Florida Construction Law Authority : Florida Construction Lawyer & Attorney: Becker & Poliakoff Law Firm: Construction Law

               We often encounter Condominium Associations who have difficulty understanding why they should bond their exterior renovation contract.   Many Associations consider it money wasted on another layer of liability protection when they would rather spend the money on actual scope – sticks, bricks, and finishes. They do not expect the surety to pay the claims even if they are made against the Contractor’s Performance and Payment Bonds. 

Association Boards often ask, “Isn’t the risk already covered by all the insurance required from the Contractor?” The short answer is, “No”, and here’s why.

A performance bond, unlike insurance, assures the Association that the Contractor, or its Surety, will complete the project even if the contractor goes bankrupt or cannot competently perform to complete the contract. In addition, sometimes a Surety can be required to pay Association claims for work not properly performed even after occupancy. See, Federal Ins. Co. v. The Southwest Florida Retirement Center, Inc., 707 So. 2d 1119 (Fla. 1998).

A payment bond, on the other hand, assures the Association that the Contractor will pay the subcontractors and suppliers under the contract terms agreed between the Association and the Contractor. The payment bond protects the Association from having construction liens recorded on its project, provided the Association properly records the Bond with the Notice of Commencement. Most Associations understand that they do not want unpaid subcontractors and suppliers recording liens on their property, but they are loathe to get into the technical and complex quagmire that is the lien law. Thus, the Surety provides assurance to the Association for both the Contractor’s performance and payment to third parties.  

Performance and Payment Bonds are issued together to the Association and to the Contractor once he can demonstrate his creditworthiness. The Surety issues the bonds only after its audit of the Contractor’s contract balances, payment history, and contract performance. In turn, the Surety protects itself by obtaining a General Indemnity Agreement from the Contractor and any spouse, personally, to reimburse the Surety if it is required to pay out Contractor claims on the project. 

           “But,” you say, “we already know this contractor and we have already determined that he is qualified.” We say, “But wait… There’s more.” 

A bonded Contractor is not only accountable for its performance to the Association. The Contractor is also accountable to the Surety, with whom it enjoys a necessary relationship for continued business with public and private owners. Before the surety ever issues the bonds, its underwriters examine the Contractor’s books, records, and practices to evaluate the kinds of contracts completed, the status and payment history under contracts underway, when and why a contractor was sued, if ever, and generally a contractor’s operational practices, i.e., – does the contractor pay its subcontractors, suppliers, and other third parties properly and timely? A bondable contractor tends to be the qualified contractor both because of quality performance in the past and because of responsible business practices. If you want more information about construction bonds, their benefits, and whether your construction contract warrants surety protection, please contact us.

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Condominium associations, developers, and contractors will typically want to be named as an additional insured on casualty insurance policies of their respective contractors and subcontractors performing work on a construction project. One of the main advantages of being an additional insured is the existence of insurance to potentially cover certain casualty losses that may arise from the construction process.

But, how does one truly know if they are an additional insured? Ideally, the insurance policy should have an endorsement that specifies who is an additional insured and that insured’s coverage. In this context, the policy should be examined to verify the nature and extent of coverage, including the policy period(s), any qualifications, limitations or other conditions that may affect an additional insured’s status and available coverage.

At times, an additional insured will receive what is commonly referred to as an Acord Certificate of Insurance. This document generally summarizes a policyholder’s insurance coverage and is typically provided to demonstrate compliance with insurance requirements of a construction contract. .When issued by the insurer or its authorized representative, the certificate of insurance is evidence of “additional insured” status. . International Ship Repair & Marine Services, Inc. v. Northern Assurance Company of America, 2011 WL 5877505 at *6 (M.D. Fla. 2011). The certificate may, however, contain certain disclaimers, which should be examined and evaluated with the actual policy. Official Cargo Transport Co., Inc. v. Underwriters at Lloyd's of London, 143 Fed.Appx. 173, n. 1 (11^th Cir. 2005) (certificate of insurance did not in any way evidence that insurer had agreed to the addition of company as a named insured. The certificate actually stated that it “does not amend, extend or alter the coverage afforded by the policies.”)

What happens when the insurer decides not to renew the policy? Does that also cancel one’s status as an additional insured? Recently, in North Pointe Cas. Ins. Co. v. Arden Ins. Associates, Inc., 2011 WL 5964364 at *1 (Fla. 4^th DCA 2011) an insurer failed to give its named insured subcontractor written notice pursuant to Fla. Stat. § 627.4133 of the insurer's nonrenewal of a policy that also provided coverage for the subcontractor's additional insured. Finding the policy to still be in effect, the court also found that coverage existed for the additional insured. Under such circumstances, an insurer, insured, and additional insured should evaluate whether notice of non-renewal of an insurance policy was properly given. 

An additional insured should be mindful of the foregoing in evaluating its available insurance coverage.

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As readers of this blog know, one June 1 we put on a webinar to begin preparations for hurricane season. The webinar is available here under the title Disaster Planning for the 2011 Hurrican Season: Are You Ready to Weather the Storm? for those who were unable to join us live.

