Virginia Supreme Court focuses on authority of Association Board to impose charges or suspensions

Recently in a Fairfax County case involving the Shadowood Condominium Association the Court examined whether or not the board could assess charges against an owner for failing to submit a unit owner status report required by the Association and for violations of rules by the unit owner’s tenants.  It appears that this association’s documents had not adopted the provisions provided in the Virginia Condominium Act authorizing the assessment of charges for rules violations. In fact the Master Deed provides that “no common expense or other sums shall be assessed….other than for the maintenance, repair, replacement or improvement of the general common elements….”

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Directors and Officers Insurance Coverage - Necessary?

 

QUESTION:

I am on my community association board in Northern Virginia. There has been talk that the directors insurance is no longer needed due to a law passed in the last couple years protecting them. Is this true?

 

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The Sale of Common Area

QUESTION:
 
I'm a member of the Common Area committee for our homeowners association.  Yesterday a resident asked me what the process is for buying common area property, if there's a process and, if not, why not.  She's interested in a tiny piece of land next to her home.  I told her I'd look into it and while I admit my research skills aren't great, I cant find anything that says she can or she cant, and why.  Can you help point me in the right direction?
 
ANSWER:
 
In answering you, I am assuming that this community is an HOA vs. a condominium.  There is no process via statute or otherwise, nor a prohibition regarding the acquisition of common area in an HOA.  The ability to do so may be addressed by the Declaration and a determination should be made if it is or not.   If not, then it amounts to a decision being made by the Board of Directors, acting in their fiduciary capacity, as to whether or not the parcel being sought is, or may be, of any real use to the members to use in common.  It would seem that a proposal of this sort should be publicized along with the price being offered and an opportunity given to the association members to comment at a board meeting where time is set aside specifically to hear comments on this owners proposal. I would think that an appraisal would be required so as to insure that the parcel is not sold for too little, which is not to say that the board may not require a significantly greater price.  A title exam should be done to make sure that the association got title to the common area from the developer... sometimes title is overlooked.  Also, there is an issue of getting City approval to carve out a parcel of land to sell to an adjacent owner that intends for it to become part of their lot.  There are City regulations on subdivisions with which you must comply.  You should talk to a local surveyor or engineer to find out if there is an issue.
Posted In Board Member Responsibilities , Maintenance Responsibilities , Risk Management
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Liability related to Speeding Vehicle

Question: What liability is a Condominium Association exposed to regarding an accident within the community due to speeding? We have a posted speed limit of 15 MPH and have regularly in community newsletters and correspondence reminded residents to slow down. Could we be successfully sued for an accident simply because it happened on our streets?

Answer: You cannot be held liable for the criminal acts of third parties. This does not mean someone will not try to sue looking for a deep pocket to collect from but there is no liability if you have properly posted the speed, it is a reasonable speed and there is nothing which the Association has done to encourage speeding. It may be helpful, if you can prove a violation, to fine the individuals through a properly held due process hearing. Good luck

 

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Playground Liability

Q.        Our HOA is considering installing a playground at a cost of $25,000. We need to have a vote of the homeowners to have an assessment to pay for it. Some owners don’t think we need it and are trying to get votes byraising the issue of liablility for injuries that could occur.  Our insurance company, after reviewing the playground design, has informed us that the extra cost will be $100 per year. The questions that are being raised now pertain to what happens if a liability judgment is obtained against the HOA that exceeds the liability insurance?  Is the HOA (and thus the homeowners) responsible for raising the additional funds?  Are homeowners at risk of losing their homes in such an instance? 

A.        The installation of a playground is predictably controversial but seems appropriate if the community has a significant number of families with children.  The cost at $25,000 seems reasonable to us.  Your question focuses on what happens if a judgment is obtained by a person injured by the equipment you are installing and that judgment exceeds your insurance coverage.  First, you should inquire of your insurance advisor as to the amount of insurance you should have based on claims histories relative to play areas and risk analysis on these facilities done by insurance company risk experts.  You should then get that advice in writing for your minutes of your meeting where you discuss it.  Once obtained, you should follow that advice.

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Risk Management

Q. In your last column, you talked about risk management and said that you would discuss it further in a later column. Could you do that in your next column so that we, as owners, can get a complete picture?

