A PROBABLE MOTION BEFORE THE

BOARD OF DIRECTORS

SUN CITY HILTON HEAD COMMUNITY ASSOCIATION, INC.

May 5, 2003

 

[sponsor]  moves the adoption of a policy to offset the significant and unforeseen increases in Association insurance premiums incurred this year, to include a written process to effectively and efficiently manage insurance program details, such as deductible. Further, I move that this policy contain the following specific provisions:

 

1. Accept the developer’s commitment to pay an insurance subsidy, above what has already been stipulated as the developer’s obligation to offset financial shortfall in the CY 2003 Budget. This additional insurance contribution would be equivalent to 23% of the total increased insurance premium for the Association (sans costs allocated to the villa neighborhoods). The 23% factor is derived as the same percentage relationship that exists in the CY 2003 Budget s a comparison of developer subsidy to gross revenue.
2. Accept the developer’s offer to advance cash to pay the increased premium for the Association, net of the developer’s 23% insurance contribution, and refund the cash advance, by December 31, 2003, by adjusting the Annual Base Assessment. Any incremental variance in the cash advanced, and the adjusted Annual Base Assessment would be borne by the developer as part of the overall subsidy obligations.
3. Specifically, with the total increased premium for the Association to be mitigated by the developer’s insurance premium contribution, apply the net balance of insurance premiums as a mid-year (July 1, 2003) adjustment to the Annual Base Assessment, and apply it equitably among all Lot Owners. The adjusted Annual Base Assessment would be restricted to an amount that would not exceed the “20% cap” as mandated in the governing documents. More specifically, the adjusted Annual Base Assessment would not exceed a maximum of $1227, with the per-Lot incremental increase split evenly in the 3^rd & 4^th quarter billings.
4. As it relates to increased insurance premiums for full-value Flood & Earthquake coverage, acquired recently in behalf of villa neighborhoods 3, 4, & 8D, first, mitigate the dollar impact to villa Lot Owners by applying 80% of the existing “excess cash balance” (as distinguished from Neighborhood Reserves) in each respective neighborhood. Once mitigated, apply the net balance for Flood & Earthquake insurance premiums, as allocated to the respective neighborhoods, as a mid-year (July 1, 2003) adjustment to the Annual Neighborhood Assessment. The cost allocation would be applied equitably among each Lot Owner within the respective neighborhood, with the per-Lot incremental increase split evenly in the 3^rd & 4^th quarter billings.
5. In delineating a written process to effectively and efficiently manage insurance program details, such as the application of deductibles, accept the attached sub-policy, entitled: “Policy on Management of Insurance Coverage and Allocation of Deductibles.”

 

Policy on Management of Insurance Coverage

and Allocation of Deductibles

 

Policy No. 0304.7 A

 

 

I.          General Property Damage (Blanket) – Full-value “replacement cost” coverage is provided, with a $5000 deductible applicable to damage sustained by assets of the Association, and a $2500 deductible applicable to damage sustained by homeowners in attached product Neighborhoods 3, 4, & 8D (“villa owners”).  In case of damage sustained under this coverage, the deductibles would be allocated as follows:

 

            A.            When damage is sustained only to assets of the Association, the $5000 deductible could be drawn from the excess cash balance of Association funds (if available), a reserves deductible for insurance (if established), a commercially secured loan, or equitably levied among all Lot Owners of the Association, or by a combination thereof.

 

            B.            When damage is sustained only to villa owners, the $2500 deductible would be split among only those homeowners affected, with the split based on the per unit assessed value of damage.  By way of example, if damage was sustained to a villa duplex, and the assessed value of damage to Unit A was $75,000, and the assessed value of damage to Unit B was $25,000, the $2500 deductible would be split 75-25; i.e., $1875 to Unit A owner and $625 to Unit B owner.

 

            C.            When damage is sustained to both assets of the Association and villa owners, both of the above allocation procedures would apply.  By way of example, if damage was sustained to assets of the Association and a villa duplex, a $5000 deductible would be assigned to the Association and a $2500 deductible would be assigned to the villa duplex homeowners.  The manner in which the deductibles would be offset, as determined by the Board, using a calculation based on the assessed value of damage.  The allocation of the $2500 deductible to the villa homeowners would be determined by the percentage relationship of assessed damage to the two units in the duplex, as described in Paragraph IB above.

