Fining Owners for others' insurance premium increase

Recently a resident in our high rise tower left water running in a sink for hours, which overflowed causing a lot of damage to three other condos below him. Neither he nor the unit owner have insurance.

The owners' insurance covered their considerable losses and expenses--one must stay in a hotel for a month. BUT their premiums will increase for a couple of years because of their claims.

I've submitted an agenda item suggesting we fine any Owner who cannot show a certificate of insurance. Insurance is required by our CC&Rs. My concern as a director is that an uninsured Owner may cause damage to our common areas and the HOA's premiums would also increase for one or more years. I may even want to add that the uninsured Owner could be fined for any increase in the HOA's premium due to claims on the common areas.

What do you think?

I'd also thought to fine uninsured owners for the increase of premiums of other Owners who suffer damage such as the above. But I'm thinking that that's a neighbor-neighbor issue and none of the HOA's business. Any opinions?

As a Board member, I wouldn't be discussing this topic on this forum. Your duty is to first speak with the insurance company and to the association attorney. None of us have access to your governing documents.

I believe that you can demand the unit owner make you the HOA a lossee on the insurance policy, so that way if the policy lapses or is cancelled the HOA is
notified.

We have that but candidly we never paid much attention nor kept it up to date. Also if a new owner, we do not know if they are insured or not.

Yes, I do manage condos, and yes, I have run into this same situation, but NO, I wouldn't have fined an owner for not having a HO-6 policy. There are other remedies available to an HOA if they are involved.

Can you tell us which homeowner insurance policy covers for the common area. Who is going to maintain the list of each owner and their polices and if their policies lapse and the HOA didn't follow up, YOU will be liable.

You can't fine for damages, you can assess them for the expense the HOA incurred, but you cannot assess them for the damage caused to another unit. That is a issue between the neighbor. Let the insurance company handle this.

That is why I said to speak to your insurance company and ask your questions to them, as they have experience with your complex, not us.

Good luck in your research!

From what I understand insurance is a personal choice. Not having insurance has ramifications. It's your choice not to have insurance to face those ramifications. I don't see having a HOA use their insurance to cover for someone else's lack of. Meaning that the HOA doesn't need to step in where it doesn't belong.

Now having a claim for common area is a bit different. Let's say that one floods their sink and it gets into the hallway. It warps the boards. The HOA has to replace those boards. The HOA could claim it on their insurance or they send the owner the bill for that work. Now if the owner doesn't have insurance they are on the hook for their own repairs and the HOA's repairs or their insurance premium if need be.

To fine someone in addition doesn't really encourage anyone to purchase insurance. It's probably the opposite effect. I believe one should have insurance but you can't force it down their throat. It's not like Car insurance in our state it's required to have liability. They send out post cards occasionally to verify or have to bring it to get tags. Otherwise, the state doesn't know till an accident occurs like everyone else.

After witnessing firsthand what water damage can do in a high-rise condo, not only do I think an HOA should fine an owner for not having approbate
insurance coverage , or hold in in an escrow account enough money to cover potential damages. The HOA should purchase a policy and bill the owner for said policy
for violating the CC&R's.

As JohnB stated, his HOA dropped the ball. Sure it is easy to name the HOA as a lossee, It is utterly the the community manager's or the treasurers's responsibility
to act when an insurance premium is about to lapse. At that point it should be the duty of either party to reach out to the owner to find out if they are switching
carriers or just don't care, Then it is the responsibility of the HOA to protect their assets.

I will add that, if you don't have it in place already (and I believe you don't due to this incident), the Board may want to require members provide a certificate of insurance to the Association annually. Most insurance companies provide this free and will mail it to the Association. Therefore, it's zero to minimal cost to the member and actual documentation to the Association that as of mm/dd/yyyy a policy was in place (although, it may have been cancelled a week later).

