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Subject: individual homeowner liability for BOD negligence?

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JoyceC4
(Idaho)

Posts:1

03/05/2010 2:18 PM
Our HOA owns and operates a water plant which produces water for both the homes and fire hydrants. Our BOD is dragging their feet in providing the certified water operators the necessary tools to keep the plant running at all times. A request for an updated piece of hand held equipment was made to the BOD on 1-7-10. The week of Feb. 20 we had an equipment failure. The requested piece of hand held equipment would have enabled the plant to keep operating while the equipment failure problem was solved. As a result, our plant was down for three days. Because members conserved water during this time, we did not run out of water although we got very low. A mere seven days later a home caught fire and was a total loss. If the home had caught fire while the plant was inoperable and additional water was not able to be made to supply the hydrants, would the BOD have been held negligent? If the board had been negligent, would our insurance still cover the board? If not, would the individual homeowners have any exposure to liability for damages because of the BOD's refusal to provide the required basic services? (The BOD's refusal to act on the written requests for equipment from the water team is a distasteful and now frightening power struggle.) Thank you

DonnaS
(Tennessee)

Posts:5671

03/05/2010 2:31 PM
Joyce, I would think that they would be liable for not having equipment in working order. It is probabl in your documents that the association is required to keep the water system functioning and in return, the Association is governed by the Board. The buck stops there. Would your insurance cover? Ask your agent. Liability for damages, the would be an attorneys call but I would get the Board to act by any means including a swift kick in their butts. How dangerous was that incident.

DanielH1
(California)

Posts:481

03/05/2010 4:25 PM
I'm not a lawyer or insurance expert but ... Possibly. A court would probably have to decide liability since it isn't cut-and-dried. It would depend on the insurance company. Some companies might just pay while others might refuse and cause the HOA to have to sue them. Despite everything, the insurance company might not have a good case to refuse to pay. Yes, individual homeowners could be exposed to liability for damages. Once insurance policy reached their limits (as well as deductibles), the HOA would owe the rest of the debt. Special assessments could/would be levied to get the homeowners to pay. If people couldn't pay, they could be foreclosed on and pursued by the regular collection process. In my case, I bought a special rider to my homeowner's insurance that covers just this sort of thing: I pay like $20/year so, if my HOA gets smacked with a big special assessment as the result of a lawsuit or a few other unlikely situations, then my homeowner's insurance pays the special assessment, not me.

RobertR1
(South Carolina)

Posts:5164

03/06/2010 6:40 PM
Daniel, Let's just stick to this case and bear with me for a moment. Are you saying, anyone can purchase some kind of rider on their home owners insurance that would cover any liability that may befall any owner due to negligence on the Boards part to provide adequate insurance coverage? Now if this is true, does it stand to reason that the board could also purchase an extension (sic) on their present policy to cover the same short falls. Wouldn't this be what should have been in place to begin with. I am insurance dumb or worse.

DonnaS
(Tennessee)

Posts:5671

03/07/2010 5:34 AM
Robert, Whenever I purchased coverage on any of my rental properties, I always added a clause that IF any special assessments were levied, the carrier would cover them. I could add a minimum amount, such as what I used ($250.00) In the case of hurricane Jeannie when one condo lost the tiles roofs, we were assessed $1004.00, which was paid by my insurance and all that it cost me was $4.00, which was over my $1000.00 limit. The premium was $23.00 for that coverage. I am not an insurance agent but I believe the coverage for the association is a total different thing. Also keep into account that Reserve Funds are supposed to be in place as well. Premiums of condo buildings are tremendously high as well.

TimB4
(Virginia)

Posts:3247

03/07/2010 5:47 AM
Robert, Every Insurance company has wording a little different. My company covers special assessments due to the result of unexpected repairs (such as after storm damage) but not for poor planning of expected repairs (such as not enough reserves to repave your roads because they are due). Just contact your insurance company and ask them if they offer the coverage. Tim

DanielH1
(California)

Posts:481

03/08/2010 10:30 AM
Others who chimed in seemed to have mostly answered the question about riders. Suffice it to say, you can ask your insurance company to quote/provide you additional personal coverage related to the HOA. Availability, cost and protection will vary depending on your insurance company. The coverage can vary so negligence might or might not be covered. My particular rider is fairly broad and comprehensive ... but provides protection for only amazing rare and unpredictable events, like a lawsuit or act of God. The Board could purchase extensions to their present policy but lots of HOAs don't to save money.

