HOA & Liabilty Insurance

Started by LeahG • 34 replies • 2377 views

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LeahG (Florida)
Posts: 12

Posted:

I am new to the whole HO a thing. Since moving in to my community I have been voted in as vice president. I am trying to educate myself as much as possible so that I can actually upholders was a shin the way it should be. We are a LLC. I have had to just about pulling teeth from the current officers and board to confirm whether or not we have liability coverage. During our monthly meeting last night it was confirmed that we in fact do not carry any form of insurance. I expressed my extreme concern with this and advise that this is something that I feel we must have to ensure we are protected legally from Liabilty.

I was advised by the current president and by a couple other board members that it's not that important, that officers and board members would not be/could not be held liable and are unaccountable for any liability or injury that may occur on HOA properties or community property. Now, Everything I've researched states otherwise.

If you have knowledge or experience with this please advise. Thank you

MarkM31 (Washington)
Posts: 556

Posted:

What do you mean with liability insurance? Are the common areas insured under a separate policy?

TimB4 (Tennessee)
Posts: 21,062

Posted:

You carry liability insurance to protect the membership, not the Officers (in case someone is injured on common area).
You carry Directors and Officers (D&O) insurance to protect the Directors/Officers (in case someone sues the Directors/Officers directly).
You carry a fidelity bond or crime insurance to protect the Association funds (in case someone steals Association money).

See What Type of Insurance Does Your Homeowners Association Need?

Typically, State Statutes and/or your own governing documents would list the minimum insurance requirements the Association should carry.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I think they are under the wrong impression but part right. Technically when acting as a board member you are not personally liable. That is the concept. However, this also has to include insurance protecting as such. It is usually part of the HOA insurance package even if you do not have common property. It also protects the HOA overall if it were to be sued overall.

Your being an LLC is not typical in HOAs. They normally are Non profit but NOT charitable corporations or For Profit. The determination is part of the tax process. A LLC is a slightly different animal. I find that is where the issue lies. A LLC more than likely is one that this insurance does not apply as normal. The LLC setup produces the similar protections. However, I find the setup lends to basically who you vote for to do the time if caught in the end. Just pass it down the line declaring I did not do it my partner did... And so on.

It is good to look into this. Your best resource is still the CCRs as it will also include insurance amounts the HOA should carry or their vendors. Most are around a million dollar policy minimum. Most answers do come from this and the Articles of Incorporation docs.

Former HOA President

EmmaH1
Posts: 674

Posted:

Could they possibly be a llc because the declarant listed them under his own llc? and they may still be under his control? (right or wrong that is what the original Declarant/Developer did in my community and it went on for years that way)

TimB4 (Tennessee)
Posts: 21,062

Posted:

Some resources:

Inc. vs. LLC: Which legal structure suits your business?

Inc. vs. LLC from diffen.com

JohnB26 (South Carolina)
Posts: 1,001

Posted:

n not performing one's obligations

misfeasance = making a good faith error while performing one's obligations

malfeasance = knowingly or willfully doing wrong while in office

FACT: D and O insurance only covers misfeasance

a director may be held personally liable for an act of EITHER non or mal feasance

READ THE ACTUAL POLICY, not merely the 'declaration' page

the mere fact of being a volunteer does NOT insulate from all liability

in some cases it may actually ADD to liability BECAUSE of voluntary

If one knowingly or willfully breaches Fiduciary Responsibility then one probably assumes person liability as one has acted OUTSIDE of the corporate shield.

EmmaH1
Posts: 674

Posted:

"Ignorance (of the law) is no excuse (for breaking it)". Ancient legal principal. (quoted to me by a attorney recently)

(Leah,smart of you to look into things now. You picked a good site lot of experts I've learned so much from. But don't forget to do your own state specific research too. "Knowledge is power".)

LeahG (Florida)
Posts: 12

Posted:

Emma
no the original declarant/builder has nothing to do with our HOA, or such anymore. Nobody currently on board knows why it was set up as a LLC. When i'm asking these questions about liability insurance, about the HOA and when it was incorporated, the declaration of incorporation, etc....nobody that is in the current board seems to want to answer me and keep skirting around answering me.

I finally got an answer on the liability and this is where were at.

