 Thank you for joining us today for another episode of Kondo Insider, and I have my name is Jane Sugimura. I'm your host today, and my guest is Sue Savio of Insurance Associates, and thank you again for being with us, Sue. My pleasure. Thank you for inviting me. You know, last week on our show, Kondo Insider, we were talking about the fire safety law that is going into effect right now. It's Bill 69, and what we talked about was the fact that now that the law has passed and we're trying to implement the statute, we're running into all kinds of issues between the people who are going to do the inspections and the associations who are going to be inspected and the fire department who thinks that everything is fine, and we keep telling them, no, no, no, no, the people who are doing the inspections, they have all kinds of issues, and they think that they can come into our units, and they're talking about opening up walls to look at vertical openings, and all kinds of things that were never contemplated. And anyway, we were talking, that whole episode last week was about the fire safety and the fact that once we get started on this, all buildings, whether they're exempt from installing fire sprinklers or not, they have to do something called a life safety evaluation, and that's where they have to have the professionals come in and inspect their buildings. And so now we have Sue Savio, who was, in fact, your company insured the Marco Polo. And so how is that coming along? Marco Polo's coming along fine. I'm sure if you lived there, you would think it was slow, but it was a big fire, a lot of damage. You're talking not every unit having damage, but at least 400 some odd having damage. So after a year and a half, well, we're not quite a year and a half, but many people are back in. They've gotten their money to fix their units up. Others, of course, were the two floors that had the worst fire. That's going to take longer, but after a year and a half or almost a half, we're doing well. We're getting there. And so Marco Polo changed how fire insurance now is going to be, the premiums are going to be charged to the associations, right? Well, what Marco Polo led the insurance companies to realize is that not all concrete high rises are built the same. So in other words, is your concrete high rise, does it have concrete walls between the units? If so, how many units between? Does it just have jet board rated for four or five hours, whatever the case, maybe two hours? So now they're going to be looking at the high rises that they write. And they're going to say, OK, it's a non-springboard building. How many floors is it? What is the height? What are the egress and ingress? They have concrete walls. How many units between the concrete walls? These are the types of things they're now looking at more closely. Because before the Marco Polo fire, the largest fire we had damaged three units. And beyond that, it used to be just one unit except for smoke damage above and on the sides and water damage below. And then we had one building that had three units damaged because they had louvers going from top to bottom, which no longer is allowed. And of course, the fire leaped from one unit to the next. And then we had three units damaged. That was the biggest fire for Hawaii, for condos. And then Marco Polo came, and now we've lost two floors completely. And of course, we've gutted one whole floor from one end to the other because of the fire. So the insurance companies now are saying, well, wait a minute. All concrete structures aren't the same. And I don't blame them. They have to look at it more carefully. So we have to be more diligent in finding out how it was constructed. And of course, the newer ones are hopefully constructed better than the older ones because codes have changed. And so that's what's happening now. So gone are the days of, oh, it's a concrete structure. The rate's $0.10. Now they're saying, well, is it $0.10 unsprinkled because they have open walkways, they have concrete partitions between the units? Or is it really $0.12? Or is it really $0.07? So that's now what's happening. So we're re-looking at the structure. So is it going to be harder to get fire insurance? Or is it just going to take longer to get a price now after the fire? It's not going to take, it's not going to be harder to get insurance. The insurance companies are there. They've been here forever. They've been writing condos. They understand them. They just want to price it right because if they have another Marco Polo event, they need to make sure that the, and we had enough money. Don't get me wrong, but we need to make sure that we priced it correctly. So it's going to be more underwriting work on our part to get it to our underwriters so that they can rate it correctly. And so how does that affect the associations? What information do they have to give you regarding their building? Or do you send somebody in to examine their building so that you have enough information to do the underwriting? Sometimes we do send in what's called lost control where they do go ahead of time and they want to check the building out. And to be quite honest with you, Marco Polo was one of those buildings where the company sent lost control in ahead of time. The two main companies that write large high rises and one said no, one said yes, and that's just the way it is. So they will continue to do those things. They will expect us as the agents to have a lot of background info, which we do have and which we submit