By Ashley M. Nichols, Cornerstone Law Firm, P.C.
Assessments are the cornerstone of an association, and the necessity of an association to collect delinquent assessments is of utmost importance – an association cannot be run without assessments being paid! According to a study conducted by CAI in 2016 (released in October 2017), 5% of owners in community associations were delinquent on their accounts. With 21.3% of the populations residing in community associations (approximately 69 million people), that means that nearly 3.5 million owners are delinquent at any given time.
Leading into summer, many associations could bet on many delinquent owners bringing their accounts current. Why? No cash, no splash. However, as we near the end of our pool days, how can an association ensure that it is efficiently, and effectively, collecting from its delinquent homeowners? Speaking of restricting access to amenities, does your community have a clubhouse, fitness center, or sport court? While it may not bring in as much cash as pool access might, restricting access to other community amenities (if provided for in your governing documents) can be a potential solution to collecting past due assessments once pool season is over.
So, what are some tools that a Board can use to collect from delinquent owners? First, collect early and often. The sooner an association takes action to collect, the more likely it is to be successful. If delinquent accounts are allowed to linger and grow, continuing to incur late fees and interest, it is less likely that owners will be able to resolve the debt without legal action. Ensure that your association has a collection policy in place (it is required by law!) and that it follows the policy. Assess the time frames provided for in your documents. Can they be altered to allow collection on past due accounts sooner?
And speaking of collecting early, acceleration is a great tool to consider when looking at collection options for past due accounts. Acceleration allows a board to call due the entire fiscal year’s debt against the owner’s account, rather than just the current delinquency. Consider those owners who may be chronically delinquent.
For example, John Doe (it’s not his first rodeo) has been consistently delinquent for years. On January 10th, the association turns the account over to its attorney for collections. The current balance due at that time is $1,000. However, the Board, due to the owner’s continued delinquency, has reviewed its documents and decided to accelerate Mr. Doe’s assessments for the year. At $100 per month, an additional $1,100 would be added to the balance, making the total amount due $2,100. Rather than proceeding to collect on the $1,000, the attorney can now attempt to collect on the $2,100. If it takes six months to collect, once complete, the association will still be paid in full through the end of the fiscal year. You only hope that the owner will pick up paying regular assessments at the start of the next fiscal year!
As we head into the latter part of the year, assess your documents to ensure that your community has the ability to use this tool.
So, what is the process? Every case is different based on its own set of facts and circumstances, but generally, the process goes something like the following: The first thing that must be done once an account is turned over to the attorney for collections is compliance with the Fair Debt Collection Practices Act (FDCPA), both state and federal. A demand letter must be sent to the delinquent owner. If an owner fails to respond to the demand letter, the attorney will generally move the process to the lawsuit stage. Most cases are brought in county court, where the jurisdictional limit for the court is under $15,000. Note that the legislature recently passed a bill that will increase this limit to $25,000 (effective January 1, 2019).
Once an owner is served with the lawsuit, he or she is required to appear in court on the specified date. If the owner fails to appear in court (which happens the majority of the time) and/or file an answer, the association’s attorney will request that judgment enter against that owner. Once a judgment is obtained, further collection efforts such as bank and wage garnishments can be pursued.
Bank and wage garnishments are reasonably typical means of collection, and can be very successful. However, if an owner’s bank account cannot be located (or the owner banks with a bank that does not have ties to Colorado), or the owner works out of state (with a company that does not have ties to Colorado), you’ll often find your community out of luck with those avenues of collection. Receiverships are a great solution in this case. A receivership is a court-ordered appointment of a rental manager for a property. The receiver must be a disinterested person (i.e., not the property manager or management company) and the property must not be owner-occupied. While some county courts do not recognize it as a legal remedy, it is explicitly allowed in the rules of civil procedure, so can always be pursued in district court. Once the court has approved a receivership, the receiver will step into the shoes of the owner in the management of the property. The receiver will collect rents, apply the money to the receiver’s fee first, and then to the satisfaction of the debt. Receiverships are effective ways to collect delinquent accounts when the property is not owner-occupied. Additionally, although we are discussing post-judgment collection options here, the remedy of receivership is also available pre-judgment. So, if your association has an owner that cannot be located for service and to obtain a judgment, discuss pursuing receivership with your attorney.