Our HOA is 20 years old. The original declarant/builder completely signed off of it, over to HOA over 20 years ago. When it was set up from everything I have learned and researched, people on here, and attorneys I've spoken with......about this HOA and community property, it tends to shock everyone. It was set up to be a voluntary HOA yet we have HOA/community property that we are supposed to maintain as well as enforced covenants. Yet we have a very low membership as it is voluntary and we have no liability insurance for our community park or the HOA.

I guess my biggest concern is with me being new to the whole HOA thing & process......that am I out of my mind to be afraid and want to resign from the position if they do not carry insurance?

I do not want to jeopardize my family, God for bid in the event of an accident in any of the community areas. (also, the community has been having trouble with vandals in the community park for sometime now. Including knocking over and breaking the cement tables ripping holes in the fence, etc.)

I really do want to be a part of my community and make a difference and help where I can however, I don't want to put my family in jeopardy either by the lack of the HOA have an insurance, your thoughts?

LeahG (Florida)
Posts: 12

Posted:

Thank you.
We don't have a policy per the board meeting lastnight and President.
What would you do?

They said that the HOA cannot afford any sort of insurance, especially, when I have such low memberships. But my point is if there is an accident/injury we can't cannot afford to have the insurance if there's any possibility that we could be held liable.

The enjoy an entire community is aware that their issues, they know we are having vandals breaking in and destroying items, they know that there is a chance of somebody being injured up there especially when they're knocking over the cement tables. Knowing that and not acting to me makes them liable.

Please correct me if I'm wrong. Thank you

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By TimB4 on 11/21/2014 10:09 AM
Some resources:

Inc. vs. LLC: Which legal structure suits your business?

Inc. vs. LLC from diffen.com

Both of these sources discuss business (for-profit) operations. HOA's and condo associations are normally non-profit corporations; I have never heard of a non-profit LLC. I would be interested in knowing what is called for in the declaration.

LLC's also do not lend themselves well to changing management by way of regular elections. An LLC is structured such that it's management remains somewhat static as opposed to a non-profit corporation where the directors can all be swept away at the next election.

I do not think an LLC offers the same personal immunity from liability that is granted to board members of a non-profit corporation.

When I looked for LLC's in my state laws, I found the statutes under Partnerships, not Corporations. The law treats an LLC as an alternative to a partnership and not as an alternative to incorporating.

Bottom line is that an LLC is not a very good choice for an owners association.

EmmaH1
Posts: 674

Posted:

Wow Leah,
In my personal opinion I too would be a afraid to sit on the board at this point in time since they seem to have neglected a lot of legal aspects for a long time. (I'm not one of the "real experts" here on this site but I've done a ton of research and met with several attorneys for consultations (which in the beginning is a good way to "pick" there brains and gather info to look further into yourself. We found one that we will use if we take our issue to court. But lots of consultations are free or at least affordable. Its a good place to start by just speaking to one that can get you going in the right direction in cleaning things up there. They should be able to tell you at least where you stand.

Sounds like you have a lot of work ahead of you, I hope some others join in your effort.

p.s. during my research I came across a lot of case law that involved Florida HOA cases and Florida Attorney with a very comprehensive website. I have so many papers in my office but she stood out enough that I remember printing out an articles from her site. I'll look for them and when I find it I'll post a link to it for you. She may even be near you. (It may take me a couple of days to find it though.)

EmmaH1
Posts: 674

Posted:

Maybe others can share their opinion on this-----would it be wise or helpful in Leah's situation to add a balloon policy to her own personal Homeowner Insurance Policy just in something did happen in the common area and all the homeowners found themselves being sued? (just throwing that out there not sure if it would protect her or not?)

One question Leah is the common area deed over to the HOA/llc?

EmmaH1
Posts: 674

Posted:

typo correction "just in case....

LeahG (Florida)
Posts: 12

Posted:

Common area is deeded to HOA.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By LeahG on 11/21/2014 8:33 AM

We are a LLC. I have had to just about pulling teeth from the current officers and board . . .

There has already been a lot of discussion in this thread about LLC's but after re-reading the initial post I do not think that they are an LLC. The OP mentions officers and board members. Unless LLC's are radically different in Florida, they do not have a board of directors nor do they have officers. I suspect that the OP was mistaken when she said their association is an LLC.