TimB4
(Virginia)

Posts:3247

03/09/2010 2:28 AM
Back to the original post: Joyce, It's really a hard question to answer as every situation has specifics that can alter what an insurance company will or won't cover. In general, as a member of any HOA, if the Association is responsible for something (repairs, legal bills, judgments, etc.) and there is not enough money to cover the issue the members must make up the difference on an equal basis. Usually by a special assessment. Lets take you hypothetical: House burnt down due to Associations negligence. Association taken to court and lost. They now have to pay $500,000 (simple round figure). Insurance will cover $200,000 of it and there is enough money in the reserve account to cover an additional $100,000. There are 1000 homes within the Association. Thus: $500,000 Judgment - $200,000 covered by Insurance - $100,000 covered by Reserve Funds = $200,000 short divided by 1000 lots = $200 special assessment per lot It is doubtful if the individual Board members would be held liable as most States have laws protecting the volunteer members of a Board from individual liability if they acted on what they thought was best (don't have the money right now, need to wait is a fair argument but, as you pointed out can have large consequences). This is why it is important for anyone who is a member of an Association to be involved and keep themselves informed on what is going on. This is best done by attending as many meetings as you can. I would recommend to attend every general membership meeting and at least a Board meeting each quarter. Hope this helps, Tim

MichaelK11
(Texas)

Posts:431

03/10/2010 10:32 AM
It's my understanding, if an HOA is mandatory and can assess dues, then homeowners are ultimately responsible for any debts and obligations of the HOA. The homeowners probably would not be initially liable for any negligence of the HOA (especially if the Association is incorporated), but if a judgment was rendered and unpaid, a creditor could eventually step in with those same powers of assessment. I don't know individual state laws (not even for certain in Texas), but I'm pretty sure that's what it amounts to all over. That's one real danger of an HOA.

MaryA1

Posts:0

03/10/2010 10:43 AM
Michael, I believe the same would hold true for a volunteer HOA. IMO, it's not so much the fact that it's an HOA but that it's a Corp with members. But I do know that if the HOA dissolves and does not take steps to sell the common areas, the members are liable for anything that would happen on the common area. And, I also believe the members are liable for any unpaid debts incurred by the HOA.

MaryA1

Posts:0

03/10/2010 10:45 AM
Oops! I should have said the "property owners" are liable for anything that would happen on the common area. Once the HOA is dissolved there are no members any longer!

MichaelK11
(Texas)

Posts:431

03/10/2010 11:14 AM
Thanks, Mary. I think many HOA's are structured to be difficult to dissolve. Ours requires 100% consent of the Membership. Also, I think it may be legally impossible to dissolve the financial structure while there are substantial obligations outstanding, regardless of whether the Common Areas or other assets remain. The problem is that the income stream – the ability to asses – may be an asset, which cannot be simply relinquished or extinguished while creditors remain. The nature of this assessment power is to pass ultimate financial responsibility for the HOA to the individual homeowners. Often it includes restrictions, such as a requirement that assessments be levied (distributed) equally among Homeowners (Members) -- not according to who can pay – and/or a limited amount or percentage by which assessments can be increased each year without consent of a supermajority of the Members (Homeowners). However, this power to assess is usually backed up by authority place liens and even foreclose. The end result is that the HOA's debts may be inescapable, being backed by the equity in our homes.

RobertR1
(South Carolina)

Posts:5164

03/10/2010 11:52 AM
ok folks, We have people come on here and ask how DO YOU dissolve an association of any kind. We advise for the most part to get a good lawyer, seems wise to me. But the mechanics of doing this appear very complicated and I don't recall anyone ever saying they participated in one. So, one of my questions would be, how does the association clear the books of any property they own. I guess in a disaster there would be cause to dissolve if the place was not inhabitable, speaking of condos. I know our documents give guidance on how to do this but there is no mention of a voluntary desire to disband. I doubt they can do it, without clearing debts and positive holdings, which would also be the land in a condo. Not to mention 100% agreement of owners and maybe some application to the state to change/add to the original court records.

MaryA1

Posts:0

03/11/2010 5:40 AM
Robert, The AZ Nonprofit Corp Act has specific requirements for dissolution of the corp. There are 3 types of dissolution: dissolution by the BOD; administrative and judicial. Articles of dissolution must be written up and published (in a newspaper). State taxes must be paid, amenities and prop owned by the assn must be sold and all debts erased. One of the biggest obstacles in dissolving an HOA is getting rid of the common areas. Oftentimes the bulk of the common areas consists of water retention areas which cannot be used for any other type use therefore cannot be easily sold. If the City or Co does not want to take over ownership, unless a volunteer assn can be formed to maintain them, the members are stuck!

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