out every year for bidding purposes. So it's just going to be a little more task oriented to make sure we get the information right. So can you give some numbers as to what it costs a building with sprinklers versus a building that doesn't have sprinklers? And what about concrete? And what if it's a wooden structure? And can you give some numbers out so that our listeners can get an idea of what it may be costing them for fire insurance now? OK, so obviously a wood frame structure for their fire insurance has more potential to burning than, say, a hollow tile building than a concrete building. So obviously the rate is higher for a wood frame structure. So whether it's New Year's Eve and a firecracker lands on the roof and sets the wood frame townhouse on fire or whether someone's cooking and sets it on fire, it has more of a potential to go faster than a hollow tile building or a concrete structure. So wood frame has the highest rate. Plus because of hurricane, don't forget that's part of your property rate. The hurricane is if the roof's aren't clipped, et cetera, there's more of a loss on a wood frame structure than on a concrete structure, which maybe they blow out windows. So wood frame always has the highest rate. Hollow tile, a little safer, has a lesser rate. And then, of course, concrete has the best rate. Now, concrete sprinkler will have a better rate than concrete, not sprinkler, because if there is a fire, the sprinklers will put it out. It will save the lives. So they get the best rate. So in terms of cost for coverage, can you give us some numbers of what it would cost for a concrete sprinkler building versus a concrete non-sprinkler building? OK, a concrete sprinkler building, the rate, because you'd have to multiply the rate by the value. But the rate would be probably 4, 5 cents, maybe 6 cents. Concrete, non-sprinkler, maybe 7 or 8 cents, maybe 9, depending upon other losses as well. Do they have a lot of water claims? What other pipes look like? There's all kinds of issues. Wood frame, probably in the neighborhood of 12, 13, 14 cents, sometimes higher, especially for Kauai, because of the hurricane issue there. Holo-tiles in between the two. So it varies. It's not just one rate for all concrete. They look at the losses. They look at the deductible the insurance carrying and things of that sort, and then come up with a rate. OK, and now under the new fire safety law, ordinance 14-18, I believe it is. And this is the old bill, 69. And so that ordinance calls for these life safety evaluations to be done. Is that going to affect the premium that a building is going to have to pay for their fire insurance coverage? It will. In other words, the life safety evaluation that you're going to take is going to show how safe your building is without sprinklers. And it's going to, when you pass it, I would like everyone to send it to me so that I can go ahead and submit it to my underwriters and say, hey, look, they passed the life safety evaluation test. They have all these things that protect them so I can get the best rate possible. Don't send it to me if you fail. Keep on taking the test until you pass so that we can submit that to the underwriters so we can try to get the best rate going. So yes, it is going to impact. So it does have an effect on the fire insurance rates? Sure, because imagine if you were the underwriter. You have exact two buildings, both concrete, exactly number of units, same number of losses. And you've got one that's passed the life safety and the other one that says, I'm going to do it three, four, five years from now. You don't know what it's in there. This one has passed. You know they have all the things that are required. You're going to give the better rate to the building that has everything and has passed the life safety if they were exactly alike. Right. And like right now, I don't know if you're aware. But the issue with the Bill 69 ordinance is that we have the professionals and the associations kind of at loggerheads because they can't really agree on what the ordinance is telling them to do. And so we are trying to persuade the fire department that they need to help us. They need to help. They need to get the professionals and the associations basically in the same room so that they can talk about the things that like one of the issues is mobility. And mobility is a big deal. If you have trouble walking and if the inspector or one of the people who is doing the inspection says, if you have one person in your building that can't walk down the stairwell, you have a 33-story building, you can't pass. I mean, that's not what was intended. And the fire department says that's not what was intended. The problem is that right now we don't have certainty. Right. And so we have a bill called Bill 72 that is pending in the city council. In fact, there's another hearing next week, Wednesday. And council member Fukunaga, who was instrumental in the passage of the compromise bill, her take on it is that she's listening to all of this dialogue going back and forth. And she says, you know, guys, nobody's ready for implementation. And so we need to extend the deadlines. Because right now the deadline is three years to do a life safety evaluation. And so some people are trying to get ahead of the game, but those people are now running into the professionals who aren't really clear as to what is going to happen. And that's running into these delays. And so it looks like we may have maybe a few more months before we can have some