Condo Media - February 2013 - (Page 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

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
Blanket Coverage
Vendor Spotlight
2013 CAI-NE Insurance & Restoration Directory
Classified Service Directory
Advertisers Index

Condo Media - February 2013