Since this provision was already in your CCRs, why wasn't it being enforced on behalf of the owners that WERE following the rules. Seems to me the Board is the responsibility party if the premiums increase due to owner non-compliance.

In your case, since you have the luxury of having a on-site GM and assistant working exclusively on your property, there should be less of an excuse.

Kerry,

I think your attorney gave you bad advice.

Their reasoning that the Association would be held responsible if someone didn't have insurance can be equally argued that the Association is responsible because they failed to make sure everyone had insurance (as required by the CC&Rs).

I believe that is the point Richard is making. Since the Board failed to make sure that owners had insurance as required by the CC&Rs, this may open the Association up to legal action. I know that if I were in your Association, I would bring action against the individual directly responsible and bring action against the Association for failure to make sure insurance was covered by all - especially if it was brought up in the past and the Board voted not to verify.

The HOA does not own the house. It's kind of like enforcing your tenant to have renter's insurance. How do you do that? Write it in the lease agreement? How do you then prove they have it each month and did not let it lapse? Does it give you the right to evict them based on not having the proof of insurance or to raise their rent?

Some people may be under the mistaken idea that the HOA carries insurance for them. Like it's part of the dues. Which there is a liability insurance (or should be) for the HOA's common property and/or board members. It is paid for by the dues. So someone may see "Insurance" and think that extends to them personally. Something that may sound like common sense that isn't.

I don't agree with fining an owner for not having insurance nor keeping up with it. It's just another item to keep up with. When the time comes to make a claim, that is when we let the insurance company fight it out. Whether or not the person is or was insured.

BTW: We did have a tree fall on a house. The owner did not have insurance. The tree was on common property. All we had to pay for was the cleanup of the debris. The fence, roof, and household items damaged were NOT the HOA's responsibility. The owner who was damaged did have insurance. Their insurance company put the claim on their insurance and pursued the non-insured owner for the money.

Apartments around here require tenants to carry insurance and be listed on the policy. Since the apartment is listed, they get notified if the policy lapses or is cancelled, very much the same way mortgage holders get notified if homeowners insurance is canceled and banks get notified if car insurance is canceled before the car loan is paid off.

I don't have a lease in front of me, but it can certainly carry penalties for not having insurance, the most common probably being that the lessor will acquire insurance for the lessee and add it to the rent. Again, this is very similar to the practice of mortgage holders and companies that make car loans, they will add insurance payments to your mortgage or car loan payment amounts if you don't carry the required insurance.

The CCRs are a contract between owners, and whether you agree with them or not, if you buy a property that is affected by them, you have the obligation to abide by the terms. Those terms can include requirements for insurance, and if the insurance is not in place, the association can have penalties or remedies to enforce compliance.

Good question, Augustin. Our HOA insurance agent and all other firms that have covered neighbor -to -neighbor losses insist that the below excerpt of that lonnnnng sentence for our CC&Rs says I must must have insurance to cover any "liability" resulting from any damage or injury in my unit. I agree the wording is very ambiguous and vague. We're in the process of rewriting our CC&Rs and our HOA attorney will work on this. Meantime, after 16 years, there haven't been any debates about this topic.

Ironically, one day before the flood, our newsletter ran an item by our insurance agent explaining what the HOA ins. covers ("bare walls") and what Owners must purchase. Our move-in pak reminds new Owners, too, to purchase an HO6 policy

CC&R: "...and liability insurance against any liability resulting from any injury or damage occurring within the Unit."

Since neither you nor I are attorneys, Tim, I don't think we qualify to say whether ours gave us "bad" advice or not. I'm kind of surprised seeing such strong condemnation from you. As a board, we did listen to this expert and thereby followed the BJR. I am not interested in what we shoulda, coulda have done, or who is/might be responsible for this recent incident, but what anyone would advise on a going-forward basis: HOW to enforce our CC&Rs? That's been my question all along.

