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INSURING
ASSOCIATION EMPLOYEES
Q.
Our association would like to hire one part-time employee to do
maintenance work. We want to be properly insured, but the minimum
cost of insurance is too high to make it feasible. What do you suggest?
A.
Use an employee leasing company to provide all necessary insurance
and employee benefits. Your management company should be able to
provide this service or recommend such a service. Employee leasing
companies can provide small employers with big company benefits
at a price that you can afford while providing all of the necessary
insurance coverage. Top
ADJUSTING
INSURANCE CLAIMS
Q.
Our homeowner association board filed a large claim with our property
insurance carrier several months ago. We cannot get the insurance
company to respond. We are not sure whether to hire an
attorney
or public adjuster to assist us. What are your thoughts?
A.
Both attorneys and public adjusters can adjust claims for their
clients; however, only attorneys can file lawsuits and provide legal
advice. Also, only attorneys may pursue claims for emotional distress
and bad faith. Thus, attorneys are sometimes able to resolve insurance
claims for an amount above the cost to repair, which in some cases
may exceed the policy limit. For these reasons, I believe experienced
attorneys are usually a better choice. In any event, remember that
fees charged by attorneys and public adjusters are always negotiable. Top
DEFAMATION
Q.
Is the tort of defamation covered by a homeowner association's Director's
and Officer's Liability Policy?
A.
Often it is, but not always.
You should have your association's policy reviewed by a qualified
insurance consultant or your attorney to make certain of your coverage.
Defending a defamation suit can be very expensive and can
take years to conclude. Top
EARTHQUAKE
INSURANCE
Q.
Our homeowner association is paying a fortune for earthquake insurance.
I am on the board which is seriously considering canceling
our earthquake coverage because of its high cost and high deductible. What are your thoughts?
A.
While most boards have the authority to decide whether to purchase
earthquake insurance, it is wise for boards who have such authority
to permit the overall membership an opportunity to vote on this
important issue unless the board decides to acquire such coverage.
If a board is opposed to obtaining earthquake insurance coverage,
it should always permit the overall membership to vote on the matter
in order to minimize it exposure to liability. Such liability can result
from an earthquake that results in damage.
It is important to be aware
that many Directors and Officers Liability Policies do not cover
directors and officers for their failure to obtain correct or adequate
insurance coverage.
In order to minimize your
liability as well as the board's, I recommend that you encourage
the purchase of earthquake coverage and arrange for a vote by all
members of the association. Top
LOSS ASSESSMENT
COVERAGE
Q.
We reside in a townhome which has a master insurance policy. My insurance agent has recommended
that we purchase "loss assessment coverage." What is this coverage and
what is your recommendation?
A.
Loss Assessment Coverage is generally an endorsement to a homeowner's
insurance policy (HO-6). It
pays the insured's share of any assessment levied against unit owners
by the association during the policy period up to a specified limit
for defined losses.
The policy limits are typically
from $1,500.00 to $50,000.00.
While policies differ,
they usually cover the perils covered under Section I of the policy,
bodily injury and property damage losses, losses due to discrimination,
and losses resulting from libel and/or slander.
Remember, coverages vary.
There is no substitute for consulting with an insurance professional
before you purchase coverage.
Generally, the cost of these policies is low for the benefits
acquired. I definitely
recommend the coverage. Top
DISQUALIFICATION OF BOARD MEMBER
Q.
When is it appropriate for a member of our homeowner association
board to recuse himself?
A.
A board member should recuse or disqualify himself or herself because
of self interest, bias or prejudice. If a board member does not
recuse himself or herself when required, he or she will have a conflict
of interest. If a board
member votes on a matter where he or she has a conflict of interest,
he or she violates his or her fiduciary duty. Top
LIABILITY
PROTECTION FOR BOARD MEMBERS
Q.
I am considering running for election to the board of directors
of my homeowners association. What types of protections are available
to protect me against legal liability for negligent acts?
A.
Under the California Civil Code, a director cannot be held personally
liable if the director is acting:
(1) As a volunteer (not
paid);
(2) Within the scope of
the director's authority;
(3) In good faith;
(4) In the absence of willful,
wanton or gross negligence; and
(5) The association has
both general liability and directors/officers liability insurance
coverage ($500,000 minimum for 100 units or less, or $1,000,000
minimum if over 100 units).
