Virginia Condominium & Homeowners Association Lawyer

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?

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.

Q. As a Board member of a community association, I am concerned about the security of our money. We have accumulated a fair amount in our reserves. While we have confidence in our manager, I still feel a need to have some comfort that our owner funds are safe. What standards are there for insurance coverage for people who handle association money? Is there a special kind of insurance?

A. A community association can suffer serious losses if employees or volunteers misappropriate association funds and, although it is rare, it has happened. The Virginia legislature adopted some new requirements in the Virginia Condominium Act this year that all associations and their management companies are required to follow.  These new requirements became effective July 1, 2007 and include:

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

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.

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.

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.

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.