Earthquake Insurance & Special Meeting

Started by SusanO3 • 18 replies • 485 views

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SusanO3 (California)
Posts: 163

Posted:

Hi Everyone; I am Board chair of a 95 unit townhome community in CA. Our CC&Rs only require property insurance, but we have carried earthquake insurance for 30+ years. Obviously, its gotten more expensive, in fact at $68,430 (25% deductible) it's the most expensive item on our operating expenses. A 10%, but vocal minority, attended a recent Board meeting and spoke of removing this insurance to save money on dues in the open forum. To discontinue we will need a special meeting and a quorum vote, I know that.

But has anyone been down this path and have advice to offer?

I'd really want to do a presentation at the special meeting, get our Broker to present etc. before a vote. IMO this should not be a vote about saving money on dues but I guess if 50+1 of the membership vote to discontinue, then Board must do so. Right?

Best, Sue

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By SusanO3 on 11/18/2023 1:28 PM
Hi Everyone; I am Board chair of a 95 unit townhome community in CA. Our CC&Rs only require property insurance, but we have carried earthquake insurance for 30+ years. Obviously, its gotten more expensive, in fact at $68,430 (25% deductible) it's the most expensive item on our operating expenses. A 10%, but vocal minority, attended a recent Board meeting and spoke of removing this insurance to save money on dues in the open forum. To discontinue we will need a special meeting and a quorum vote

Says who?

Quote:

Posted By SusanO3 on 11/18/2023 1:28 PM

... IMO this should not be a vote about saving money on dues but I guess if 50+1 of the membership vote to discontinue, then Board must do so. Right?

No, not right. The owners have only those powers expressly reserved to them in the bylaws, declaration and California statutes. The board has all the other powers.

Per California statute, owners can reject certain assessment increases and certain special assessments. But a line item in the budget? No, owners do not have the right to reject a line item. Only the board has this right.

One of the leading (IMO) California HOA law firms advises taking an owners' vote on this, but in so many words indicates that this vote is only advisory. As an "advisory vote" the board is not bound by the outcome of this vote. See:

https://www.davis-stirling.com/HOME/E/Earthquake-Insurance

https://www.davis-stirling.com/HOME/D/Duty-to-Buy-Earthquake-Insurance

SusanO3 (California)
Posts: 163

Posted:

Hi Ellen: Thanks for the links, below is cut and paste from the links you provided, as we are being pushed to discontinue I think we do need a meeting, I don't know if "membership approval" means a proper vote though.

"Discontinuing Insurance. Absent anything to the contrary in an association's governing documents, boards have the authority to discontinue earthquake insurance but should seek membership approval before doing so."

LetA (Nevada)
Posts: 2,679

Posted:

If you discontinue that insurance, your D&O premiums will skyrocket when you get sued, and you will.

There is likely verbiage in your governing documents to carry said coverages. Keep in mind a standard condo, town home policy
won't have those coverage. Those coverages are the responsibility of the HOA to maintain. The individual owners policy supplements
the master HOA policy.

KerryL1 (California)
Posts: 14,550

Posted:

Your Board should meet with your Ins. Agent. Better yet, invite the agent to an open meeting of the Board to explain your coverage and what it would mean if you cancel it. Would your D&O insurance really go up??? How much? You must have answers to these question before you have anyone vote on anything.

Find in your CC&Rs that the assoc. has the authority deal with insurance. Since your've had Q ins. for so long, is it possible it's required by your CC&Rs

So, your HOA is paying $68k+ solely for EQ ins.? And how much do your also pay for the rest of your HOA insurance?

By way of contrast, Our twin 25-story tower high-rise [lus about 16 attache townhomes, gym, offices,2 party lounges, managememt and engineers' offices, swimming pool/spa, 3-level underground garage pays about $95K/ann w/o EQ ins.

Our PM surveyed about 20 downtown high rise condo buildings in our vicinity and two had EQ isn.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By SusanO3 on 11/18/2023 2:29 PM
Hi Ellen: Thanks for the links, below is cut and paste from the links you provided, as we are being pushed to discontinue I think we do need a meeting, I don't know if "membership approval" means a proper vote though.

"Discontinuing Insurance. Absent anything to the contrary in an association's governing documents, boards have the authority to discontinue earthquake insurance but should seek membership approval before doing so."

Read the entire site that I linked.

California statutes do not require membership approval. Indeed, if a board let the owners dictate the decision here, then this is when liability concerns arise.

Based on what you posted so far, mostly I think you need to hear a competent HOA attorney say what I already posted.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By KerryL1 on 11/18/2023 3:35 PM
Your Board should meet with your Ins. Agent. Better yet, invite the agent to an open meeting of the Board to explain your coverage and what it would mean if you cancel it. Would your D&O insurance really go up???

Posted By KerryL1 on 11/18/2023 3:35 PM

Find in your CC&Rs that the assoc. has the authority deal with insurance. Since your've had Q ins. for so long, is it possible it's required by your CC&Rs

Per what sort of wording in the CC&Rs?

Quote:

Posted By KerryL1 on 11/18/2023 3:35 PM
Our PM surveyed about 20 downtown high rise condo buildings in our vicinity and two had EQ isn.

Interesting approach (seriously).

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

This was LetA's wild, completely unfounded speculation.

AidylP1 (California)
Posts: 173

Posted:

Discontinue earthquake insurance now, and as there is no requirement in the CCRs to carry such insurance, no membership vote is required.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

I say the BOD has the authority to decide what type insurance they buy. That said, I would want owners to agree. Hurricane Insurance in FL versus in IL are two different subjects.