Notwithstanding the above,
the association may be held liable for negligent acts of the board
of directors.
In addition, the California
Corporations Code also provides immunity if the director is acting:
(1) In good faith,
(2) In the best interest
of the corporation,
(3) In accordance with
the business judgment rule, and
(4) As a volunteer (not
paid).
Immunities are not absolute.
You should contact legal counsel for additional information and
obtain comprehensive insurance coverage from a knowledgeable insurance
broker. Top
BAD FAITH
CLAIMS
Q.
Recently, the insurance company that issued my homeowners policy
refused to pay a claim that I am certain is covered by the policy.
What can I do? I can't afford to hire a lawyer.
A.
If an insurance company refuses or fails to honor its contract,
you have the right to file a suit for "breach of contract" and "bad
faith".
An insurance company has
the legal duty to handle your claim promptly, reasonably and in
good faith.
The duty of good faith
means the company must:
(1) Adjust your claim (pay
or deny it) within a reasonable period of time,
(2) Respond to your letters
and phone calls within a reasonable period of time,
(3) State in writing precisely
why it is denying your claim and specify each provision in the policy
upon which it has relied,
(4) Attempt to find a basis
for paying the claim rather than a basis for denial, and
(5) Treat you fairly.
If an insurance company
acts in bad faith (fails to act in good faith), you may be entitled
to recover the following in addition to what is owed under the policy:
(1) Consequential damages
which are out-of-pocket costs incurred because of the wrongful denial,
(2) Extra-consequential
damages which are damages to compensate for emotional distress,
and in some cases,
(3) Punitive or exemplary
damages which are designed to punish the insurance company in order
to deter it from wrongfully denying future claims.
You should consult with
legal counsel knowledgeable in this area of the law. Lawyers will
usually represent clients in bad faith cases on a contingency basis. Top
INSURANCE
REQUIREMENTS OF MEMBERS
Q.
Can our homeowners association amend its CC&Rs to require each
member to carry both earthquake and loss assessment coverages in
addition to the standard coverages?
A.
Yes. After the Northridge Earthquake, owners who had earthquake
and loss assessment coverages faired substantially better than owners
who did not have these coverages. Their associations also did much
better. Consequently, we believe it is critically important for
association members to have both earthquake and loss assessment
coverages.
While we believe that a
CC&R provision requiring owners to maintain insurance would
be legally enforceable, we are not aware of any published court
decisions that address this issue.
Most importantly, such
a CC&R provision would be effective only if the board of directors
carefully monitors the submission of insurance certificates. Should
the board fail to enforce such a provision and a disaster takes
place, an owner may attempt to hold the board and/or the association
responsible for any damages. Top
BAD FAITH
CLAIMS
Q.
My insurance company has recently told me over the phone that my
claim is being denied. I'm certain that my policy covers the loss.
What should I do?
A.
Immediately request (in writing) that your insurance company put
the denial in writing and specifically inform you of all reasons
the claim is being denied. Most insurance companies have an appeal
process or administrative review procedure. Promptly request that
the denial be reviewed in accordance with the appeal or review procedure.
If your claim is still
denied, consult with an attorney that specializes in insurance law
and bad faith litigation.
Unfortunately, it is not
uncommon for certain insurance companies to act in bad faith. Top
DUTY OF INSURANCE
COMPANY
Q.
Our homeowner association has a master insurance policy that covers
the common area. Is the insurance company under a legal duty to
review our CC&Rs (covenants, conditions and restrictions) to
determine the extent of our common areas before processing a claim
for damages?
A.
No. They are only required to review the insurance policy issued
to determine what is covered. Top
MASTER POLICY
OR MEMBER POLICY?
Q.
One of the homeowners in our association recently suffered a loss
due to water damage. The loss is covered under the association's
master policy as well as the owner's individual homeowner policy.
Our board wants the owner to make a claim against her policy so
the association will not be required to do so. The owner wants the
board to make a claim against the master policy. What is your advice?
A.
If the loss is covered under the master policy, the association
must make a claim on behalf of the owner. Generally, where there
is overlapping coverage, the association's policy is primary and
the homeowner's secondary. This means that the association's policy
will pay any loss up to the policy limit. Any uncompensated loss
would then be covered by the homeowner's policy if coverage exists. Top
FLOOD INSURANCE
Q.
