• Insuring Association Employees
• Adjusting Insurance Claims
• Defamation
• Earthquake Insurance
• Loss Assessment Coverage
• Disqualification Of Board Member
• Liability Protection For Board Members
• Bad Faith Claims
• Insurance Requirements Of Members
• Bad Faith Claims
• Duty Of Insurance Company
• Master Policy Or Member Policy?
• Flood Insurance
• Association Employees
• Water Damage
• Negligence Of Board
• Obligations To Insurance Company
• Assistance From Department Of Insurance
• Making Insurance Claims

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: