Paying board members for services rendered to the association& lack of insurance

Started by MarieL • 15 replies • 2077 views

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MarieL (Illinois)
Posts: 82

Posted:

In our complex we have a board member-officer who performs snow removal service. He uses equipment owned by the associaiton, charges the association for gasoline, oil, repairs, etc. and also charges $20.00 an hour for his service. His only insurance is his personal homeowner's policy , he claims covers him for liability. In addition to this ,the association does not carry any liability and hazard insurance coverages for the association. They do have D&O insurance, insuring the board for one million dollars.Do we have problems ????

TimB4 (Tennessee)
Posts: 21,059

Posted:

Marie,

Based on your posting, yes it does sound like you have problems waiting for an accident to happen.

Take a simple example of the plow driver going into a vehicle when removing snow. I can see both only the Association being responsible. Per the IRS, the individual doesn't sound like he would be considered an independent contractor but an employee (as the Association owns the equipment and pays for the upkeep/expenses).

If the driver is operating a business, I don't see how his homeowners policy will cover him. HO Insurance sometimes covers for personal liability but there are separate policies for businesses.

Lets not forget the obvious conflict of interest with the driver being a board member. Even if the member resigns from the board (which would remove the conflict of interest) it won't address the liability issues for the association (which I see as mainly stemming from the ownership of the equipment vs. hiring an independent contractor to do the work who would have their own equipment).

That's my take on it.

Tim

DanielH1 (California)
Posts: 482

Posted:

I'm not an expert but ...

First, it really depends on the policy. Lots of policies seem to allow people to work on their own property. In a way, the homeowner is working on his own property so it might be covered. It might also not be covered. The insurance company might also say, "Get into an accident and then we'll tell you whether you are covered or not."

Second, the HOA might have worker's comp insurance or package insurance or both and something in there might cover it. You might not even be aware that the HOA bought this stuff. Even Board Members might not even know or be wrong about what the HOA has.

The situation is kind of weird for insurance companies because the person is simultaneously an owner and a contractor. They might cover it if he does it for free but not if he does it for pay. They might cover it if he is a non-professional but might not if he's a pro.

You really have to dig in, call insurance companies and figure it out. Even then, you may not get a clear answer.

SusanW1 (Michigan)
Posts: 5,202

Posted:

How is it that the HOA has snow removal equipment?

RobertR1 (South Carolina)
Posts: 5,164

Posted:

I think Tim suggestions should be followed. The conflict of interest looms large and this never should have happened in the first place. I would even go so far as to say, now, this service should go out for bids. If none received, do the best you can and if you can't get anyone else to do it.........positively.......then give the job to the Board members spouse. Who does the work has the insurance responsibility. I do not suggest this procedure should be considered for all services, I am suggesting it may be necessary to do it this way due to liability of the associkation for snow removal.

HelenK1 (Washington)
Posts: 68

Posted:

Anytime a board member or even a homeowner gets paid to do work around the condo it can lead to problems. First of all what about all the work that other homeowners and the board do for free? Why should one person get paid and not the rest? What if everybody wants to start getting paid? Second, what if there is an issue with the quality of work. If you pay an outside contractor if you don't like his work you can fire him and he will be gone forever. If you fire a fellow board member or even a homeowner they will still be around maybe causing problems and trying to retalliate because they are mad they got fired

SusanW1 (Michigan)
Posts: 5,202

Posted:

Years back our subdivision had a volunteer FIRE dept. and all the plowing and road maintneance was done by volunteers!! I shudder to think of the liability. We had all the huge equipment, even a fire truck!

Today we hire insured companies to do all the work. The municipality covers fire protection.

There is nothing to prevent the board from hiring any member to do work. the bidding process and contracts need to be in order.

I still can't see an answer as to WHY this HOA has this kind of equipment.

LynetteB (Texas)
Posts: 141

Posted:

I agreee with what the above posters are saying, but I really have to vent on this one.

It really bothers me that POA's have to spend more money to hire contractors to do a job rather than use the less expensive home owners. Next thing you know, POA's won't be able to self manage for fear of a paper cut or stress of the job. It will never end! If the POA isn't going to let an owner do the job and save money, then get rid of the equipment. The equipment should have never be bought if you weren't going to let a homeowner use it. Also, I have heard this many times, just because the owner is getting paid, doesn't mean the rate is as high as it would be if you hired a contractor.

Okay, enough of that.

I know that POA's still have to CYA. It is really important to do that first.

Is there some type of waiver that could be signed by the owner?

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Lynette,
What a pretty name.....forgive me if you turn out to be a man. Just kidding but I have been known to mix up genders here on this site.

With an eye on the volunteerism (sic). We have been through that recently and this seems to work at the moment. The board, after much discussion has decided that since all matters of the complex are covered by a Board member having charge, then, any volunteer work in that area has to be with the permission of the relevant board member. Anything not covered that way, then present the idea to the manager (not M/C) and he can take it to the Board with comments.