A. Sure, we are glad to follow up and discuss risk management. Simply put, risk management is the process of making and carrying out decisions that minimize the adverse effects of accidental losses. It involves five steps:

?Identifying exposures to loss
?Examining alternative techniques
?Selecting the best techniques
?Implementing the chosen techniques
?Monitoring and improving the risk management program

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D & O Insurance Coverage

Q:Our board is struggling with our insurance renewal. We are trying to save some money on premiums and a couple of the members are saying we are foolish to spend money on directors and officers liability insurance. What are we getting for our money and what are the different coverages that should be included? Do you think we really need this coverage?

A:We certainly encourage you to obtain directors and officers liability coverage, which is generally referred to as a D & O policy. This policy will protect the board members, officers, employees and committee members for actions, or failures to act, and decisions they make regarding management of the association. While suits against boards are rare, when they are filed it is generally an expensive experience.

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Damage from Other Units

Q.I live in a condominium that is approaching the 10 year mark. Although it is not an old condominium, it is aging and the appliances and fixtures inside of units are aging. Many of our buildings are stacked one on top of the other so that a major failure above, such as a hot water heater, would likely affect unit(s) below. We do have a clause in our Bylaws which states that the Master Policy deductible could be passed to the Homeowner of the Unit where the damage initiated if the majority of the Board rules that the damage was caused by negligence, misuse or neglect of the owner. While the insurance deductible is a factor, another prime concern is the quality of life for those suffering damage from causes which might well have been avoided had preventative maintenance/replacement been done.

What approach could you recommend that would address maintenance of fixtures/appliances inside of units, e.g. recommended inspections on a timed basis or replacements on a timed basis? Would the absence of such inspections or replacements constitute neglect? Should the Board adopt a resolution to further expound on some of these issues?

A.There are many condominiums like yours which were built 10 to 20 years ago and are now "showing their age" - both on the exterior and the interior. There always seems to be more focus on the exterior and most associations now have built up some reserves (albeit many do not have enough) to replace or renovate their common elements. However many boards do not focus on the effects of age on the water heaters, hoses and other devices that carry water inside of units and the building's common elements which, upon breaking, can have a devastating effect on units lying below the unit or area in which the break occurs. The person who drafted your documents had more foresight than most when writing the provision which allows the board to require payment of the association's deductible by a neglectful owner.

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Insurance Coverage

Q. Considering the recent Hurricane Katrina, I am very concerned with what insurance coverages we have and what happens with our association property, versus our own property, after the storm if we have damage. Can you give us some guidance as to what to expect?

A. The first thing we need to do is clarify what Master Insurance coverages the association has and what is and is not insured under the Master Policy.

Most homeowner's associations have property coverages that include all of the buildings and structures owned by the association. This generally means the clubhouses, signs, fences and the like. Homeowner's associations generally do not provide any insurance for the individual dwellings or the homeowner's personal property. If you live in this type of association you definitely need to talk with your insurance agent to decide what coverages and amounts are appropriate to your situation. If damages occur to the common areas, then the association will handle both the insurance claim and the rebuilding as needed. If the damage is to your home, then it would be your responsibility to handle the insurance claim and the necessary repairs.

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Safety and Legal Liability Regarding Swimming Pools

Our association has a swimming pool which is fairly popular with our owners, many of whom have small children. We are concerned about safety and legal liability and whether or not we are protected by our rules and our insurance policy. What are the essential practices and rules that will keep us out of legal trouble? How much do we have to worry about our insurance company saying "sorry, you're not covered for that"?

A:You are surely right to be concerned about these risks because every year associations are the target of claims for injuries in and around the swimming pool. Our sources tell us that about 70% of associations have pools and it is well known that the real estate/development community believes they are an essential amenity to insure strong buyer interest. We have seen some associations close and remove pools due to inadequate use so as to eliminate a significant expense and risk, however many pools, like yours, are a desirable and highly utilized feature of the community.

Boards of directors must recognize that pools are dangerous in various ways and seek to establish rules and practices that will minimize the risks. This is essential to be exercising adequate fiduciary responsibility which will avoid legal liability in the event of a bad accident. The various municipalities set their own standards in many ways, including chemical requirements, self inspection, record keeping, equipment, fencing and city inspections. These regulations only establish minimum requirements but go a long way toward eliminating substantial risk. You may have special circumstances which require a greater level of care, such as an inordinately high number of young children. This may dictate having more lifeguards or longer lifeguard hours. You must also insure that depths are indicated along the side of the pool.

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