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The previous column discussed considerations regarding property insurance, but that is only one of many insurance types that most HOAs should have in place.
First and foremost is liability insurance. This is the insurance which covers claims of negligent damage or injury affecting persons (owners, tenants, or visitors) on the property. Civil Code Section 5805 protects the individual members of the HOA from being sued personally just because they are HOA members, so long as the HOA has at least $2 million (100 or fewer members) or $3 million (over 100 members) in liability coverage. HOAs should discuss with their insurance broker and legal counsel what amount of liability insurance is appropriate, since an allegedly injured party could seek damages beyond the limits of the insurance, and that financial impact on the HOA could still later be passed along to all the members in the form of a special assessment.
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Insurance brokers are one of an HOA’s most important vendors, yet they are often ignored until claims arise. This mistake can be costly.
Insurance is a contract in which the insurer accepts a fee (premium) and in return agrees to pay for certain incidents of damage (property insurance) or claims of liability (casualty insurance). Because insurance is a contract, it is critical to understand the contract’s limitations. Here are six questions to carefully consider.
1. Is there a deductible, and how much is it? The deductible must be paid by the insured HOA before the insurance company pays the first dollar of damage reimbursement. Also, what are the limits of the insurance? Is there enough insurance to cover the amount of the damage?
1. Check with the members. Amending CC&Rs usually takes a supermajority (i.e., more than simply a majority of the quorum), so a good idea isn’t enough it still needs widespread support. A great proposed amendment is meaningless if the homeowners will not vote for it.
2.
Avoid controversial amendments. Be aware of subjects which could be very upsetting to some members. Avoid issues on which a widespread consensus cannot be achieved, such as changing assessment allocations or unpopular use restrictions.
3.
The board can pass some amendments. Certain amendments can be approved in an open meeting by the board such as amendments deleting developer marketing provisions (Civil Section 4230), removing illegal discriminatory restrictions (Section 4235), or changing the old Civil Code references to the current (Section 4235).
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Among the association governing documents including articles of incorporation, recorded map or plan, bylaws, operating rules and covenants, conditions, and restrictions (“CC&Rs”), the CC&Rs document is arguably the most important. Here are eleven things about CC&Rs which might surprise you, before you read them.
CC&Rs are:
Public documents. When filed with the County Registrar/Recorder (aka, “recorded”), CC&Rs become a public document and anyone can see a copy.
Binding all owners. CC&Rs bind all owners, regardless of whether they read it, understood it, or received a full copy of it. As a recorded document, CC&Rs are a “covenant running with the land,” meaning a legal commitment attaching to the land and therefore its owners.
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Q: Is it considered a conflict of interest if a board member is also a HOA employee? Our board is voting on matters which would affect the job duties of the board member/employee. Would this be considered a conflict of interest? The director acts as property manager. E.L., Simi Valley
A: A homeowner who is also an employee, let alone the manager, is burdened with major conflicts of interest. Is the manager making their home a higher priority? Does the manager issue violation notices against their friends? Managing HOAs under the Davis-Stirling Act is complicated, particularly under the growing body of technical requirements. Don’t hire a neighbor; hire a professional manager. They cost more, and there are reasons for that – professional managers have training, experience, and resources behind them which more than offset the cost.