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Cat Fund fight could have huge impact on condo insurance rates

Rep. Mike Fasano and Dr. Jack Nicholson, who runs the state-backed reinsurance organization (the Florida Hurricane Catastrophe Fund), are in a bit of a back-and-forth over what should and shouldn’t constitute a “residential property” for insurance purposes.

It’s a bit wonky, but Fasano says Nicholson’s interpretation of Florida’s statutes could cost condo associations thousands of dollars in rate hikes, if the Cat Fund stops covering their buildings.

According to Fasano (R-New Port Richey), a change to the Cat Fund’s coverage policy would disqualify condominium buildings where units are being rented for more than six months of the year from receiving state-backed reinsurance. 

He said the change could force some condo associations to see their insurance rates double, as private insurers and state-run Citizens Insurance rely on the Cat Fund for low priced back-up insurance. 

Fasano believes Nicholson and the Cat Fund have gone beyond the scope of the Florida Statutes by implementing the restriction on condos that have units rented out for more than half the year.

“Distinguishing between policies for condominium structures and condominium units based on rental criteria also seems to be contrary to Section 718.1256, Florida Statutes,” he wrote in a letter to Nicholson, outlining statutory language that states condos should be classified as residential property. The Cat Fund is required to provide coverage for residential properties.

Nicholson responded Friday, arguing that he was complying with the law because the rented condo units are “transient rental property,” and therefore not considered “residential property” eligible for Cat Fund coverage.

“An exclusion of transient rentals from the term ‘residential property’ is consistent with other statutory provisions,” wrote Nicholson.

He used the example of the state’s transient rental tax as one instance where “Florida law distinguishes between residency and transient occupancy.” According to Nicholson, transient rentals (a term also used for hotels) have been excluded from the definition of “covered policy” for several years.

Nicholson also said that only properties that are rented out multiple times in the course of a year could be deemed “transient,” and therefore ineligible for coverage. 

It’s unclear how many of Florida’s condo buildings could be affected by the definition backed by Nicholson. Florida is home to millions of part-time residents, and many of them rent out their units while they are away. 

The state-run insurance company, Citizens, has also pitched restrictions for short-term rental properties this year, bringing it in line with the Cat Fund. Staff members at Citizens acknowledged that some homeowners would have limited options if they were removed from Citizens under the new rule. 

“Due to changing market conditions, there appears to be no available market capacity for wind coverage for short term rentals,” a March staff report states, highlighting the lack of private coverage options for wind-only policies. 

Fasano disagrees with Nicholson’s interpretation and worries about those condo buildings who might be forced into higher priced coverage with unregulated surplus lines insurers. As chairman of the Joint Administrative Procedures Committee, Fasano is responsible for enforcing compliance with state law. He also is an aggressive critic of the insurance industry. 

See Fasano’s letter here.  

See Nicholson’s reply here.