HOA Insurance Liability and D&O

Started by PatriciaP11 • 16 replies • 363 views

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PatriciaP11 (Maine)
Posts: 7

Posted:

I've been reading through previous posts on this topic and there is much talk about "if you are sued" but I'd like to know more about what you can be sued for.
We have a small HOA for a development of 13 properties. The HOA does not own any property or vehicles and does not hire employees. It does not even own the road.
All property is individually owned and insured.

Who would sue us and for what? The Governing Documents state that Officers are not liable for their actions done in good faith etc. If any officer acted fraudulently then surely their own insurance would cover them.
We are responsible for maintaining the road and maintaining the catchment ponds even though we do not own either. Our Covenants include restrictions by the MDEP (Maine Department of Environmental Protection) I don't believe they would sue us since each property is individually owned and one owner who recently violated their covenants was individual liable for reparations.

I'm battling with this as a new President since the 15 year old Development has never had Insurance, at lease not since it was handed over to the Homeowners 12 years ago.
We have an annual budget of $6500 - not worth much. Only one Insurance company currently offering D&O at approx $1000 and Liability Insurance came in between 5 and $600.

Can anyone convince me why Insurance is necessary in this instance?
Thank you.

AugustinD
Posts: 1,027

Posted:

-- Do your governing documents require insurance?

-- Does your state HOA statute require insurance?

-- Since the HOA has the maintenance responsibility for the road and ponds, any accidents that occur on or near the road or ponds could be something for which the HOA is liable.

-- D&O insurance kicks in when, say, some loser sues your board frivolously. The insurer will provide an attorney.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By PatriciaP11 on 09/20/2022 3:14 PM

We are responsible for maintaining the road and maintaining the catchment ponds even though we do not own either. Our Covenants include restrictions by the MDEP (Maine Department of Environmental Protection)

If someone is injured on the road or in the ponds, since you are responsible for maintenance, a good attorney would bring legal action against the association. They may or may not win. It would cost the Association a small fortune to find out.

GET LIABILITY INSURANCE.

Quote:

Posted By PatriciaP11 on 09/20/2022 3:14 PM

The Governing Documents state that Officers are not liable for their actions done in good faith etc. If any officer acted fraudulently then surely their own insurance would cover them.

D&O insurance would pay the legal costs to defend the Directors, Officers and committee members.

As for the general question of why someone would bring legal action, I offer the following:

5 Reasons to Potentially Sue Your HOA from findlaw

Liability for Injuries on HOA Property from a legal firm

What HOAs Need to Know About D&O Insurance from Nolo

Risk Management and Insurance for Community Associations from CAI

Hope this helps,

Tim

PatriciaP11 (Maine)
Posts: 7

Posted:

Thank you for your input. Again I state that the HOA does not own the road or ponds. Maintenance of the ponds is only related to their function in filtering the water before it reaches the river. Otherwise the ponds are owned by the lot owner and fall under their insurance. The roads are plowed in winter and covered by the plowers insurance.
It is a dead end road so no through traffic. What else could happen on the road that would cause someone to sue? We do not own the road. It is still owned by the developer.

Forgive. me for being naive but I was not raised in America and am not fully believing in how opportunistic some people can be in making someone else liable for their own poor judgement. I find it hard to believe that we have to make insurance companies rich just for the potential of opportunists.

So, basically, you are saying that we should buy insurance to protect us from our own members??

DouglasK1 (Florida)
Posts: 2,046

Posted:

Quote:

Posted By PatriciaP11 on 09/20/2022 3:14 PM
I've been reading through previous posts on this topic and there is much talk about "if you are sued" but I'd like to know more about what you can be sued for.

That's sort of an open ended question because there is almost no limit to what somebody could sue for. Even if you prevail, defending against a lawsuit can quickly cost the association 10s of thousands of dollars. Many people here would never serve on a board without D&O insurance since you could personally be on the hook for big legal bills.

