Condo Media - April 2013 - 36

COvEr StOry
COLUMN NAME
voluntarily accept restrictions associations impose on their rights because they
choose to live in those communities—on
its head. “More owners will be accepting
these restrictions under protest,” Meskin
predicts, “and that will create the potential for more disputes and more litigation challenging association policies and
rules.” That is one notch in his liability
risk column.
Another comes from local governments
that will increasingly look to manage their
budget shortfalls by transferring public
sector obligations—for building schools,
roads, sewage treatment plants, and other
infrastructure components—to condominium developers and eventually to the
community associations responsible for
governing the communities. Associations
that assume these quasi-governmental
responsibilities will incur liability risks for
things they did, did incorrectly, or failed
to do, Meskin suggests. And as these
exposures multiply, he notes, inevitably
“insurance costs will increase.”

Meskin’s list of new or increasing exposures also includes the “cyber liability”
associations will incur as they conduct
more business online. In addition to the
possibility of civil suits filed by residents
whose personal information is stolen
from sites the association controls, associations also may face the cost of complying with a host of privacy rules and the
potential for outsized penalties that could
be assessed for violations.
Social media sites, which could store
immense amounts of personal information, will also boost liability risks as
associations increase their involvement in
these areas. Insurance carriers may provide some protection now, Meskin notes,
“but who knows what the situation will
be 5 or 10 or 20 years from now?” His
prediction: “Once insurers start to see
claims, you’ll begin to see exclusions.
The coverage offered now will be limited
or withdrawn and premiums will rise.”
Climate change will create a similar
pattern. As insurers tally the mount-

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Condo Media • April 2013

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ing claims for damage caused by severe
weather, Meskin says, many will begin
to ask: “Are we going to stop offering
this coverage or are we going to charge
10 times more for it?” Associations, for
their part, will have to begin acquiring coverages—flood, earthquake, and
windstorm, for example—in locations
where these severe weather events
weren’t perceived to pose risks before.
And their insurance costs are going to
soar. “What will happen to the condominium buyer who qualified for a mortgage when the common area fee was
$250 if it rises to $500?” Meskin asks.
Kenneth Bloom, principal in the
Massachusetts accounting ﬁrm Bloom,
Cohen, Hayes, LLC, sees some encouraging trends in his crystal ball, primary
among them, evidence that, “attitudes
toward reserves are changing.” Reserve
levels “aren’t where they should be,
and we’ll never get to the point where
they are fully funded,” he agrees, “but
every little increment helps.”
Bloom also sees community associations becoming more open to doing
business with out-of-state banks—a trend
driven largely by management companies that “have gotten smarter,” and are
directing their clients toward institutions that can provide a range of services
rather than letting them deal with the
small local banks many have preferred.
The consolidation of association business in the hands of fewer institutions
specializing in serving them is more cost
effective, Bloom says, but “if it becomes
too concentrated, fees will begin to rise.
Presumably that will happen at some
point,” he concedes, but for now and for
the foreseeable future, he thinks, associations are benefiting from the change.
The increasing number of associations
that have been victimized by fraud may
spur legislative responses, Bloom predicts. A recent incident involving more
than 20 associations in Waterville Valley,
N.H., “certainly has that potential,” he
believes. The most likely result—making
audits mandatory for associations—might
help to a limited extent, Bloom says, but
audits “aren’t a panacea. It is possible to
steal a lot of money in between audits.
Condo Media - April 2013

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