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ere we are, in the midst of another Florida hurricane season. Now is the time of year to consider a key instrument to ensure associations “weather” the storm or any other disaster that may strike our communities—property insurance. Property insurance is purchased by almost every commu-

nity association in Florida. How do community leaders determine how much coverage to purchase? The Florida statutes hold the answer for condominium associations. Florida Statute 718.111(11)a. states:

Insurance Appraisals Minimize Risk

HBY MATTHEW C. KUISLE AND WILLIAM N. JAEGER

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Adequate property insurance, regardless of any requirement in the declaration of condominium for coverage by the association for full in- surable value, replacement cost, or similar coverage, must be based on the replacement cost of the property to be insured as determined by an independent insurance appraisal or update of a prior appraisal. The replacement cost must be determined at least once every 36 months. While homeowners associations and cooperatives do not have the same statutory requirements, many still commission a periodic insurance appraisal to ensure they are not over-insured or underinsured. It is one of the key fiduciary responsibilities of every board of directors. So, what is this insurance appraisal that is the basis coverage of our communities? An insurance appraisal is a replacement cost analysis, which pro-vides an accurate and supportable estimate of the cost to replace each structure as of the date of the valuation. An insurance appraisal is different than the standard market valua-tion because it considers only the cost approach to value and only those structures or insurable assets that need insurance. It does not consider land and/or non-insurable site improvements—such as side-walks, parking lots, curbs, etc.—in the valuation process. Another difference between an insurance appraisal and the stan-dard market valuation is that the insurance appraisal considers only what it would cost to replace—not what the structure would sell for in the marketplace. This is a common misconception today as to the way the insurance appraisal conclusion values may have increased when the values in the marketplace have decreased. The appraisal should always be performed by a qualified and experienced appraiser who has the expertise in valuing your type of property. The valuation should include local labor rates and material prices as to the location of the subject being appraised as well as any other factors that would affect the value including design, shape, workmanship, and access to location, etc. The appraiser should visit the site and record the key information re-quired to accurately value and support those values. This should include pictures, measurements, framing, ISO class, walls, finishes, HVAC, and building extras. The appraiser should be thoroughly knowledgeable in existing statutes, which vary by state, or policies that would affect the valuation conclusion and who would be responsible for providing insurance on areas of the building that may not be the association’s responsibility. At a minimum, the appraisal report should be certified, explain the approach and methods used, and include the definitions of the appraisal or insurance terminology. The report should be compliant with USPAP, the industry standard for appraisers. The report should also include pictures, address, unit count, and the following key characteristics to assist the users and the insurance professional in using the report:

Square foot area (by use) Roofing, roof deck, frame, pitch ~ unit area Exterior walls and windows ~ common areas Structural floor type ~ balconies/patio area Floor finishes, ceiling ~ parking garage area finishes, partition finishes

ISO classification HVACDate of construction Fire protection (sprinkler,Framing fire alarm, etc.)

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Elevators, emergency gen- erators, balconies, patios, porte cochere, etc.

Insurable site improvements ~ pool ~ spa ~ shelter ~ pool house ~ tennis ~ monument courts The last item of the report should be the valuation conclusions. To support the valuation, the report should include the building valua-tion worksheet. The values should include:

Cost of replacement newExclusions (standard in-

surance—footings, foun- dation wall, excavation, etc.)

Insurable value (cost replace- ment new less exclusions) In today’s insurance mar-ket, it is critical to get the insurable replacement cost number accurate. If the num-ber is inflated, the association could be wasting premium dollars year after year. If the number is low, the associa-tion’s insurable property replacement could be at risk. Your appraisal will also provide proof-of-loss documen-tation. This documentation is critical in the reconstruction phase of the loss and can help settle any disputes between the association, adjusters, and the insurance companies. This proof-of-loss documen-tation can only help an asso-ciation get their claim and settlement faster, allowing repairs or reconstruction to be started sooner. Matt Kuisle is the Director of Florida Operations for Reserve Advisors, and William Jaeger is the President of Specialty Property Appraisals, Inc. For more information, call (800) 980-9881 or e-mail matt@reserveadvisors.com. !