certainty. So that's going to delay implementation of the life safety evaluation. So that means that for until that is resolved, then we're not going to have any movement. I mean, it's not going to have any effect on the fire insurance premiums. Correct. Because nobody's going to be able to do it, because the inspectors or the people who are going to inspect don't really know what has to be done. When you talk about mobility, every single condo has old people in it. Because they bought when they were young. My mother's a perfect example. She passed away in her apartment at 96. She lived there since she was in her 50s. It's going to be that way. There's always somebody that's not going to be able to go down steps. So you're right. The mobility issue alone would knock every single condo out, because no condo has just young people. So it is an issue. And even young people get disabled. So right. The rates aren't going to be affected yet because nobody can do it, because we don't know what we have to do. So you're correct. Everybody has to get in the room. We have to line out these 17 things that can be done, make sure we understand what has to be done, find the people that are going to do it, and then start. And then when they do start this process, and everybody has to go through the life-saving evaluation, they need to contact their insurance person when they get a passing score. Right. When you get a passing score, make sure you turn that into your insurance agent, because they want to turn it into their underwriter. And when we go out to bid, we want to put it on every bid packet that we send out to all the different companies to say, this is a great building. It's past the life-safety course evaluation. Here's their losses, and get the best rate we can. OK, we're going to take a break now. And then when we come back, we're going to talk about another area to have our condo insurance expert, Sue Saville, discuss. And that's D&O insurance coverage. OK, so we're going to take a one-minute break, and we'll be back to discuss that. Thank you. This is Think Tech Hawaii, raising public awareness. I'm getting older. Do I need to worry about falling? Yes, you do. Each year, one in four people, 65 and older, will experience a fall, and many will be serious. The majority of falls happen at home, so remove things that could make you trip and install handrails to keep you steady. To learn more about the steps you can take to help prevent a fall, please talk to your doctor. You can also visit aarpfoundation.org or Medicaremadeclear.com slash falls. This message was brought to you by UnitedHealthcare and AARP Foundation. Hey, baby, that's you. I want to know, will you watch my show? I hope you do. It's on Tuesdays at 1 o'clock, and it's out of the comfort zone, and I'll be your host, R.B. Kelly. See you there. OK, welcome back to Condo Insider. This is Jane Sugimura, and my guest today is Sue Saville. Thank you for having me. OK, and we were talking about fire insurance after the Marco Polo. And another issue, since we have you here, and we want to take advantage of all your knowledge on insurance issues, one issue that you and I talked about seems to be a growing problem in the state of Hawaii. That's D&O insurance, which is directors and officers insurance. Can you explain to the audience what that is? Well, directors and officers insurance is a policy you buy. You serve for free. The bylaws say that the association will protect you. The cheapest way to protect you is to buy a policy. And then, obviously, it has to deductible. Associations, the whole pays for it. You hope you never need it because you're trying to make the best decisions for everyone in the complex. But every now and then, even though it may be the best decision, someone doesn't feel it is, and they go ahead and sue. So then the policy is used to defend you. It pays the law fees. And if the courts determine that you did not make the best decision and there is a judgment, then it also will pay that. So it's a policy instead of covering fire. It's covering decisions or non-decisions that the board made that create a problem for the rest of the owners. And what I talked to you about is there was a recent case. And this is a Maui case. And the name of the case is White versus Villas at Kenno Leo Association. And it made the headlines in the Star Bulletin recently because it says, and I'm reading the article, jury sides with Maui couple in a 1.9 million disability discrimination lawsuit. And in that case, there was a unit owner. And one of the owners was disabled. I think he was partially blind. Partially blind, yes. And it involves the association allowing them to install a wood floor as an accommodation to his disability. That is correct. He lived on the second floor. And then can you just explain to us what happened in that lawsuit? OK, but before I do, let me just explain that discrimination claims and disabilities are part of that. Are the number one causes of claims here in Hawaii followed by breach of contract? Well, let's get back to this one. So on this claim, the legally blind individual went to the board and he asked permission to put a wood floor on the second floor. The rule said no wood floors on the second floor, only the first floor allowed. But the board gave him permission. And it was brought out as far as I've been told that even a member on the board who was on the second or third floor had a wood floor. And even one of the board members offered to help install it because he was a