What about settling accounts? George Herbert, a British poet, said: “A lean compromise is better than a fat lawsuit.” In order to decrease delinquencies, and when the circumstances warrant, a Board may consider waiving soft costs (such as late fees and interest) to settle an account. When doing so on an individual basis, make sure that your Board is reviewing the facts and circumstances surrounding the request, as well as implementing the policy of waiving fees, in a consistent manner. A Board certainly would not want a claim of selective enforcement brought against it due to the perception of unequal treatment of owners.
As you well know, a few delinquent owners can wreak havoc on an association’s budget and potentially affect property values. If the association cannot collect enough to maintain, repair, and replace items in the common areas or items that are its responsibility, conditions of the association may cause property values to decline. Additionally, for a condominium community to be eligible for FHA approval, no more than 15% of units can be delinquent in their assessments more than sixty (60) days. If your community is not FHA approved, the pool of potential buyers into your community will be significantly decreased, thereby leading to declining property values in the community. Board members have a fiduciary duty to maintain property values, and keeping delinquent accounts to a minimum (and taking steps to collect on delinquent accounts) support that goal.
As Board members, facing collection issues can sometimes be challenging. These owners are your neighbors. Collection of community association assessments is not “faceless” like credit card, medical, or student loan debt. These owners live in the community, (maybe) show up to your board meetings, and will (maybe) end up on your board. Be respectful and treat each case as an individual matter, with its own facts and circumstances. As the saying goes, everyone is fighting a battle you know nothing about. Be kind. Always.
Ashley Nichols is the principal and founder of Cornerstone Law Firm, P.C. She has been in the community association industry for ten years, providing associations with debt recovery solutions for their communities. Cornerstone Law Firm represents Colorado communities in all areas of common interest community law. You may find out more at www.yourcornerstoneteam.com.
By Stephane Dupont, The Dupont Law Firm, LLC
Budget season is still far away for most community associations, however, it is never too early to address how an association can improve its ability to meet current and future financial needs. While regular assessment fees account for most of an association’s annual revenue, the financial health of an association can be improved if it thinks ‘outside of the box’ and considers non-traditional means of obtaining additional income to keep annual assessment fees low and ensure that maintenance and improvement projects are completed.
MAXIMIZE CURRENT INCOME
Before considering alternative methods for raising association funds, it is not a bad idea for an association to look at how it can maximize its current income stream. First, an association should ensure that collection of assessments are diligently pursued against delinquent owners. To that extent an association should ask whether it is timely following the process in its collection policy and turning matters over, as necessary, to legal counsel or a collection agency.
Next, if an association has a clubhouse, meeting room or other area that can be utilized by its owners, an association may consider actively promoting the space for rental by its members and their guests for a reasonable charge. A rental agreement should be drawn up so that there is no confusion surrounding the rights, responsibilities, and liabilities of the association and owners.
Finally, an association may determine if it can save resources by renegotiating existing vendor contracts. This not only involves locating high quality and reputable, lower cost vendors but also cutting back on services that an association may not be utilizing or realizing much benefit. For example, an association could consider cutting back web hosting services if it rarely updates its website and communicates primarily to owners by newsletter or written correspondence.
FINDING NEW INCOME STREAMS
One of the most common ways that a common interest community can generate additional revenue for their membership is through advertisements. An association can start a monthly, electronic or paper newsletter or newspaper that is disseminated to all residents in the community and offer advertisement space for sale to both residents and local businesses. Especially in a larger community, many local businesses are readily enticed to reach out to a wide audience at a fraction of the cost of traditional marketing. If these options sound too time consuming, an association can consider selling ad space on community bulletin boards, common areas, or on its website.
