Are We Properly Insured?

By Kelly G. Richardson, Esq. CCAL, HOA Homefront Column

Mr. Richardson: What is the correct way to look up condo or PUD while trying to get an insurance policy? We looked at the CC&Rs and the HOA’s insurance summary mentions PUD. Also, my mother’s condominium just updated their CCR's and is releasing responsibility of 16 items, which I believe makes her property a PUD now. D.R., Upland. 

Dear D.R.: To determine whether a given HOA is a condominium or planned development (California law doesn’t use the terms “PUD” or “planned unit development”), you must look at two things. First, the CC&Rs should state on the first page whether the HOA is condominium or planned development. Second, check your grant deed. The legal description of the residence should also indicate the nature of the legal interest owned. A “lot” is what is owned in a planned development, and a “unit” is what is owned in a condominium.

D.R., many HOAs have been forced to change their insurance due to extremely high costs, and are increasingly shifting the responsibility to homeowners to insure interior fixtures and finishes. Best, Kelly

Good afternoon Sir: Our CCR’s require 100% insurance coverage.  I’m at a loss the find where that 100% number comes from (maybe the reserve study).

Somewhere in the past the board decided all we need is 50% coverage.  I’m sure it was to do with the cost. Are they breaking the law by not conforming to the CCR’s, or is it an arbitrary amount that can be changed without the approval of the home owners? Thank you, G.S., Anaheim Hills. 

Dear G.S.: Some HOAs are literally unable to procure enough insurance to cover the replacement cost of their buildings, and so find themselves unable to fulfill CC&R requirements of full insurance coverage. Even without such a requirement, residential mortgage lenders may require adequate insurance to be in place. A board should not decide on its own to ignore CC&R requirements and arbitrarily set a much lower bar of 50% insurance coverage. Changing the CC&Rs would require a member vote. Regards, Kelly

Dear Kelly: Our HOA is a smaller HOA and our building has “tuck under” construction (carports under the building) which do not meet current codes for earthquake safety. We are split on the subject of insurance. Could the board be found negligent for not having purchased insurance in the event of a damaging earthquake, or for failing to take steps to reinforce the building for earthquake safety? J.N., Coronado 

Dear J.N.: Unless the CC&Rs require earthquake insurance, that decision is within the board’s discretion. That board would need to carefully comply with the business judgment rule, consulting insurance, legal, and other experts before deciding. It’s not an easy decision, given the great cost and the limitations of earthquake insurance. Most importantly, the homeowners should be notified of the board’s decisions and the reasons for it. 

The ”soft-sided” building issue may be a concern for your HOA. Many cities have adopted ordinances mandating retrofits of buildings which do not have enough lateral resistance to earthquakes. The failure to comply with such ordinances could subject the HOA to enforcement action by the city, and also expose the board to liability. Consult a structural engineer to determine if your HOA buildings are subject to such an ordinance. Sincerely, Kelly