We reside in a townhouse which is located in an area that is subject
to flooding during severe storms. Our association board has decided
not to purchase the flood insurance policy offered by FEMA (Federal
Emergency Management Agency). Is it possible to acquire an individual
policy?
A.
Yes. I recommend that you contact an insurance broker for the coverage
details. Top
ASSOCIATION
EMPLOYEES
Q.
I am on the board of directors of a large homeowner association
that has recently decided to hire an on-site manager. We have no
other employees. Are there any particular precautions we should
take?
A.
Yes. First you should consult with your insurance broker or agent
to determine if you have adequate insurance coverage including but
not limited to workers' compensation and liability coverages. In
addition, you should consult with an employment attorney who can
advise you concerning this important area of the law. An employment
attorney can prepare an appropriate employment contract, job description,
employee policies and procedures manual and much more. The cost
of preventing an employer - employee dispute is far less than defending
against a legal claim. Top
WATER DAMAGE
Q.
I own a condominium and have suffered a substantial loss due to
water damage. I want to file a claim with the association's insurance
carrier but our board and management company will not allow it.
Am I within my rights to file a claim?
A.
Yes. Members of an association are considered additional insureds
under the association's policy and therefore have an absolute right
to benefit from the association's coverage. It is your policy as
much as it is the association's policy.
California Code of Regulations,
Title 10 Chapter 5, Subchapter 8 states that an insurance agent
is obligated to immediately transmit a notice of claim to the insurance
company regardless of whether the claim is made by the association
or homeowner.
Also note that in accordance
with section 1365 (e) (i) of the California Civil Code, the association's
board is required to distribute to all of its members a summary
of its insurance policies, including but not limited to, the name
of the insurer(s) within sixty days preceding the beginning of the
association's fiscal year. Top
NEGLIGENCE
OF BOARD
Q.
During the recent rains, the roof to my condominium leaked through
a crack causing damage to my furniture and other personal property.
I have been informed by the association's insurance company that
the master policy excludes coverage for my personal property. I
don't have insurance. Can the association be held liable for not
maintaining the roof?
A.
Possibly. If the board of directors fell below the standard of care
in maintaining the roof, they could be liable for negligence and
would then be responsible for paying your damages. The fact that
the roof leaked is insufficient, by itself, to prove negligence
on the part of the board. For example, if the crack was new, the
board would probably not be held liable for negligence. If the crack
was old and the board failed to have the roof inspected, it would
be more likely that a court would hold them liable. The facts of
your case must be fully investigated before an educated opinion
can be offered.
The lesson is clear. It
is prudent for all condominium owners to obtain insurance to protect
their property. It is inexpensive compared to the risk of harm an
owner can suffer. Top
OBLIGATIONS
TO INSURANCE COMPANY
Q.
What obligations do I owe my insurance company when making a claim?
A.
You must:
(1) Submit your claim timely,
(2) Provide all information
reasonably requested,
(3) Provide a statement
under oath concerning the claim, and
(4) Reasonably cooperate
with the insurance company. Top
ASSISTANCE
FROM DEPARTMENT OF INSURANCE
Q.
Will the State of California Department of Insurance (DOI) help me
if my claim is unreasonably denied?
A.
Possibly, but don't rely on it. They do not respond to every complaint
and sometimes their responses are inadequate. Never wait to pursue
a claim because you are waiting for the DOI to investigate or act.
You may never receive a response or the response may come too late.
If you fail to comply with a notice requirement, you may lose your
right to recover damages. If you allow the statues of limitations
to run, you will definitely lose your rights to recover. In short,
do not delay making a legal claim. Top
MAKING INSURANCE
CLAIMS
Q.
Is there any general advice you can offer when making a claim?
A.
Yes. After calling the insurance company, always summarize the complete
conversation in a letter addressed to the person to whom you spoke.
The letter should refer to the date your conversation took place
and a copy should be retained. The initial claim letter should be
sent by certified mail, receipt requested. Top
Permission to reprint our HOA Questions and Answers is granted provided Michael T. Chulak & Associates (MTCLaw.com) is credited as the source.
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