Escaped former treasurer and director of a self managed association.

PatriciaP11 (Maine)
Posts: 7

Posted:

I hear you but again, I can't understand what we could be sued for when we own nothing! There is no community property.
As for D&O, why are all the Insurance Companies dropping D&O insurance? Only one Insurance company is willing to offer it. Even our Insurance Broker said he didn't think we needed it.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By PatriciaP11 on 09/20/2022 7:03 PM

So, basically, you are saying that we should buy insurance to protect us from our own members??

Or their guests.
Or trespassers.
Or the general public who happens to be in the area at the wrong time.

Obviously, the choice is your boards to have insurance or not.

As one of the links I provided, one needs to do their own risk assessment and make that determination for themselves.

People take chances everyday by not having insurance on their homes or auto.
Many times, it's not an issue.
However, it's that one time that if you don't have insurance that you can have some major issues.

I wish you luck in your decision.

LoriM15 (Florida)
Posts: 1,009

Posted:

Quote:

Posted By PatriciaP11 on 09/20/2022 7:03 PM
Thank you for your input. Again I state that the HOA does not own the road or ponds. Maintenance of the ponds is only related to their function in filtering the water before it reaches the river. Otherwise the ponds are owned by the lot owner and fall under their insurance. The roads are plowed in winter and covered by the plowers insurance.
It is a dead end road so no through traffic. What else could happen on the road that would cause someone to sue? We do not own the road. It is still owned by the developer.

Forgive. me for being naive but I was not raised in America and am not fully believing in how opportunistic some people can be in making someone else liable for their own poor judgement. I find it hard to believe that we have to make insurance companies rich just for the potential of opportunists.

So, basically, you are saying that we should buy insurance to protect us from our own members??

Yes. Here's a real life example. We had a dispute with a homeowner over the color of the roof tile. It's a long story, but she bait and switched the ACC, plus violated the documents by only doing one half of a duplex roof. We fined her. She sued. Because she sued the board, it was a claim against the D&O and liability policy. It cost the association $60k and would have cost more if they hadn't settled.

You say you only have responsibility for the outflow of the ponds. But what if there's a flood and one of the homeowners sues because you haven't done the maintenance and their house floods? Or someone gets in an accident while speeding on the gravel road and then claims it wasn't maintained correctly - that they HOA should have overseen the maintenance better.

Anyone can sue over anything. That doesn't mean they can win. But it will cost you money to defend.

CathyA3 (Ohio)
Posts: 6,299

Posted:

The short answer is that anyone can sue anyone else for any reason. That doesn't mean that their complaint has any merit, but the person being sued (defendant) has to respond legally or the court will rule in the the plaintiff's (person who files the lawsuit) favor.

HOAs can be attractive targets since people think that's where the money is. For instance, our attorney was adamant about condo associations not permitting yard sales on their property because he'd seen people stage slip-and-fall accidents in other communities, and the associations' insurers said "nope, yard sales are no different from other commercial activity, you're not insured for that". That made the homeowners jointly *personally* liable for however much money was awarded to the "accident" victim. It wasn't pretty. Homeowners in such a situation may decide to lawyer up and sue their boards for allowing such a thing to happen.

Speaking of which.... D&O insurance protects the board members from being held personally liable if they're sued as a result of their actions (or inactions) as board members. The rule of thumb is: if your association doesn't carry D&O insurance, do NOT serve on the board. Nobody should put their personal assets at risk by volunteering.

And all of the CC&Rs I've read have some pretty specific requirements on the types of insurance the association is required to carry. If a board deliberately cuts corners, I view that as a breach of their fiduciary duty. If I were a homeowner, I'd be debating whether to call a lawyer or a realtor. Vindictive folks may consider it poetic justice if the board were sued over this and they didn't have D&O insurance...

