Condo Media - February 2013 - 24

by Joel W. Meskin, Esq., CIRMS

INSURANCE

The Insurance Puzzle
What the Board Must Do — and Must Avoid — to Assemble the Puzzle
key obligation of the association board is to protect the
assets of the association. One
of the primary elements of this
responsibility is insurance, but many
volunteer board members have limited
experience with insurance. They’re
only familiar with purchasing personal
auto, home and life insurance. Most
know the limits and the price, but few
really take the opportunity to understand coverage until they have an
uncovered loss. Many are swayed in
their insurance shopping because
they are “in good hands” or are
protected by “good neighbors.”
Once volunteer board members
are elected, however, many
become intimidated by insurance. This article will help demystify insurance and provide a better
understanding of the association’s
needs and provide some tools that
are useful to use to carry out this
obligation.

A

Why a Community
Association?
Most individuals chose to live in a
mandatory community association to
protect their two greatest assets, their
home and their lifestyle. Homeowners
believe that the community association
can better protect these assets than
they could do as individuals.

How Does the Association
Protect Assets?
First, the association is normally a legal
entity; second, it must (if a legal entity,
and should regardless) have bylaws
which serve as the operating manual for
the association.1 Third, the declaration
of covenants, conditions and restrictions

24

CONDO MEDIA • FEBRUARY 2013

set forth the rules and restrictions created to preserve the association’s assets.
Next, the association needs a management team, which in the normal course,
is a board of directors. Finally, the association needs the funds to enable the
board to manage.

how much that will cost. At the end of
the day, association members need to
plan in order to avoid surprises.

How Does the Association
Cover Non-Budgeted Costs?
There are really only two ways to cover
non-budgeted costs. The budgeted
costs are funded by general fees and
assessments. No matter what association
you live in and no matter how well you
manage the association, “stuff” happens and non-budgeted costs and
expenses will arise. This will manifest either as a repair or improvement that is required before its
expected time or the result of a
loss or casualty. These unexpected
costs are covered either by insurance (if insurable) or a special
assessment.

What is the Board’s
Obligation?

How Does the Board
Determine the Cost of
Management?
This is done by the development of a
budget. The first step should be, and
often is, a reserve study, which is the
cornerstone to an association’s preservation. This is the heart through
which the lifeblood of the association
pumps. Some associations do not have
a reserve study, contending they are
too small or cannot afford it, and others have other infrastructures set in
place, which may incorporate the benefits that a reserve study would provide. The key is to know what exists,
what is necessary to maintain it and

In most states, the association has a
“fiduciary” obligation and in other
states, some statutes may only place a
duty of ordinary care on the board.
The fiduciary duty includes the duty of
loyalty and the duty of care. The duty
of loyalty requires that the board put
the interests of the association above
their own and disclose and avoid any
conflicts of interest.
The duty of care requires the exercise
of the care, diligence and skill that an
ordinary, prudent person would exhibit
under similar circumstances. This means,
at a minimum, paying attention to the
substantive matters brought before the
board, attending meetings, asking questions, challenging assumptions, following up on issues that may not have been
resolved, consulting with experts if



Condo Media - February 2013

Table of Contents for the Digital Edition of Condo Media - February 2013

Condo Media - February 2013
Table of Contents
From the CED’s Desk
Editorial Board
CAI News
CAI Regional News
Asked & Answered
Homeowner’s Corner
Insurance
Technology
Blanket Coverage
Vendor Spotlight
Legal
Communications
2013 CAI-NE Insurance & Restoration Directory
Classified Service Directory
Advertisers Index
Condo Media - February 2013 - Condo Media - February 2013
Condo Media - February 2013 - Cover2
Condo Media - February 2013 - Table of Contents
Condo Media - February 2013 - From the CED’s Desk
Condo Media - February 2013 - 3
Condo Media - February 2013 - Editorial Board
Condo Media - February 2013 - 5
Condo Media - February 2013 - CAI News
Condo Media - February 2013 - 7
Condo Media - February 2013 - 8
Condo Media - February 2013 - 9
Condo Media - February 2013 - 10
Condo Media - February 2013 - 11
Condo Media - February 2013 - 12
Condo Media - February 2013 - 13
Condo Media - February 2013 - CAI Regional News
Condo Media - February 2013 - 15
Condo Media - February 2013 - 16
Condo Media - February 2013 - 17
Condo Media - February 2013 - 18
Condo Media - February 2013 - 19
Condo Media - February 2013 - Asked & Answered
Condo Media - February 2013 - 21
Condo Media - February 2013 - Homeowner’s Corner
Condo Media - February 2013 - 23
Condo Media - February 2013 - Insurance
Condo Media - February 2013 - 25
Condo Media - February 2013 - 26
Condo Media - February 2013 - 27
Condo Media - February 2013 - Technology
Condo Media - February 2013 - 29
Condo Media - February 2013 - 30
Condo Media - February 2013 - 31
Condo Media - February 2013 - Blanket Coverage
Condo Media - February 2013 - 33
Condo Media - February 2013 - 34
Condo Media - February 2013 - 35
Condo Media - February 2013 - 36
Condo Media - February 2013 - 37
Condo Media - February 2013 - 38
Condo Media - February 2013 - 39
Condo Media - February 2013 - Vendor Spotlight
Condo Media - February 2013 - 41
Condo Media - February 2013 - Legal
Condo Media - February 2013 - 43
Condo Media - February 2013 - 44
Condo Media - February 2013 - 45
Condo Media - February 2013 - Communications
Condo Media - February 2013 - 47
Condo Media - February 2013 - 48
Condo Media - February 2013 - 2013 CAI-NE Insurance & Restoration Directory
Condo Media - February 2013 - 50
Condo Media - February 2013 - 51
Condo Media - February 2013 - 52
Condo Media - February 2013 - 53
Condo Media - February 2013 - 54
Condo Media - February 2013 - 55
Condo Media - February 2013 - 56
Condo Media - February 2013 - 57
Condo Media - February 2013 - Classified Service Directory
Condo Media - February 2013 - Advertisers Index
Condo Media - February 2013 - 60
Condo Media - February 2013 - 61
Condo Media - February 2013 - 62
Condo Media - February 2013 - 63
Condo Media - February 2013 - 64
Condo Media - February 2013 - Cover3
Condo Media - February 2013 - Cover4
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