 

II.         Wind & Hail (“W&H”) – Normal “wind” damage is accommodated under the general property damage (blanket) coverage.  As stipulated in Paragraph I above, the general property damage policy has deductibles of $5000 for the Association, and $2500 for the villa owners.  However, the general property damage policy also has a separate $250,000 “per occurrence” deductible...applicable as a direct result of damage sustained from a “named storm” (as defined and announced by the National Weather Service).  This “named storm” provision, and its deductible, are applicable to both assets of the Association, and/or residential assets of villa owners.  The $250,000 per occurrence deductible for named storm damage (W&H), would be allocated as follows:

 

            A.            When damage is sustained to only assets of the Association, the deductible could be drawn from the excess cash balance of Association funds (if available), a reserves deductible for insurance (if established), a special assessment, a commercially secured loan, or equitably levied among all Lot Owners of the Association as an adjustment to the Annual Base Assessment, or by a combination thereof.

 

            B.              When damage is sustained to only villa owners, the deductible could be drawn from the excess cash balance of Neighborhood accounts (if available), a reserves deductible for insurance (if established), a special assessment, or equitably levied among all villa owners as an adjustment to the Annual Neighborhood Assessment, or by a combination thereof.

 

            C.            When damage is sustained to both assets of the Association and villa owners, a percentage relationship would be calculated based on the assessed value of damage sustained by the Association and damage sustained by the villa owners, and the deductible allocated accordingly.  Once the percentage relationship is determined for the Association and the villa owners, and the allocation of deductibles defined, the manner in which the deductibles would be offset would be as specified in Paragraph IIA-B herein.

 

            D.            By way of example, if total assessed value of damage sustained from a named storm is assessed to be 75% among assets of the Association and 25% among the villa owners, then the $250,000 deductible would be split 75% for the Association ($187,500), and 25% for the villa owners ($62,500).  Based on approximately 2775 lot closings in the Association (as of March 31, 2003), and 304 homeowners in the villa Neighborhoods, the per unit allocated cost would be $67.76 for each Lot Owner in the Association, and an additional $205.59 for each villa owner.

 

            E.            By further way of example, in a worst case and highly unlikely scenario,

if damage is sustained from a named storm to only assets of the Association, the entire $250,000 deductible could be levied against all Lot Owners of the Association, for a per unit allocation of $90.09.  Conversely, if damage is sustained from a named storm to only villa owners, the entire $250,000 deductible could be levied against all villa homeowners in Plats 3, 4, & 8D, for a per unit allocation of $822.37.

 

III.       Flood & Earthquake (“F&E”) – The primary F&E policies have coverage limitations of $2.5Million and $5Million, respectively.  These limitations are considered insufficient in view of the reality of the named peril risk at Sun City Hilton Head.  In light of the exposed risk, and the fact that the CC&Rs require full-value coverage for the general property (blanket) coverage, the Board feels that full-value coverage is also prudent and reasonable for F&E.  For these reasons, the Board elects to acquire supplemental coverages for F&E that insure both assets of the Association and villa owners at full-value.  The manner in which deductibles are allocated would be as follows:

 

            A.            When damage is sustained to only assets of the Association, the collective deductibles could be drawn from the excess cash balance of Association funds (if available), a reserves deductible for insurance (if established), a special assessment, a commercial secured loan, or equitably levied among all Lot Owners of the Association as an adjustment to the Annual Base Assessment, or by a combination thereof.

 

            B.              When damage is sustained to only villa owners, the collective deductibles could be drawn from the excess cash balance of Neighborhood accounts (if available), a reserves deductible for insurance (if established), a special assessment, equitably levied among all villa owners as an adjustment to the Annual Neighborhood Assessment, or by a combination thereof.

 

            C.            When damage is sustained to both assets of the Association and villa owners, a percentage relationship would be calculated based on the assessed value of damage sustained by the Association and damage sustained by the villa owners.  Once the percentage relationship is determined for the Association and the villa owners, and the allocation of deductibles defined, the manner in which the deductibles would be offset would be as specified in Paragraph IIIA-B herein.

 

IV.            Notwithstanding insurance policy coverage for general property damage (blanket) and supplemental coverage for flood & earthquake, all other policy coverage within the Association is applicable only to assets of the Association, or business operations of the Association, and any deductible for those coverages could be drawn from the excess cash balance of Association funds (if available), a reserves deductible for insurance (if established), a commercially secured loan, or levied equitably among all Lot Owners of the Association, or by a combination thereof.

 

V.        The Board, in its sole discretion, will determine the manner in which unforeseen and unbudgeted increases in insurance premiums, or the assignment of deductibles, will be allocated and collected.