INSURANCE: NO QUICK FIXES

The Florida Special Legislative Session did not and will not bring immediate relief. Rate rollbacks must be calculated on an individual policy basis. Changing the structure of insurance sales, especially the so-called Acompetition in the marketplace@ goal, may take years.

Initial analysis of the new law does not reflect any significant or material change to what a Florida community association must insure. Directors duties to ensure that associations have proper coverage remain the same. Homeowners=, condominium and cooperative associations still must review their Agoverning documents@ for additional duties.

The Legislature slightly Atweaked@ the Condominium Act. By now, every Florida condominium association should be very familiar with Section 718.111(11), Florida Statutes, which addresses Florida condominium insurance. The Legislature did not change or clarify what or to what extent residential condominiums must be insured. Perhaps recognizing the different dynamics between residential and commercial condominiums, in Section 37 of the new law, the legislature exempted commercial condominiums from at least certain provisions of the condominium insurance statute.

The Legislature made a few changes in Section 37 of the new law that, depending upon interpretation by the courts, may have a positive impact upon condominium associations. When determining a deductible amount, directors can consider available funds, such as reserves, and the association=s assessment authority. The new law also introduces the concept of associations grouping together to obtain insurance; however, the law does not contain the details anticipated to be necessary to implement the law.

Although the new law reinforces the idea of self-insurance, condominium associations are strongly cautioned against cancelling existing coverage for Aself-insurance.@ Significant research and insurance reserves are anticipated to be necessary before a condominium association can choose this option.

In a related, but ominous development for condominium associations, the State of Florida=s Division of Land Sales announced just before the winter holiday that the State would seek a regulatory rule to legitimatize the Plaza East administrative decision. Plaza East, as discussed in earlier firm publications, is the state regulators= efforts to mandate that a condominium association=s deductible and insurance shortfalls be paid by all unit owners in the condominium as a common expense rather than following the declaration of condominium.

In response to the hue and cry raised across the state, the regulators have scheduled a hearing for Thursday, February 22, 2007 at 11:30 a.m. at the North Broward Service Center, 1400 W Commercial Blvd., Ft. Lauderdale. Feedback from around the State appears to be almost unanimous that the regulator=s efforts may be well intentioned, but are significantly misguided. Interestingly, although the rule significantly departs from past efforts, regulators have not sought legislative approval for the proposed new policy.

ATTORNEY=S FEES: HOA=S MUST MEDIATE BEFORE LITIGATING

What happens if a Florida homeowners= association goes straight to court, immediately filing a lawsuit over a dispute with a homeowner involving noncompliance with the association=s governing documents? The association may have to pay the homeowners= attorney=s fees! Even if the homeowners= association ultimately prevails, moving too quickly has its perils.

A Florida appellate court recently ruled a homeowner was entitled to attorney=s fees as the prevailing party after the Association voluntarily dismissed the lawsuit. In Alhambra Homeowners Association, Inc. v. Asad, 31 Fla. L. Weekly D3118 (Fla. 4^th DCA, December 13, 2006), the facts indicate that the Association filed a lawsuit against homeowners alleging the homeowners violated restrictions by painting their home a color not approved by the Association. The homeowners argued that the Association failed to request mandatory mediation before filing the lawsuit in violation of Section 720.311, Florida Statutes.

The law relied upon by the homeowners required painting disputes to proceed to mediation before a lawsuit can be filed. In response, the Association filed a notice of voluntary dismissal and proceeded with mediation. The mediation was unsuccessful; thus, the Association filed a new lawsuit. The homeowners ultimately caved in to the Association=s demands by repainting their home. Nonetheless, the homeowners moved for attorney=s fees as the prevailing party in the first lawsuit which the Association dismissed. The trial court ruled the homeowners were entitled to attorney=s fees.

The Florida appellate court noted as a general rule, when a plaintiff voluntarily dismisses a lawsuit, the defendant is usually the prevailing party. The court concluded the homeowners were the prevailing party because they correctly asserted the Association failed to comply with a condition necessary before filing a lawsuit, that is, mediation. Just because the mediation failed and the Association refiled the lawsuit did not change the homeowners= right to recover prevailing party attorney=s fees incurred in defense of the first lawsuit.

This case re-enforces the need for a Florida homeowner=s association to proceed with the mediation process before filing a lawsuit against a homeowner for violation of its governing documents. Because a lawsuit cannot be filed until after the mediation, the process for rectifying the actual problem is slowed down. As such, associations should proceed timely as violations occur. Note that there are some exceptions to the requirements of pre-suit mediation, such as assessment and foreclosure matters.

This information is provided for general information purposes only, may no be relied upon and is provided without obligation or fee. It is distributed to the firm's association clients to provide a general comment of recent legal changes. This information is not legal advice, representation counsel or opinion. The changes in the law may not have been reviewed by Florida courts and may be subject to further challenge. Before taking any action you are urged to consult with counsel to ensure that your legal rights are protected.