LeahG (Florida)
Posts: 12

Posted:

Larry

Thank you. However, I was not mistaken. My HOA President and board of directors confirmed that they are registered as an LLC. We do have officers and a Board of Directors. They also confirmed that we do not currently have any form of insurance. This is my question base....is if something happened could I be heldliable by anybody injured beings I am now a member of the board.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

The LLC thing is very odd and not many here deal with them. Your question about will you get sued? Yes you will. You will also be threatened to be sued multiple times. Your HOA will most likely knee jerk react to the situation or over do it "protecting" itself from potential lawsuits. Those are the facts and reality. Insurance or not, lawsuits happen. It just comes down to how much money comes out of pocket. Liability insurance just provides less blow to the walllet in one large claim. Even liability insurance has its limits.

Suing your HOA is suing yourself and your neighbors. So if your HOA is sued, you as a member are being sued regardless if officer or not. The officer position offers some protections typically in that they do the decision making and avoid personal liability in that act. Youe all still getting sued.

Now the issue is to be a member or not. Since your volunteer only, then leaving is an option. However, you then lose any and all possibility of making changes and being involved in your community. Staying a member means your money and decisions hold power in improving and/or maintaining your HOA. A HOA is ONLY funded by its owners for its owners.

So you can put an umbrella policy on your own insurance. I would also discuss this with an insurance agent. The whole "If someone falls in the common area who gets sued?" needs an answer. Most of the time these are urban legend assumptions. Reality is a different story. Homeowners insurance you have already covers some items you may not realize.

Former HOA President

LeahG (Florida)
Posts: 12

Posted:

Okay, thank you good folks on here for all your assistance. Through your assistance, attorneys and much more research and I have found that the current HOA officers and board have no clue of what they're talking about.

I found on the Internet site ISHCC.org that shows that as of 1995 we are in fact a nonprofit corporation.

So now I am going to try to dig and find information on that. I apologize to each one of you for wasting your time trying to find out about the LLC. But I greatly appreciate you taking the time. Thank you

EmmaH1
Posts: 674

Posted:

Melissa or others,
If Leah chooses not to be a member since it's a voluntary HOA, isn't it possible she could still be sued if the CC&R attached to the title of her home state she shares responsibility to care, maintain and insure the common area? Hopefully an umbrella policy would protect her if the rest of her neighborhood refuses to insure the common area? (She seems to be in a very difficult position if her insurance or adding extra insurance to her personal property won't cover her.)

How many homes Leah?

EmmaH1
Posts: 674

Posted:

Larry maybe being an LLC means they were never a "real" legal HOA?

EmmaH1
Posts: 674

Posted:

Maybe they were supposed to be a mandatory HOA at one time but lost that status? because of a defective execution of the original HOA contract?

EmmaH1
Posts: 674

Posted:

Leah,

Investigate everything just because people have done thing one way does not mean it is right or even legal, it just means no one ever challenged it.

You need to investigate, you need to get the facts. Talk to attorneys (more than one, they all have different opinions, go to a lawyer that understands Contract Law not real estate.)

EmmaH1
Posts: 674

Posted:

Sorry Leah, just realized you said already 20 years ago you did start out as a voluntary HOA. Even so if all property titles share responsibility on there deed for the common area then that would run with the land. Soooo wouldn't all be responsible to care, maintain and insure that? (voluntary HOA with mandatory maintenance dues?) Of course only if your original CC&Rs state the above?

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By LeahG on 11/21/2014 1:49 PM

I was not mistaken. My HOA President and board of directors confirmed that they are registered as an LLC. We do have officers and a Board of Directors.

LLC's are a creation of each state's legislature, as are non-profit corporations. My knowledge is limited to Arizona, where there is no provision in state law for an LLC to have a board of directors or officers, just managers and members. I am curious to see the Florida statutes that would authorize a board of directors and officers for an LLC.

BTW, have you confirmed that yours is an LLC by making a query with whatever state agency it would be registered with? I would be reluctant to accept the word of anyone else on your board based on their failure to acquire insurance for the association. They are not the ones to ask.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By LeahG on 11/21/2014 2:46 PM
Okay, thank you good folks on here for all your assistance. Through your assistance, attorneys and much more research and I have found that the current HOA officers and board have no clue of what they're talking about.

I found on the Internet site ISHCC.org that shows that as of 1995 we are in fact a nonprofit corporation.

