The limits of homeowner’s insurance at a homeowners association
Los Angles Times
By: Donie Vanitzian
12 June 2016
Question:
I live in a residential, two-on-a-lot common interest development with
a homeowner association; the other owner and I comprise the board. The
covenants, conditions and restrictions state all buildings, driveways
and sidewalks are common areas whereas the balconies and a back patio
are designated as “exclusive use” common areas.
other owner, refuses to acknowledge the homeowner association
My neighbor, the other owner, refuses to acknowledge the homeowner
association and will not enter into an insurance policy for the
association. I tried to obtain individual homeowner’s insurance for my
detached single-family dwelling but several insurers refused, stating
that the only way to insure me was to follow the laws in the common
interest development act. Eventually, though, we each managed to obtain
individual homeowner’s insurance on our respective single-family
dwellings.
My insurance agent told me that my personal homeowner’s insurance
covers the common areas so the association doesn’t need to purchase its
own insurance. Is the association really covered by my individual
homeowner’s insurance policy, and is there exposure because we don’t
follow the CC&Rs? Is my individual earthquake insurance for my
building’s structure valid?
Answer:
In California, some insurance companies may decline to insure
individual property (e.g., units, town homes and detached homes) within
common interest developments unless the association itself is
adequately insured, which includes earthquake coverage. It can be
complicated to separate the loss responsibilities of an owner from that
of the association, especially from loss due to third-party vendors,
visiting guests and public access in mixed-use developments. And even
if you do obtain an individual homeowner’s insurance policy, you may
only find out that coverage is limited or the entire policy void when
you try to submit a claim, which by that time is too late.
get that statement in writing
If your insurance agent told you that the association doesn’t
have to purchase its own insurance, get that statement in writing. It
will have to include an explanation of what coverage, if any, is
provided by your insurance policy for claims made against the
association and not just you as an individual. But since your CC&Rs
state that “all buildings, driveways, sidewalks are common areas,” it
appears that your insurance agent was wrong to say your personal
individual homeowner’s and earthquake insurance will cover those
in-common owned areas following a catastrophic event.
your liability as a volunteer director
Also, in the event of a lawsuit against the board or association, your
liability as a volunteer director hinges on whether the board’s actions
were performed in good faith and whether they were willful, wanton or
grossly negligent.
must have directors and officers liability insurance
The law establishes strict provisions for insurance based on the size
of your association. As a director of an association with fewer than
100 units, in order to protect your personal assets, the association
must have directors and officers liability insurance with a minimum
coverage of $500,000 in case you are sued for negligent acts or
omissions in your role as a director or officer. (Civil Code
section 5800)
The association as a whole also must be protected by general liability
coverage with minimum coverage of at least $2,000,000. (Civil Code
sections 5805).
A board director’s job is to balance the risk of a lawsuit against the
risk of your association going insolvent while fulfilling safety and
maintenance requirements, all while making well-reasoned and informed
decisions. The “business judgment rule” requires sufficient
investigation regarding such matters.
Your time and the association’s money should be spent trying to limit
the legal and financial exposure of the association and its
titleholders, and one way to do that is to follow the law. The law
states that the “association” has to carry insurance.
Zachary Levine, a partner at Wolk
& Levine, a business and intellectual property law firm, co-wrote
this column. Vanitzian is an arbitrator and mediator.
Comments
Unless you buy both units in a two-unit condo, and rent one out, I
would never purchase a unit is such a tiny corporation. The areas of
possible disagreements are endless and the chances of disputes
requiring mediation/arbitration will be a drain on both parties.
—CondoMadness
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