During the course of the webinar we received a number of questions we were unable to answer live due to time constraints. I have listed below some of those questions and the answers. For the sake of clarity and brevity some of the questions have been modified. As always, the below answers are not intended to be legal advice but solely informational.

Q- Can the Board of Directors of a Condominium Association forbid owners and/or guests from entering the property after a natural disaster. 

A- Generally, for the Association to prohibit access to the condominium a governmental entity would have to declare the building or surrounding area to be dangerous or uninhabitable. In addition, a structural engineer (or other design professional) may opine as to life safety issues at the condominium which would require access to be limited or prohibited.

Q- Does it make to sense to install hurricane shutters on a building that was built in 2005 under the FL building code 2001 - currently with impact windows and glass.

A- My understanding of impact glass is that it is in lieu of not in addition to shutters. However, there may be issues specific to your building that may change that.

Q- How do we select a restoration contractor approved by the State?

A- Restoration contractors are not, per se, licensed by the state. However, given that almost all work done on a building requires a license of some sort (general contractor, roofing, electrical, plumbing, etc) the best place to determine the qualifications of any contractor is at myfloridalicense.com.

Q- Should Associations have a video or pictorial record of all of the property?

A- Yes. You want to document the existing condition of the condominium at the beginning of each hurricane season. In the age of digital photography, taking photographs and putting them on CD (or for the really technologically adept the cloud) is not that difficult.

Q- Should association secure in writing the obligations and expectations from management firms and landscaping firms? 

A- Yes. The Association contract with management companies and landscape companies should spell out what the exact responsibilities are, including response times, contact numbers, pricing.

Q- Is Law and Ordinance Coverage necessary as it is very expensive.

A- Law and Ordinance coverage may be a necessary part of your insurance protection depending on the age of your building. Generally, the older your building is the more likely hurricane damage will result in needing code upgrades to meet the new codes. As for the expense, given the cost of potentially upgrading due to code requirements, law and ordinance coverage may be better way to go. You should speak to your insurance agent to come up with the best insurance package for your specific association.

Q- May we get a copy of this presentation?

A- The presentation is available here.

Q- What type of services does Becker & Poliakoff offer in assisting with insurance claim recovery?

A- For our annual retainer clients we offer to have one of our lawyers, experienced in these types of claims, come to the property at no charge for one free meeting after the casualty event.

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By:  Tammy LoVecchio, Gulfshore Insurance (Naples & Ft. Myers) and Greg Marler, Becker & Poliakoff, P.A., (Naples)

We were pleased to present a one-hour flood insurance webinar on August 19th.  Please feel free to view the webinar in its entirety.

We especially appreciate the interest shown and questions raised by the attendees. There were some recurring follow-up questions that warrant brief discussion.

Mortgagee Demands
First, it appears that several owners and associations have recently received demands from mortgage lenders to obtain flood insurance.  Some report being asked to increase the amount of current coverage above the maximum available through the National Flood Insurance Program (NFIP), that being $250,000 per home or unit, or in some cases, above the replacement cost of the property.  Some associations have even been threatened with force-placed insurance on the entire community.

As we discussed during the webinar, the most common source of the requirement to have flood insurance is the National Flood Insurance Reform Act of 1994, which requires most lenders to require flood insurance on any property located in a Special Flood Hazard Areas (SFHA).  But that Act, and all of the regulations and guidelines adopted by FEMA and government sponsored entities such as Fannie Mae, clearly only require flood insurance up to a maximum of $250,000 per home/unit.  It is not at all clear why these new demands are being made.  It is certainly within the authority of a lender to make risk management decisions and impose insurance requirements in excess of those imposed by the Act.  To determine if the lender can then force place insurance on you as a borrower, you must read your mortgage.  But there is no legal authority for a lender on a home or unit in a shared ownership community to force place flood insurance on an entire association.  Our advice is that you inquire directly with the demanding lender to determine its specific basis for making the request.

Homeowners’ Associations
Some questions seek clarification of flood insurance requirements for a homeowners’ association.  Because single family homes, and usually the lots on which they are built, are separately owned and freestanding, insurance on those homes must be obtained directly by the owner.  But what about an association’s clubhouse or other amenities?  Must the association carry flood insurance for those improvements?

Unlike condominiums, the law governing homeowners’ associations in Florida does not contain mandatory insurance coverage requirements.  But you should review your governing documents to determine if they contain insurance requirements.  Unless the association has a mortgage on its property, in which case it would be reasonable to expect there are insurance covenants, the only possible, remaining source of a flood insurance requirement on homeowners’ association-owned improvements is the fiduciary obligation of the board to protect and maintain the property against known or reasonably foreseeable risks.  We are not aware of any cases that have established that a homeowners’ association has a legal obligation to carry flood insurance.  But since the issue will likely arise only after a catastrophic flood loss when the stakes are high, there is some risk to simply dismissing the issue.

To add to the risk, directors and officers liability insurance policies typically exclude coverage for claims against the directors based upon the failure to obtain insurance.  It is true that the exclusion can be removed, but obtaining flood insurance is a condition of removing the exclusion.  This is akin to obtaining auto insurance on the condition that you agree never to own or drive a car.

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