handyman. So all of these things indicates. And he got permission to put the floor in. So he puts the wood floor in and then the unit owner below complains. So the board tells him that he has to remove his floor. Now, he needed it because it helps him walk and tell him where he is on his unit. So he did not do that. And they started to find him $200 a day. So when it got to the point of $177,000 in fines, the board decided to go ahead and foreclose on his unit. Again, just because of the fines, he was paying his maintenance fees. Obviously, anybody else who doesn't want to lose their unit over fines would hire an attorney to meet with the board to say, look, let's settle this. You gave him permission. It's only fines. It's not like he's not paying his maintenance fees. Wave the fines, allow him to use the wood floor, pay my fees as the attorney, and we'll be done. But the board felt that they had the right to demand that he remove the wood floor. So they went to court, and unfortunately, they lost. Yes. And so practically, I mean, so when an association gets sued, like in this case, they got sued. They're the defendants in this case. They tendered the lawsuit over to their insurance company, which means that they took the complaint and they probably faxed or emailed it to their insurance agent, who then arranged to get counsel for the association. Right, so what happens is when we get a lawsuit, we go ahead and file a claim with the insurance company who's providing the director's and officer's coverage at the time of the lawsuit, because it's a claims made policy. So when we get the lawsuit, we go ahead and file that. The insurance company hires, they have uns in Hawaii, many attorneys that they use. So they went ahead and hired an attorney to defend the board. The board. And in fact, the association would get a letter from their insurance company saying, we've accepted the tender of your defense because the insurance contract requires the insurance company to defend, right, right, right, wrong, or ugly. They have a duty to defend. Right, so you can be the worst board in the world. They have to defend you. Right, you have a duty to defend, correct. OK, so the association, the board, gets this letter that says, OK, we've accepted your tender, and we accept under our reservation of rights. Right. Can you explain what that means? A reservation of rights is a letter that the insurance company says, everything we've read so far indicates that we should be defending you on this policy. Then they're going to go and ask for all kinds of emails. When did this happen? They want to know all the background on this lawsuit. Including board minutes? Board minutes, emails between board members, and they're going to get all of that. And let's say that even though the claim was filed January 1st, the event, the first time that they threatened a lawsuit was two years ago, when they first got the first $200 fine a day, that would be when the claim was initiated. So on the current carrier may say, not me, if it was somebody else back then, because that, when the claim was made, remember this is a claims made policy. So then the carrier sends this reservation of rights that protecting himself until he has a chance to really inspect it all. And then, of course, if everything is legit, and it is a covered peril and everything and we're going to defend, then he goes to court. Or you know he has the attorney to take care of it. OK, but in this case, the court came back and it came back with a $1.9 million verdict against the board. And the article says it's punitive damages. The insurance company doesn't cover punitive damages, does it? There are some policies that do. Some directors and officers' policies are broad and do cover the punitive damages. I don't know the name of the carrier on this one, so I can't really respond to that. But I have had another project where the board president was given punitive damages. He alone of like $30,000. And at first he thought, oh my goodness, I have to pay for that myself. But our policy did cover punitive damages. So it's hard to say that yes or no until I could read the policy or at least know the carrier. OK, let's say the insurance policy doesn't cover punitive damages. What happens to the board members who now have a judgment against the punitive damages? Well, don't forget the bylaws say that the association as a whole will indemnify the board of directors. So I have an hour punitive damage or an award against me as an individual being a board member. Now it's up to the rest of the association to cough up the dollars, including everybody. So if I have to come up with $100,000 or a million dollars and I have to divide it by the owners, that's what it's going to be. So that means that the unit owners end up paying the bill for this $1.9 million. Well, we don't know how much was punitive damages. OK, but let's say half a million dollars over this punitive damages. I don't know. They would, and let's say it's not covered. Then yes, that portion would have to come out for something. Reserves, I doubt they have $500,000 sitting around for claims that aren't covered. So more than likely it would be assessment time. Of course, it's going to be challenged, the decision. So we'll see what happens in the very end, because remember there was a lawsuit with three-point something way back when, and it settled for much less like 1.2 by the time it gets challenged and what have you. So I'm sure this one will come down. Maybe, maybe not. I don't know how