Thanks to Augustine and Douglas for their counsel. I like Douglas' quote: "The CCRs are a contract between owners, and whether you agree with them or not, if you buy a property that is affected by them, you have the obligation to abide by the terms. Those terms can include requirements for insurance, and if the insurance is not in place, the association can have penalties or remedies to enforce compliance."

Having seen no reason not to proceed with this agenda item, I'll stick with it. I'll raise again the question of certification requirement. Still haven' heard any positive ideas form Richard.

While we do have an onsite PM and mgr. asst., no one here would call them "luxuries." As a mechanically and financially complicated twin high rise HOA, these two are necessities. We also have a major project in progress and are seeking proposals on another--just finished installing bases on our cooling towers and a booster pump.

I also appreciate Tim & Augustine's attempt to explain high rise issues to Melissa.

I have been pondering the above line from the CC&R and can kind of see how the "resulting from" could be interpreted to mean that, say, a broken water heater within Unit X that yields flooding in Unit Y means Unit X's insurance is liable to Unit Y's owner for damage resulting from the flooding.

It seems a tough grammatical question. Is the covenant saying the "injury or damage... within the Unit" shall be covered under liability insurance? Or is the covenant saying that the liability for accidents that occur within the unit, but also cross the boundary to damage another unit, shall be covered under liability insurance?

Regardless, it sounds like your HOA has resolved this issue with the HO6 policy requirement. No disputes over this is great news.

My condo's CC&Rs also require that each owner have insurance. The covenant is pretty specific about what the insurance must cover (paint, wallpaper, cabinets, carpets, floors). I see now that the covenant also states that my HOA may purchase insurance for any unit not having it and bill the owner exactly as if this were an assessment. Hooah.

I happen to think TimB4's reasoning, rebutting your HOA's attorney, is on the money. I think his point about how, if the Board had been put on notice in the past that owners were not purchasing insurance, and the board did nothing in response, is a good one. From my reading in the past year,the latter is also classic grounds for suit. I know a Board cannot cover all bases and can only do the best it can. I know people can sue for anything. But I think many of us here do get the importance of condo owners complying with the insurance requirement. Regarding noncompliant owners, I'd fine them. I'd take away voting rights and amenity rights. I'd pull the plug on their cable TV. I'd post a sign in front of their private parking space with a scarlet V for "Violator." This is because when their un-insured Unit catches fire (because of course the slob is a smoker who does not use ash trays) and is gutted, and sits for the next year with everyone smelling smoke when they pass by and seeing the mess through uncurtained windows, it affects my property values.

As for your HOA's attorney saying otherwise, I figure: Competent HOA attorneys do the best they can. But even on major issues, and even when in the same firm advising the same client, they do not always agree.

As I have mentioned elsewhere, I think experienced board members can have a better handle on HOA law.

An alternative is for the association to purchase insurance coverage of the condo units in addition to the common areas. That way everything is covered and it does not matter as much if the unit owner has insurance. Some states require this by law. It seems like a better, simpler system than gathering certificates and fining owners.

It costs more for such coverage, which has to come from assessments, but the unit owners may pay less for their HO-6 policy.

The way I see it, the only winner is the attorney who suckered the HOA into getting you to consider changing your CCRs.

Carol,

I never intended to imply that the BOD didn't due it's due diligence. The Board sought and obtained legal advice. I simply said that it appears that that advice was bad as it didn't keep this situation from happening and, as has been pointed out, might cause additional liability issues due to the Board's failure in verifying that section of your CC&Rs.

Now that you and your Board are aware the advice you received wasn't the best, you are taking steps to find better advice. That is commendable.

To be realistic, there is likely only a small chance (if any) of additional issues coming up because the Board didn't verify the insurance coverage.

Whoops - this is an old topic.

Whoever bought this up, please note the date of the original post - if it's over a month old and you have questions, it's best to start a new conversation. What was true a few years ago may be completely different today (although there's a lot about this one that's still timely).

I agree it will increase owner value as well, and overall peace in the society lol