If a community does not mind the potential eyesore and there is available space, many telecommunication providers demonstrate interest in installing cellular towers in communities. The amount of income generated is contingent on the location of the towers. Typically, a lease agreement is executed with the provider for a specified number of years and an easement may also need to be drafted and provided. Given the potential complexity of the agreement, it is important that it be drafted and/or reviewed by legal counsel. It is also recommended that the proposed lease be first discussed with the membership as health and property value concerns are frequently voiced when this income option is proposed. Most of these concerns can be overcome by pointing out the financial benefit to homeowners and further pointing out the potential improved cellular service in the community.
Some common interest communities may also be fortunate enough to be able to sell or lease oil, gas, mineral, or water rights to generate additional revenue. While it is unlikely that an association is ‘sitting on a gold mine,’ thousands of dollars can be earned annually from these valuable resources if a proper agreement is put in place.
Finally, an association should consider either hosting or sponsoring events in their community. Many associations host annual barbecues. Consider making the event more attractive for residents to attend by providing live music or activities for children such as a bounce house or face painting. The event can be promoted as a fundraising activity for the community with a reasonable admission fee. Obtaining sponsorships for events can also lead to additional revenue generation in a community. For example, a community located on a golf course could consider hosting a golf tournament and obtaining sponsorships. If you live in a rural community with stocked fishing ponds, how about hosting a fishing tournament? The ideas are endless and limited only by the ingenuity and creativity of an association.
As there may be potential tax implications or insurance related issues with some of the suggestions above, it is a good idea for an association to conduct its due diligence before implementing any potential new income streams.
Stephane Dupont is the managing member of The Dupont Law Firm, LLC and has been practicing community association law since 1999.
By Mike Barclay, Reconstruction Experts
The spring months of May and June typically bring severe weather to Colorado. Hail can cause catastrophic damage to an HOA community. Often after a storm, many community association managers are left wondering how to handle a claim. The common thought is to "get 3 bids." Getting 3 bids is fine for a conventional HOA construction project, but NOT for an insurance claim. Bidding out insurance work is a disservice to your HOA.
When an HOA suffers an insurance loss- such as fire, flood, or storm damage- the best solution for the community association manager is to help the HOA select a qualified general contractor and forego the bidding procedure. By requesting 2 or 3 bids from different contractors, the manager runs the risk of undercutting the scope of work to which they are entitled. Scope of work is a crucial element when describing how insurance companies compensate policy holders to restore their property to pre-loss condition, as stated in most policies. Most people don't understand or aren't aware that insurance companies all use the same software to determine pricing. It’s called Xactimate. Xactimate has a predetermined agreed upon price for every aspect of restoration, dictated per region, which is updated regularly to reflect current market value of labor and materials. What this means is price doesn’t matter when it comes to your claim. Scope of work, however, does. When it comes to price, the HOA only needs to cover their deductible. Sometimes HOAs think they can bid out their insurance work and pocket the “extra” money. This is fraud.
A good general contractor will focus on creating the most comprehensive repair plan, while the competitive bid process focuses on price and quickly becomes a race to the “bottom-of-the-barrel.” When contractors know they will be placed in a competitive bidding situation, they will tend to keep their scopes to a bare minimum to keep the price low and win the job. The most frequent means of keeping a scope lean is by repairing items that would normally be replaced, and these items should have been included in the comprehensive scope of work. Scope gap and/or scope lean could easily cause premature failure and construction defect issues in the future.
When selecting your contractor, ask 2-3 general contractors to present/interview with your HOA Board of Directors. Simply ask the contractors the following questions:
1. What’s your experience with HOA hail claims?
2. What’s your insurance coverage?
3. How would you approach our project?
4. Do you have HOA references?
These simple questions will help your board choose the most qualified contractor.