much was punitive damages, and I don't know if the policy covered it or not. OK, so people are saying, well, why are we talking about this? Why are you and I talking about this? What does it matter? Does it matter to all the condos in Condoland here in Hawaii? First of all, anybody who is a board member should be nervous. What does our policy cover? Do we have enough limits? Otherwise, who wants to put their personal assets on the line? Anybody who's an owner in a condo says, I sure as heck hope my board's doing well and makes decent decisions, because if they don't, am I going to be responsible to cough up some money because it's not covered? Then, of course, it affects the rates. We don't know what carrier this is, but if it's one that's still here in Hawaii, it's going to be put into the mix of all the other claims they've paid. And I'm going to say, we collect this kind of premium, pay out this kind of dollars. Hawaii has one of the highest payout rates. When you look at nationwide breach of contract, which I mentioned earlier, I think it's like $42,000 or $24,000 in the average claim. In Hawaii, it sells for $133,000. And it's a huge increase. Our claims don't settle for Manini dollars. It's very expensive. And you look at our premiums, and our premiums are relatively low. When you compare us to New York, California, and Florida, which have all condos, we're the worst. Hawaii is the worst for discrimination and for breach of contract. Makes no sense to me. So it would appear that rather than going to court and ending up with a judgment that maybe the party should engage in mediation and try to prevent these lawsuits from going into court. I couldn't agree with you more. And before it even go into mediation, if somebody's upset in your complex, invite them to sit with the board and find out what's going on. Because sometimes you can nip it right in the bud, because somebody thinks something's going on. But when they understand, maybe it won't. Maybe you have to go into mediation because they're not accepting what you're saying. And that's fine. But mediation before you go to court. Because once you go to court, and condos don't do well in court. Because the association is pictured as this nasty board and these nasty people who don't like the poor people who are living there. And these poor people are forced to live in condos because they can't afford single-family homes if they can paint a really ugly picture about condo land. Really? Yeah. And so with mediation, I mean, we have one program, evasive mediation, that is subsidized by the Condominium Education Fund. So really, if there is a dispute and you end up in the evasive mediation program, you only pay, I think it's $375. Each party pays a nominal amount. And then the state of Hawaii subsidizes the balance of the mediation. And to me, that seems like a lot better way to try to resolve problems than going to court and taking a chance with the jury. And to me, that was scaring me to death. Right. To have the jury hear all this ugly stuff about what's happening to a disabled person. And it's like, what were they thinking when they decided, well, let's go to court and fight this out? And you have to understand, somebody who is legally blind can walk, can see a little bit, has shadows. My mother's the perfect example of someone who was legally blind. But yet, she would go out by herself carefully. And as it got worse, obviously not. So they saw him walking around. They said, oh, he's really not blind. But he's legally blind. He's certified. So you can't just assume because he's walking that he's not legally blind or with help. So you have to assume when someone comes to see you that what they're telling you is the truth and then go from there. Ask them, see medical records if it's necessary, whatever the case may be. But you've got to be a little extra careful with the disabled. Right. And mainly because we have the Civil Rights Commission. And I did talk to the attorney. And he told me that they did go through the civil rights process. And they got a right to sue letter from the Civil Rights Commission. And so that means that there was an attempt to try to resolve it there. And for some reason, it didn't get resolved there. And they got a right to sue letter. And this is what happens. They end up in a jury trial in Maui. And they have this huge judgment, which will probably be litigated for another couple of more years before we figure out what actually is the end result. And it just seems like there's got to be a better way. Well, even the other case that I told that 3. Whatever it was originally, it was in Maui. And it did eventually go down. But as you're right, it takes years. And during that time, your condo has this litigation against them. And when you go to sell or you want it to refinance, every mortgage company wants to know about it. Is there enough money to protect the association? Sometimes they won't process the sale. It's not pleasant for anybody. So it's more than just an insurance issue. It's a pocketbook issue. Well, you know, we've run out of time. And we always enjoy you on the show. Thank you. I mean, you're always so helpful and informative. And so, you know, I really want to thank you for being with us for this episode. And we ask the audience to join us next week for another episode of Condo Insider. This is a show on condo living and for people who live and work in condos. Thank you for joining us. And please tune in again next week at 3 o'clock on Thursday. Thank you. Thank you.