The Communicator - Volume 1, Issue 2 - (Page 11)

Judges hate when a board is inconsistent in its enforcement and more times than not will rule against the “big, bad homeowners association.” copy of the insurance certificate. Always get proof of coverage from the contractor’s agent and make sure that the vendor provides an “additional insured” endorsement naming the homeowners association, board of directors and management company as “additional insureds.” When in doubt, have the association’s insurance agent review the contractor’s policies. the Civil Code dramatically changes the way you have been handling your annual meetings and elections, but more importantly, the way ballots are handled and tabulated. You might consider changing your annual meeting to be a candidates’ night/town hall meeting where you can still entertain these facets without having to satisfy any quorum requirements. The penalties can be severe if a member challenges the procedure that you provided because it is not consistent with the new law – and the election could be deemed invalid! 6. FAILURE TO HIRE LICENSED AND INSURED CONTRACTORS This one can come back to bite you so badly that you may never recover. There is a recent court decision, Heiman v. Workers’ Comp. Appeals Board, where the board hired a handyman to clean out a gutter for a fee of $465. Unfortunately, the handyman hit a high-tension line and was seriously burned, never to work again. His family brought a suit against the association, even though the worker claimed to be an independent contractor. The courts found, as they always will, that since the worker could not meet the 21 tests for independent contractor status, he was in fact an employee of the association, and the association would have to pay a substantial amount. This caused the association to levy a special assessment because the settlement amount exceeded its coverage and it had to pay legal costs for both sides! A second recent case involved a plumber who was called in to repair a leaking pipe. The total cost of the repair was $165. While he was repairing the pipe, his torch lit the adjacent wall on fire, and two condo units burned. He did not have liability insurance, and the association had to file a claim against its policy for the damage. The insurance carrier threatened not to respond because the association had breached its insurance contract by bringing in a contractor who did not have proper insurance! The newest concern is that many of the contractors who have liability insurance have an exclusion to work for homeowners associations. There is a case where a roofer produced all the insurance, and when there was a claim tendered to his insurance for leaks and subsequent mold, it was denied because of the “homeowners association” exclusion. We are not totally sure how to ensure that the contractor has the coverage we need, other than to require an additional insured endorsement on every contractor. It goes without saying that all homeowners associations should hire licensed and insured vendors. However, most property managers can tell you a horror story about when this didn’t happen. One case involves a board member hiring a friend to perform handyman services. The handyman injured a child with flying debris, and the board, association and its manager got sued. The handyman was not insured or licensed. One doesn’t have to guess how this turned out. Simply stated, the property manager (or board, if self-managed) should check the contractor’s license with the state of California. It is very easy to verify a contractor’s license (http://www.cslb.ca.gov/). It is also easy to verify insurance, but don’t rely on a 7. FAILURE TO PURCHASE ADEQUATE INSURANCE Be wary of insurance quotes that are significantly lower than the others. Be wary of an agent or broker who does not increase the premiums each year. Remember that most D&O policies do not protect the boards from underinsuring or not having the proper insurance. This is not the place to cut corners. We recommend that the board always seek advice from a licensed insurance broker who specializes in the field of homeowners associations. 8. FAILURE TO FOLLOW EXPERT ADVICE You must be risk managers at all times. If you sense that something may not be right, you have a duty to rely on experts. You may lose your one defense under the “business judgment rule” if you do not seek expert advice and just rely on the board’s sense of things. Transfer that risk (exposure) to someone who has insurance. Boards of directors can remain in “safe harbor” if they make a reasonable decision that is based on expert opinion or advice. We recommend that you always consult experts, and when necessary, get written legal opinions from them to back up your position and decision. The Communicator • 11 http://www.cslb.ca.gov/

Table of Contents Feed for the Digital Edition of The Communicator - Volume 1, Issue 2

The Communicator - Volume 1, Issue 2 Contents President's Message The Hammer is Broken Top 10 Mistakes That Get Board Members Sued Dealing with Bankruptcy Ask the Experts – Are Your Contractors Licensed and Insured? 2008 Events & Education Calendar Welcome to CAI BayCen Directory Updates Index to Advertisers

The Communicator - Volume 1, Issue 2

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