The storm on May 8, 2017 caused $1.4 billion in damages in Colorado according to the Denver Post. An estimated 200,000 claims were filed. This made it Colorado’s costliest storm ever. Be wary of out-of-state “storm chasers” looking to get a piece of the pie. When a large hail event hits Colorado, many contractors from surrounding states head our way. Often these contractors are not qualified to handle large HOA insurance claims and perform subpar work that leads to roof leaks. And once they get their money, they are gone. Often they do not honor their promised warranties and HOAs are left footing the bill to fix their shoddy work. Bottom line, your best bet is to keep it local.
Community association managers need to be aware that insurance fraud has many faces. Common types of fraud are:
1. The contractor offers to pay for the HOA’s deductible
2. The contractor offers to trade advertising for the cost of deductible
3. The contractor offers a coupon or voucher towards the HOA’s deductible
4. The contractor offers to split their profit with HOA
5. Contractor promises kickbacks
6. HOA bids out project and pockets the rest of the money
Beyond finding the right contractor, focusing on a comprehensive scope and not falling victim to fraud, community association managers also have juggle helping their HOAs fund their deductibles. Most insurance companies that offer insurance to HOAs no longer offer flat fee deductibles of $10K, $20K, etc. Instead, the deductibles are percentage based. They can be 2%, 5% and even 10% of the insurance company’s estimated replacement value of the entire property. This is not to be confused with the amount of the claim or the market value of the property. Many times a homeowner’s HO6 Policy will cover their portion of the deductible. Many community association managers regularly urge homeowners to purchase HO6 coverage.
Insurance loss- such as fire, flood, or storm damage is a certainly a reality for Colorado association managers and HOAs. The next time one of your communities is dealing with a claim, remember- qualify and select your contractor and focus on a comprehensive scope and not 3 bids. In a time when deductibles are high, your HOA will thank you for getting them everything they deserve.
Mike Barclay is the Colorado Regional Vice President for Reconstruction Experts, and has over 20 years of reconstruction and restoration experience. Mike manages the overall success of the Colorado Branches by pushing Reconstruction Experts towards the highest level of professionalism and expertise.
By Michael Daley, Allied Universal
Lately, it has become unsettlingly common to wake up to stories of mass shootings, regular civil disobedience, violent robberies, and our nation’s ongoing opioid epidemic.
In Colorado, we have been shielded from some of these national issues for many years. However, as our population continues to grow by leaps and bounds, these problems are hitting home much more often. According to an article from the Denver Post, our statewide population exceeded 5.6 million people in 2017—ranking Colorado on the top 10 list of fastest growing states.
Population growth and surges in crime are not limited to city dwellings and urban areas. In fact, they spill over to areas where you may least expect. For example, most associate the safety for their HOA with security at the entrance gate, periodic patrols by the local police or shared vehicle patrols provided by a common contract security company. But what about at HOA Meetings that may be held at an offsite location?
When was the last time you attended a large group function, such as a town hall meeting, campaign rally, city hall meeting, or school board meeting, and did not see a security or police presence? Violence and unrest behaviors are not subject to any one particular socioeconomic group, so it is inherent for leaders to also account for the safety and security of their attendees in these situations as well. After all, these meetings typically dictate policy or changes to individuals’ lives, property, or employment and they can get very intense.
From your owners to your association lawyers and all the way to your developers, a wide range of audiences have a vested personal interest in the meetings as well as their outcomes. A study of HOAs and Condo Associations over a 20-year span revealed that more than 40 percent of board members claim they have been threatened with physical violence at one time or another. When dealing in matters of property and finances with large groups of stakeholders, it is incumbent on the HOA board to provide adequate safety measures for board members, stakeholders, and owners.
What can you do to strengthen your association’s security posture at gatherings?
Whether your community needs an off-duty police officer at meetings, a private security team at your entrance or a vehicle patrol service, make sure there is a plan in place and communicate it well. Give your stakeholders the tools and knowledge to participate in safety awareness so they too can become a part of the solution in ensuring an environment that is well protected beyond the gate.