So now I am going to try to dig and find information on that. I apologize to each one of you for wasting your time trying to find out about the LLC. But I greatly appreciate you taking the time. Thank you

Leah,

Please disregard my previous post. Obviously, I should have read all the responses before posting.

LeahG (Florida)
Posts: 12

Posted:

There are 189 homes. The HOA is voluntary and the HOA owns the community areas

EmmaH1
Posts: 674

Posted:

My understanding of contract law is that even if someone else for instance the Declarant had held on to the title to the common area all these years the deed could still state that "the homeowners or the HOA are responsible for the maintenance of the common area".

So, the HOA owns the common area and hold the title.

Who does the deed say is "responsible for the care and maintenance of the common area"? or does it? (that is the contractual part. You can be legally responsible for property but not own it.)

If it says homeowners I would think all homeowners would be legally responsible regardless of if they joined the voluntary HOA or not.

If it says the HOA is responsible then only the HOA members would be responsible? Hope not, doesn't seem reasonable but I guess anything is possible.

Not legal advice just my opinion from research I did on contract law, bring it to a lawyer.

DouglasK1 (Florida)
Posts: 2,046

Posted:

Quote:

You can look up the status of any Florida corporation or LLC here:
http://search.sunbiz.org/Inquiry/CorporationSearch/ByName
This will tell you if your HOA has a corporation or LLC, and whether it is currently active not.

Escaped former treasurer and director of a self managed association.

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By LarryB13 on 11/21/2014 12:57 PM

Both of these sources discuss business (for-profit) operations. HOA's and condo associations are normally non-profit corporations; I have never heard of a non-profit LLC. I would be interested in knowing what is called for in the declaration.

I've seen LLC used within Associations. The one example I can quickly think of is where the developer gave a pool and rec room to an Association. The Association had limitations on assessments in there CC&Rs. The limitations were such that it would be impossible for the Association to properly run/maintain the pool. Therefore, an LLC was created for the pool/rec room. The allowed the appropriate fees to be set to properly maintain the pool.

(yes, I agree, the developer really messed up that Association)

NancyG3 (North Carolina)
Posts: 342

Posted:

LeahG - Since you are a Board member, take time and go to one of your local insurance agents discuss with them and obtain a quote. They have package policies which aren't that expensive. Once you have the quote, take it to the next Board meeting and discuss. Some insurance agents will come out to meetings and explain the importance of having insurance. From reading your post it appears they have no idea what the complications could be by not having insurance to protect the Board and the Homeowners.

BobD4 (up north)
Posts: 1,002

Posted:

Whatever the legal & factuals at LeahG(FLA)'s scenario, upfront she needs to immediately pull out and read /hire competent explanation thereof if necessary, the documents she received when she bought recently into her community.

There may have been an estoppelling or "status" type certificate that few take the time to read or understand.

Among those who also failed to do so, may be some or all of her fellow Directors who she describes as grudgingly admitting no insurance of any kind - which presumably rules out D&O and occupiers liability whether the common lands are HOA owned or owned in bare tenancy in common ( owner A & owner B etc ...)

Whichever, as pointed by Melissa the uninsured common lands are a biggy.

Outsiders injured - think particularly child minors incapable of consent to risk - and their non-owner parents are not suing themselves. Injured owners may have grounds under simple negligence grounds. Visitor children have climbed fences and been electrocuted or got injured on playgrounds or some wandering unleashed dog happened to bite them on the unfenced common lands. None of these claims are likely barriered by nebulous "owners wont or can't sue themselves" ( Same issue in my tenancy in common lands to which I and hopefully others bought our own home insurance extended coverage. But is it enough ? I am sure I can sue for negligence and possibly could get a judicial seizure order to enforce a judgment aginst thos eland sand maybe the private benefitting lots too. Uninsured is a big risk )

JohnB26 (South Carolina)
Posts: 1,001

Posted:

Florida Department of State 'search' page:

http://www.sunbiz.org/search.html

JohnB26 (South Carolina)
Posts: 1,001

Posted:

http://www.sunbiz.org/search.html

JohnB26 (South Carolina)
Posts: 1,001

Posted:

Florida search by entity name:

http://search.sunbiz.org/Inquiry/CorporationSearch/ByName

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