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By PatriciaP11 on 09/20/2022 7:39 PM
I hear you but again, I can't understand what we could be sued for when we own nothing! There is no community property.
As for D&O, why are all the Insurance Companies dropping D&O insurance? Only one Insurance company is willing to offer it. Even our Insurance Broker said he didn't think we needed it.

Repeating my other answer...

You can be sued for anything that anybody wants to sue you for. If nothing else an HOA will have financial assets that someone may want to go after.

If your association is a corporation and is underinsured, then the homeowners become *personally* liable for any judgments against the corporation. If you want to risk losing your home and whatnot, this is a good way to do it.

To be blunt, your insurance broker is uninformed. An HOA's general liability policy does not replace D&O insurance - if the board is sued and is not covered by D&O insurance, the board members become personally liable. No one should ever put their personal assets at risk by serving on an association board without D&O insurance.

As for why companies are dropping it, it's likely due to excessive claims - I assume it's not a profitable line for them. FWIW, we have D&O insurance and getting it hasn't been an issue. On the other hand, we haven't made any claims.

If insurance companies truly are making such insurance unavailable, intelligent board members will resign immediately and en masse. That will have interesting repercussions. In fact, this article on the NOLO web site specifically cites being able to attract and keep qualified persons to serve on the board.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By CathyA3 on 09/21/2022 7:27 AM
The short answer is that anyone can sue anyone else for any reason. That doesn't mean that their complaint has any merit, but the person being sued (defendant) has to respond legally or the court will rule in the the plaintiff's (person who files the lawsuit) favor.

HOAs can be attractive targets since people think that's where the money is. For instance, our attorney was adamant about condo associations not permitting yard sales on their property because he'd seen people stage slip-and-fall accidents in other communities, and the associations' insurers said "nope, yard sales are no different from other commercial activity, you're not insured for that". That made the homeowners jointly *personally* liable for however much money was awarded to the "accident" victim. It wasn't pretty. Homeowners in such a situation may decide to lawyer up and sue their boards for allowing such a thing to happen.

Speaking of which.... D&O insurance protects the board members from being held personally liable if they're sued as a result of their actions (or inactions) as board members. The rule of thumb is: if your association doesn't carry D&O insurance, do NOT serve on the board. Nobody should put their personal assets at risk by volunteering.

And all of the CC&Rs I've read have some pretty specific requirements on the types of insurance the association is required to carry. If a board deliberately cuts corners, I view that as a breach of their fiduciary duty. If I were a homeowner, I'd be debating whether to call a lawyer or a realtor. Vindictive folks may consider it poetic justice if the board were sued over this and they didn't have D&O insurance...

Sound advice.

PatriciaP11 (Maine)
Posts: 7

Posted:

Again, Thank you all for your responses. Disquieting, but I hear you. We have had no issues in the neighborhood for years but new residents have moved in with a different agenda. We are such a small Association with very low annual fee and few responsibilities.
So sad to think that one bad apple can cause an Association to raise their annual fee just because of their litigious personality.
I'm grateful for your sound advice.

PatriciaP11 (Maine)
Posts: 7

Posted:

Thank you for this article.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Pat

You say you are 13 properties and one Insurance company currently offering D&O at $1000 and Liability Insurance at $600. This would be about $120 per year, per property. Not that costly for peace of mind.

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By PatriciaP11 on 09/21/2022 10:25 AM
So sad to think that one bad apple can cause an Association to raise their annual fee just because of their litigious personality.

As long time member SheliaH aptly (IMO) puts it: 'Buying a home in either a HOA or a COA is like becoming business partners with the folks getting hammered at the bar down the street.'

PatriciaP11 (Maine)
Posts: 7

Posted:

I agree.

PatriciaP11 (Maine)
Posts: 7

Posted:

Quote:

Posted By JohnC46 on 09/21/2022 10:35 AM
Pat

You say you are 13 properties and one Insurance company currently offering D&O at $1000 and Liability Insurance at $600. This would be about $120 per year, per property. Not that costly for peace of mind.

I agree.

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