About the Author: Michael Daley is Allied Universal’s Business Development Manager for Colorado, holding the Cultural Institution Protection Manager certification from the International Foundation for Cultural Property Protection (IFCPP) as well as the Terrorism Liaison Officer (TLO) designation from the Department of Homeland Security (DHS).
In addition to being a national sponsor of CAI, Allied Universal Security Services is the largest provider of security services, systems and solutions in North America and serves hundreds of HOAs, Apartment Complexes and Condo Associations across the United States.
By Michael Lowder, Esq. and Heidi Storz, Esq., Benson Kerrane Storz & Nelson
As we head into the summer season, it is inevitable that Mother Nature will bring some wild Colorado weather to the Front Range. These storms could result in damages that require Associations to make insurance claims. Whether it is hail, wind, or some other weather-related Act of God, it is important to know some of the games that insurance carriers might play when you make a claim under your Association’s property insurance policy.
1. Multiple Causes of Loss
Most Association insurance policies contain what is known as an “anti-concurrent causation clause.” This is “insurance lingo” that means that if your loss is caused by multiple different causes, and one of those causes is not covered, the insurance company can deny your claim. For example, if you have a sewer line back up in your basement (covered under the policy), and you also have water get into the basement from exterior flooding (not covered under the policy), your entire claim could be denied because of an anti-concurrent causation clause in your policy, even though some of the damage was caused by a covered loss. Lesson: be careful about how you describe your claim when you submit it.
2. Policy Sub-Limits
Some policies will contain “sub-limits” for certain types of insurance coverage. While your overall coverage under the policy may have a $1,000,000 limit, certain components of that coverage may be limited to a smaller “sub-limit.” An example of this is coverage for debris removal. Your Association’s policy may have a sub-limit for debris removal, which limits coverage for costs to remove debris to $10,000 or some percentage of the overall limit. Practically, this means that even though you have $1,000,000 in coverage, if your debris removal sub-limit is $10,000, but the actual debris removal costs $15,000, your Association could only get $10,000 for that work (the sub-limit for debris removal). Lesson: make sure you know the sub-limits when you buy your policy.
3. Cosmetic v. Functional Losses
Some insurance policies contain limitations on the types of damage they will cover relating to whether or not the damage or loss is “cosmetic” or “functional.” Some policies do not cover “cosmetic” losses. Figuring out what is “cosmetic” versus “functional” is something that Associations and their insurers often fight about, but it’s important to realize that if your Association’s policy has a cosmetic loss exclusion, this could be an issue that the insurance company raises. For example, if hails dents your Association’s metal roof but does not cause leaks through the roof, that may be a “cosmetic” loss. If you have a cosmetic loss exclusion, that damage may not be covered and you’ll be stuck with the unattractive dented roof, even though there’s no dispute that the hail caused the dents. Lesson: if you want to ensure that cosmetic damages are fixed, make sure you don’t have a cosmetic loss exclusion in your policy when you buy it.
4. Code Upgrades
When an older building suffers a loss, the repairs made are required to comply with the building code that is in effect when the repairs are made. In this example, let’s assume the building was up to code when it was originally built. However, due to changes in the building code since then, if the building suffers an insurance loss, it may not be code-compliant. Although the building is grandfathered in as it stands, any repairs made after the loss have to bring the building into compliance with the new building code requirements. Some insurance policies contain coverage for these additional repairs and required upgrades. This coverage is called “code upgrade” coverage. However, if the building was never built up to code at the time of its original construction, you are not entitled to code upgrade coverage if you suffer a loss that’s otherwise covered under the policy. Lesson: if your building is older, make sure you have coverage for code upgrades.