TerriS6 (California)
Posts: 3,284

Posted:

If your location is that close to a fault that you have carried earthquake insurance, maybe consider taking that money to strengthen the earthquake resistance of your buildings.

CathyA3 (Ohio)
Posts: 6,299

Posted:

One thing to keep in mind with membership votes vs. board decisions:

Board members have a duty to act in the best interests of the association and can be held accountable for their decisions (ie. they can be sued if things go wrong). Homeowners have no such duty. They may act in their own self-interest, even if that self-interest is contrary to the welfare of the association as a whole, *and they cannot be held accountable if their choices result in problems*.

In other words, homeowners pay for repairs for uninsured damages. If this was the board's choice, the board can be sued. If this was the homeowners' decision, y'all are SOL.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By CathyA3 on 11/19/2023 4:38 AM
If this was the board's choice, the board can be sued. If this was the homeowners' decision, y'all are SOL.

They are SOL because they cannot hold their fellow owners accountable? If statutes reserved this decision to owners, right, the owners cannot sue themselves. Though some subset of owners X (who voted for the insurance) might sue another subset of owners Y (who voted against the insurance).

But with regard to the Board: Legally (per statute and the covenants), this is a board decision. Per the links I provided above, the law firm who runs the D-S site says the business judgment rule applies in this instance. The latter is no surprise. If an owner is dumb enough to sue after the board, say, decides not to get earthquake insurance,and an earthquake happens, then D&O insurance covers the board. The increase in D&O insurance premiums will be paid by all owners.

Plus assuming earthquake insurance is not purchased, the owners get to pay for all the repairs needed after the 'quake, via an increase in the assessment, a special assessment, or some line items getting shortchanged in the budget.

Accountability for both the board and the owners (if the decision belonged to the owners) seems like a fiction in this instance. If insurance is not purchased, and a 'quake happens, they are all going to pay.

CathyA3 (Ohio)
Posts: 6,299

Posted:

I agree that accountability via lawsuit can be elusive and unsatisfying.

On the other hand, homeowner do have the option of replacing board members who make bad decisions, while they can't get rid of neighbors who do the same. Whether this produces wiser decisions down the pike is open to debate (I have my doubts).

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By CathyA3 on 11/19/2023 7:07 AM
On the other hand, homeowner do have the option of replacing board members who make bad decisions, while they can't get rid of neighbors who do the same.

I agree this seems to be the 'accountability.'

KerryL1 (California)
Posts: 14,550

Posted:

Here's an example of the board's authority to reduce insurance from my HOA's CC&Rs rewritten in 2022.

"10.9 BOARD’S AUTHORITY TO REVISE INSURANCE COVERAGE. Subject to the provisions of Section 10.1 the Board shall have the power and right to deviate from the insurance requirements contained in this Article 10 in any manner that the Board, in its reasonable business discretion, considers to be in the best interests of the Association. If the Board elects to materially reduce the coverage from the coverage required in this Article 10, the Board shall make all reasonable efforts to notify the Members of the reduction in coverage and the reasons therefor at least thirty (30) days prior to the effective date of the reduction. The Association, and its directors and officers, shall have no liability to any Owner or Mortgagee if, after a good faith effort, the Association is unable to obtain any insurance required hereunder because the insurance is no longer available, or, if available, the insurance can be obtained only at a cost that the Board, in its sole discretion, determines is unreasonable under the circumstances, or the Members fail to approve any assessment increase needed to fund the insurance premiums."

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By KerryL1 on 11/19/2023 10:47 AM
Here's an example of the board's authority to reduce insurance from my HOA's CC&Rs rewritten in 2022.

"10.9 BOARD’S AUTHORITY TO REVISE INSURANCE COVERAGE. Subject to the provisions of Section 10.1 the Board shall have the power and right to deviate from the insurance requirements contained in this Article 10 in any manner that the Board, in its reasonable business discretion, considers to be in the best interests of the Association. If the Board elects to materially reduce the coverage from the coverage required in this Article 10, the Board shall make all reasonable efforts to notify the Members of the reduction in coverage and the reasons therefor at least thirty (30) days prior to the effective date of the reduction. The Association, and its directors and officers, shall have no liability to any Owner or Mortgagee if, after a good faith effort, the Association is unable to obtain any insurance required hereunder because the insurance is no longer available, or, if available, the insurance can be obtained only at a cost that the Board, in its sole discretion, determines is unreasonable under the circumstances, or the Members fail to approve any assessment increase needed to fund the insurance premiums."

I do not see that, if xyz insurance has been held for a long time, the board is required to continue xyz insurance. Maybe you meant that, per statute, discontinuing xyz insurance might require the board to notify owners.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Language such as what Kerry posted makes sense, given the difficulties that some condo associations are having in maintaining the coverage required by the CC&Rs. It isn't reasonable for the board to be in a position where they are violating the CC&Rs because of events outside of their control.

I'm in a different state, but the only type of insurance left to our board's discretion is workers comp. All other types are required, and the dollar amount of the fidelity/employee dishonesty coverage is spelled out (based on how much money is under association control and the size of our annual budget). I think we're pretty typical for condo associations in general.

NA1 (Massachusetts)
Posts: 190

Posted:

Our cc&rs provide no flexibility permitting us to go uninsured for any of the listed risks for any reason. Earthquake isn’t one of the listed risks. We carry it anyway. The last major earthquake was in the 18th century and while it’s considered a low probability event, insuring for it doesn’t cost anything like the cost to replace the building. In a high risk area it seems foolish to drop it, like not having flood in New Orleans.

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