It still means the volunteers will disagree with the specific Board members at times but there is an understanding that a little compromise is worth while. Personally, because I are one and have been for twenty years, I can walk around the place and see my fingerprints here and there. Over the long haul, in spite of some ups and downs, the volunteer program is positive, and I am sure in the civilian world (outside POA's), they have their ups and downs also. Is that idealistic also, a fault to some apparently, I guess it is, but I am not alone.

DanielH1 (California)
Posts: 482

Posted:

In your own home, insurance companies recognize that owners will climb ladders and replace light bulbs, instead of hiring an electrician. So, a lot of policies cover that.

From all my dealings with insurance companies, they seem to recognize the same thing in HOAs. They recognize that HOA members are going to do repairs to HOA property so a lot of policies provide some coverage. Of course, they don't want to be roped into paying for a full fledged business that is snuck in under the guise of doing some repair work on your own HOA. They try to avoid covering that.

Not to mention that insurance companies will sell you all kinds of crazy riders for whatever you want to do. I've looked into homeowners insurance riders that coverage various aspects of a home-based business. So, somebody might very well be covered.

I'm always amused that people would prefer to go to an unknown contractor than hire somebody who lives in their complex. In the past, I've seen HOAs chase around contractors, either in court or on the phone, sometimes just having to give up in the end. If, however, the guy lives in your complex, you can go knock on his door on Saturday morning and say, "The fence that you built fell down." And he says, "Ok, I'll get my tools." And you can knock on his door each Saturday until that fence stays up. The HOA will get far more for its money because THE GUY LIVES RIGHT THERE. He's also got a vested interest in that fence; presumably, the HOA built the fence for a reason and, since he lives there, he wants that fence up to keep dogs from pooping on his own porch.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Damiel and Lynette,
It appears we all have gotten a little far afield to the original posting.
"Paying Board Members for services rendered to the association and lack of insurance." I expect we would agree the insurance question is a matter of what coverage the association has.

"Hiring Board Members." is a horse of a different color and I would say, in general don't do it unless it is some kind of Emergency. Just seems like the Better business decision to me. Doesn't have anything to do with the job or who does it. Has everything to do with the appearance of conflict forced on the association by those on the board having authority to do it. If you had a lawyer on the Board, I am sure all would consider seriously his advice as a member of the Board. I expect none would agree to pay him for this advise. Again, it would be a better business decision to hire an outside lawyer. Now it could be that it would be unethical for a lawyer to represent the association, I don't know, but if so, that only compounds the issue of hiring Board Members to perform services, professional or other wise. You could make a rule: No hiring lawyers, how about members that own Property Management Companies, or Air Conditioning Companies or decreeing that the only company authorized to perform any repair work on the common property is the Home Improvement Co of a Board member. How can the Board insure that any job that requires a bidding process, the bids will be secret, and it is large enough to require Board approval. Excuse the Board member, think that would work or withstand challenge?

DanielH1 (California)
Posts: 482

Posted:

I agree that the followups strayed away from the original poster's topic.

From what I've read specifically on HOAs, HOAs often misunderstand and over-kill on so-called "conflicts of interest". Legally (again from what I've read, perhaps I read the wrong thing), a conflict of interest is fairly narrow and can be fairly easily compensated for allowing the person to bid on and win the work. While HOAs are free to ban Members from bidding or participating on HOA projects, that isn't required by law.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Damiel,
For the sake of conversation and forming opinions, the act of "conflict of interest," is something the board just avoids doing. The more complex issue might be, as far as the board is concern, is does this action present the appearance of a "conflict of interest." Answering that question first might be a way for the board to make a wiser decision. Of course the bidding process demands a secret bid, it is the boards responsibility to make the decision and that don't necessarily mean lowest bid. That is a decision most boards can handle with ease if they do their homework. It does seem to demand full board participation and the board member involved in getting the work, by nature, can't participate or it would be a conflict of interest. My logic...........that's all. If what you read is accurate, it doesn't seem to me to be a fault, more good business sense. I would discount the extremes on both side of this issue. wouldn't you?

DanielH1 (California)
Posts: 482

Posted:

Sorry, Robert, I can't understand your argument. Would you care to rephrase?

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Daniel,
If the Board wants to avoid conflict of interest, it is relatively simple to do it. The appearance of conflict of interest is more complex.

I don't know that it ever becomes NECESSARY to hire a Board Member, so why go there?

Again, I can back to the question; can this (or any other) action harm the association, if the choice is there to not do it?

How can you justify the hiring of a Board member to do anything that could be done just as well by someone else.

As you know by now, I am not a big fan of the: If it is not written in the documents the Board has the right to do it.

That is why we can amend our documents.
Amend: 1 : to change for the better : IMPROVE
2 : to alter formally in phraseology
–amend*able \-*men-d*-b*l\ adjective

But I don't present this as an argument, just a consideration to anyone noticing.

DanielH1 (California)
Posts: 482

Posted:

I guess that we have to agree to disagree.

I see several advantages to hiring a Board Member or Homeowner over an outside person.

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