5. Actual Cash Value v. Replacement Cost Value Policies
Another thing that is crucial to determine is whether your Association has an “Actual Cash Value” policy or a “Replacement Cost Value” policy. With a Replacement Cost Value policy, the insurer must pay the full cost to replace the damaged components, i.e., it must pay the full cost to replace a roof damaged by hail. However, with an Actual Cash Value policy, the insurer can deduct depreciation, which is essentially the “value” that the insured has received of the damaged component over time. In the example of the roof above, let’s assume that, at the time of the hail storm, the roof had an expected life of 20 years, and had already been on the building for 10 years. Then, the hail storm happens and the roof has to be replaced. The insurer calculates the amount it owes to the Association by taking the “replacement cost value” (the full replacement cost for the roof), and then deducts the depreciation (the value the Association has gotten out of the roof for the last 10 years), and then pays whatever is left. Lesson: if the insured component (i.e., roof) is older, an actual cash value policy may not provide much coverage, if any, for a loss.
Dealing with storm damage and the resulting insurance claims can be confusing and frustrating, but hopefully these tips can help you with some of the insurance lingo that you might hear when dealing with insurance claims. If you ever feel like something doesn’t seem fair, or doesn’t make sense, it’s best to bring in a professional to assist you in negotiating a claim with the insurance company.
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Michael Lowder is a senior associate attorney with Benson, Kerrane, Storz & Nelson, P.C., where Heidi Storz is a partner. Mr. Lowder and Ms. Storz practice insurance and construction defect law, serving homeowners and homeowners’ associations throughout Colorado.
By Tressa Bishop, MBA, CIC, CB Insurance
A community association manager’s job is rewarding, but it’s not without risk. Today’s management professionals do much more than just focus on taking good care of the properties. They also act as accountant, human resource manager, complaint mediator, law enforcer, property inspector, real estate guru, insurance consultant, and much more. With such a wide array of responsibilities, many community managers worry about whether they’re protected against mistakes or oversights that could come back to haunt them in the form of lawsuits. Errors and Omissions (E&O) and Commercial General Liability (CGL) insurance help protect against financial losses that are directly related to mistakes made by managers.
How can I be sued even if an error was truly a mistake?
Let’s be honest, anyone can be sued for just about anything. Even though you do the best for the associations you serve, there may be situations where you find yourself in a bit of hot water whether you did what is alleged or not. This is why the liability policies all include defense language similar to "the insurer will defend whether the allegations are frivolous, false or fraudulent.” Imagine each of the following scenarios:
No matter how well trained, experienced, and meticulous managers strive to be, there’s a good chance that one day they could still be sued. Mistakes happen. Not only do mistakes happen, but challenging association members happen. There’s no way to guarantee that you’ll ever be fully protected from risk.
I have an “indemnity agreement” or “hold harmless provision” in my management agreement with the association. Doesn’t that mean I’m already covered?
No. Indemnity agreements and hold harmless provisions under general liability policies typically only cover bodily injury, property damage, personal injury, and advertising injury claims. Further, they generally require the manager to spend his or her own money to defend a lawsuit or a claim, then apply for reimbursement later. There’s no guarantee that the reimbursement will ever be received. If this should happen to you, you could drain your bank accounts with no promise of recouping the costs. The less considered unintended consequence is that not only will you be seeking indemnity to recover your costs, but you will be seeking it for "your" mistake from "your" client.
I’m already covered through the community association’s Directors and Officers (D&O) liability policy. Do I really need E&O insurance?
In Colorado, Community Association Managers (CAMs) are licensed. All licensed professionals require E&O insurance and, if you do not have it, it is imperative that you disclose that to your client or prospective client in the management agreement or other notice.
Many management professionals don’t realize that D&O policies don’t provide coverage if the community association itself sues them. You would need to purchase a separate E&O policy to protect yourself against this circumstance.
You should keep in mind that not all D&O policies are the same with respect to coverage for management professionals. Some do not provide any coverage for the CAMs, some only provide coverage pursuant to the express services stated in a written management agreement, and some provide coverage as long as there is an agreement, whether written or not.
If you own a management company that has employees, you should be aware that there is no D&O policy on the market that will provide coverage for a management professional when their employee brings a claim against the management professional or company. Employment practices liability coverage is needed to protect against this type of exposure (this can be added to an E&O policy).
