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?
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
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
or public adjuster to assist us. What are your thoughts?
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
Is the tort of defamation covered by a homeowner association's Director's
and Officer's Liability Policy?
Often it is, but not always.
You should have your association's policy reviewed by a
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
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?
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
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
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?
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
When is it appropriate for a member of our homeowner association
board to recuse himself?
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
PROTECTION FOR BOARD MEMBERS
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?
Under the California Civil Code, a director cannot be held personally
liable if the director is acting:
(1) As a volunteer (not
(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
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
Immunities are not absolute.
You should contact legal counsel for additional information and
obtain comprehensive insurance coverage from a knowledgeable insurance
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.
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
An insurance company has
the legal duty to handle your claim promptly, reasonably and in
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,
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
REQUIREMENTS OF MEMBERS
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?
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
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
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?
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
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
No. They are only required to review the insurance policy issued
to determine what is covered. Top
OR MEMBER POLICY?
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?
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
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
Yes. I recommend that you contact an insurance broker for the coverage
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
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
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?
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
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
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?
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
TO INSURANCE COMPANY
What obligations do I owe my insurance company when making a claim?
(1) Submit your claim timely,
(2) Provide all information
(3) Provide a statement
under oath concerning the claim, and
(4) Reasonably cooperate
with the insurance company. Top
FROM DEPARTMENT OF INSURANCE
Will the State of California Department of Insurance (DOI) help me
if my claim is unreasonably denied?
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
Is there any general advice you can offer when making a claim?
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
ELECTING A CONVICTED FELON
A convicted felon was recently elected to our board and made treasurer. The board believes he has paid his debt and has learned a lesson. They claim he is now a model citizen. Many owners are very concerned. What are your thoughts?
It is not illegal to elect a convicted felon to the board of an association and it is not illegal to make the person treasurer. Notwithstanding, the fact should be disclosed in writing to your association’s directors and officers liability insurance carrier to determine whether they will cancel or not renew the policy if the individual continues to serve. In addition, if you have coverage for dishonest acts, you may run into the same problem. I believe it is a matter of poor judgment to elect this individual to the board and then make him the treasurer.
CHILDREN'S USE OF SPA
Can our association prohibit children from using our spa? We are concerned about safety.
Yes. You are probably safe in prohibiting children under the age of six from using the spa even with adult supervision. Children between the ages of six and thirteen must always be supervised by a responsible adult. Top
Can we amend our CC&Rs to prohibit pit bulls and other aggressive breeds of dogs?
Yes. Your insurance company will love you for it. Top
Will the association's insurance policy cover the cost of repairs resulting from the leaking of our building's old galvanized pipes?
Most insurance policies will not pay for such damage if it determines that the board knew of the deteriorating pipes and failed to replace them. Insurance policies generally cover only sudden, unexpected losses. Losses from old deteriorating galvanized pipes are expected. Top
Our association's management company recently informed the board that the corporate status of the association had been suspended. How does a homeowner association become suspended and what are the consequences?
Possible reasons for suspension are:
Failure to pay taxes,
Failure to file taxes,
Failure to file a Statement by Domestic nonprofit Corporation, or
Failure to file a Statement by Common Interest Development
The consequences include the loss of:
The right to bring and defend lawsuits,
The right to collect assessments,
The right to enforce contracts with contractors and vendors, and
The right to enter into contracts.
A suspended corporation (association) can be revived. When this occurs, a Notice of Revivor is provided by the Secretary of State. Top
Our association in Santa Monica is not incorporated. Do you recommend that we incorporate?
Yes. The cost is relatively small and incorporation will reduce the association's liability. There is a long history of case law which provides protections and procedural guidelines that do not apply to unincorporated associations. Top
RESPONSIBILITY FOR WATER DAMAGE
Can our condominium association amend its CC&Rs to make every condominium owner responsible for interior damage caused by water intrusion?
Yes. However, unit owners may still claim that the association is responsible for such repairs due to negligence. Top
Our association common areas were recently damaged by fire. Our, insurance coverage proved to be less than adequate. Can we amend our CC&Rs to require minimum insurance coverages?
Yes. Modern CC&Rs generally specify minimum insurance coverages. It is important that your CC&Rs adequately address this important issue. Top
UNLAWFUL ACTIVITY AT CONDO
Our condominium association in Simi Valley is experiencing a great deal of unlawful activity around our pool area. Can we safely install
security cameras in the pool area in order to discourage this type of activity?
Your association can and should install security cameras in the pool area if illegal activity is taking place. However, it is important that the cameras be installed in such a way as to avoid invading the reasonable expectation of privacy of people using the pool.
I recommend that you consult with an attorney before purchasing and installing any cameras in the pool area. Top
The board of directors of our condominium association in Thousand Oaks is considering the installation of dummy cameras in our parking garage and entry areas to deter crime. I have been told this may not be a good idea. What is your opinion?
Dummy cameras are never a good idea because they create potential liability for the association. When owners, renters and visitors see dummy cameras, they often believe the premises are being monitored and therefore, they are reasonably safe. If a serious crime takes place, you can be certain the association will be named as a defendant. It is far better for the association to spend its money on real cameras to deter crime.
Check with an experienced insurance broker to determine if your association can qualify for a discount on its premiums if it installs real security cameras. Top
Our homeowner association in Van Nuys is spending a great deal of money on several security guards at our condominium association. We are considering hiring our own guard employees who will be required to obtain guard cards. The board is split. Some board members are agreeable to paying more to a guard company even though it is more expensive. What is your opinion?
Do not hire your own guards. Hire a professional security firm that trains and supervises its guard employees. You will greatly reduce your association's potential liability. The money you will save is not worth the increased risk. If there is a serious incident at the property resulting in a lawsuit, you want the benefit of the guard company's insurance and expertise in training and supervising guards. Top
I am on the board of directors of my homeowners association located in Long Beach. We have an architectural committee. Traditionally, the architectural committee has been concerned with building code compliance. Is this an appropriate matter to be commented upon by an architectural committee?
No. Architectural committees should be concerned about compliance with the CC&Rs, rules and regulations and the appearance of proposed modifications. Compliance with building codes should be left to the local city or county. If your architectural committee assumes responsibility for making comments on possible code violations, it places your association in a position to be held liable in the event that it makes an error in judgment. There is no reason for an association to assume that responsibility. Top
Permission to reprint our HOA Questions and Answers is granted provided Michael T. Chulak & Associates (MTCLaw.com) is credited as the source.