

  • January 2016 Fannie Mae updated its FAQS for Project Insurance requirements

    Why does Fannie Mae require master property insurance policies to include a Building Ordinance or Law Endorsement?

    Fannie Mae requires the Building Ordinance or Law Endorsement if the enforcement of any law or ordinance results in increased costs for repairs or reconstruction or additional demolition and removal costs for both damaged and undamaged portions of a covered building. Without this endorsement, the HOA would not have coverage to pay for these additional expenses in the event of a loss.

    Say what on binder?

    6

  • (I personally think ordinance or law is GROSSLY undersold and can create a major issue in a condo association.

    I think banks should demand ord/law on ALL loans … ☺

    PS … there is a requirement for Equipment Breakdown coverage too in the master policy …)

    Say what on binder?

    7

  • January 2016 Fannie Mae updated its FAQS for Project Insurance requirements

    If a condo master/blanket insurance policy provides for “all-in” coverage, is an HO-6 policy for the individual condo unit necessary?

    Fannie Mae does not require an HO-6 insurance policy for the condo unit when the master/blanket policy provides for “all-in” coverage.

    However, if the policy excludes coverage for improvements or betterments, the borrower must obtain an HO-6 policy that provides coverage for 100% of the insurable value of the improvements and betterments.

    Say what on binder?

    8

  • Some companies DO provide “all in” endorsements” – otherwise the normal ISO CP 00 17 or BOP with condo endorsements states the building limit can include anything the condo agreement/bylaws tells it to.

    If the policy is “all in”, is the limit sufficient for a total loss?

    If the bylaws tell the association to include improvements and betterments of a unit, is the master policy limit sufficient?

    Say what on binder?

    9

  • January 2016 Fannie Mae updated its FAQS for Project Insurance requirements

    What is meant by the term “improvements and betterments?”

    The details included in the definition of “improvements and betterments” may vary by insurance carrier, but generally refer to permanent changes, alterations, or upgrades made to an individual unit. Further details and guidance should be available from the insurance agent to confirm that the HOA’s master policy, combined with the unit owner’s HO-6 policy, provides sufficient coverage to restore an individual unit to its condition prior to a loss claim event.

    Say what on binder?

    10

  • (If the bank wants you to state that the Coverage A limit is “sufficient coverage to restore an individual unit to its condition prior to a loss-

    DON’T DO IT - you don’t know.

    Besides, much of a total loss is covered under the master policy in common elements.

    Quite possibly much building value in the unit can be the responsibility of the master policy if the bylaws told the association to cover it.

    Say what on binder?

    11

  • Did the unit owner tell the association management office or property manager of the association about upgrades and did they pass it along to the commercial agent.

    And, was the commercial policy amended appropriately? The agent for the HO-6, has NO idea how accurate the master policy is at valuation.)

    Say what on binder?

    12

  • Actual claim

    Last fall, our entire Condo complex was destroyed by wild fires in the Smokey Mountains of Tennessee. 7 buildings and 77 units with a 100% total loss.

    We are now discovering that we are very short, about 5 million (25%) in insurance money to rebuild the common areas.

    Any special assessment is out of the question. It would require 100% approval from the owners and that is not going to happen.

    Knowing our budget, many construction companies will not even place a bid to rebuild, they know we are not even close.

    Say what on binder?

    13

  • Actual claim

    It appears that a vote will be taken very soon to simply dissolve the association. We will sell the remaining assets, split up the proceeds and move on.

    Lawsuits are already to be talked about and I am convinced that they will happen.

    Who is responsible for the lack of insurance? And is there any action that can be taken?

    -The Board may have failed to do a required annual review, and if so, could it fall on their D&O Insurance (Directors and Officers coverage).

    -The Insurance agent who set up and sold the policy and said this is all you need.

    Say what on binder?

    14

  • Kind of scary …wouldn’t you say….

    What did YOU say on the binder for the individual unit owner’s bank

    If the commercial agent …OMG….depending on what you said ….

    D&O policy …has exclusions for failure to purchase insurance or having inadequate insurance

    Loss assessment …if each of the 77 unit owners had 50,000 of loss assessment that would provide $3,850,000

    Commercial agent’s EO for the remainder …depending on what stated on certificates for all the unitowners?

    Say what on binder?

    15

  • MANY sets of bylaws require a yearly independent appraisal …

    (that doesn’t mean what you do with software) do YOU read bylaws

    if you read them and see this …perhaps you could suggest that it be done…especially if you are the commercial agent …

    Say what on binder?

    16

  • January 2016 Fannie Mae updated its FAQS for Project Insurance requirements

    Can Fannie Mae provide more guidance on the requirement “to restore the unit to its condition prior to a loss claim”? How should a seller/servicer determine this?

    A seller/servicer should use the best known/available information to determine whether the insurance coverage provided at the loan’s origination was a reasonable representation of the condition of a property at the time the mortgage loan was delivered to Fannie Mae.

    Examples to determi