Why do I need CGL coverage? Isn’t E&O coverage enough protection?
Managers need both Commercial General Liability (CGL) and professional liability (E&O) coverage. The CGL policies that the associations carry naming the manager/management company as an additional insured have exclusions that may prevent the manager from being covered. Specifically, most CGL policies include a professional services exclusion.
The association CGL is there to protect the management professional if its services or lack of services caused a third party bodily injury (BI) and/or property damage (PD). Most E&O policies will expressly exclude BI and/or PD, although there are a few policies that provide "contingent BI/PD” when the damage arises out of the management professional’s act, error, or omission.
Are all E&O policies the same? Can’t I just purchase the cheapest policy?
Errors and Omissions insurance is designed to protect managers against claims such as discrimination, wrongful eviction, class action suits, hiring unlicensed contractors, and other actions. Just like all insurance, the cheapest policy is often the cheapest policy. Not all policies are created equal, so below are some questions to ask when shopping for an E&O policy:
Unfortunately, we live and work in a society that’s increasingly susceptible to legal complaints. And, like other service professionals, managers must wear multiple hats, with no room for mistakes. Therefore, managers should view Commercial General Liability and Errors & Omissions insurance the same as any other cost of doing business. These policies should give you comfort in knowing that you have protection against claims of wrongdoing - no matter how careful you are in trying to prevent them.
Our team at CB Insurance is solely dedicated to Colorado’s unique association insurance marketplace. When you work with one of our qualified insurance professionals, you can be assured that you’re getting the coverage you need - so you can focus on caring for your associations, satisfying your current clients, and attracting new ones. Call us today to begin your insurance review!
Sources include:
http://mcgowanprograms.com/wp-content/uploads/sites/2/2016/03/EO-Exposure.pdf
http://www.ihginsurance.com/Pages/Community-Manager-Errors-Omissions-Coverage.aspx
The information in this article does not change or amend any actual policies. The terms, conditions, exclusions and endorsements of policies will apply. Every policy and every claim is different.
By April Ahrendsen, VP Regional Account Executive, Mutual of Omaha Bank
Stories of cybercrime continue to make front-page news, and companies of all sizes are consistently impacted by cyber theft and data security breaches. According to the Breach Level Index, over 5 million data records are lost or stolen every day.
Each theft causes headaches for consumers and businesses alike, as well as reputational damage for businesses, and often times, financial loss. Cybersecurity Ventures estimates that cybercrime will cost the world $6 trillion annually by 2021.
While not immune to the impacts and consequences of a data breach, multi-billion dollar organizations employ legal, security, and technical experts while utilizing vast resources to limit potential liability. Small businesses must also prepare for potential attacks from a growing number of cyber predators. The impact of cybercrime on small businesses can be devastating. Trustwave® reported that 71% of attacks target small businesses. Within 18 months of a breach, 80% of small businesses go out of business.
It is impossible to be 100% secure from cyberattacks, but businesses can take steps to minimize their risk. Education is a great first step in protecting your business.
It is important that business owners educate their employees on the dangers and potentially serious consequences of cybercrime. The knowledge that such theft can cripple a business, thereby affecting an employee’s own livelihood, is an added incentive to remain vigilant. Involving the financial institutions of the business can also be beneficial. Many banks are willing to provide in-house education seminars to companies as a way of keeping all levels of the organization well informed. There are several online resources available to educate small companies on protecting their business from cyberattacks. The following are a few examples of resources available for small businesses.
In addition to education, business owners have the option of investing in cyber liability insurance as a way to proactively protect their business from potential cyberattacks. Cyber liability insurance often covers the cost of business interruption, client notification, and even hiring a public relations firm to repair damage to a company’s reputation as a result of the attack. Reputations are critical in the community association industry. The cost of cyber liability insurance is often far less than the potential monetary loss due to a tarnished image.
Cybercrime does not discriminate. All industries are effected, and no business is too big or too small to be targeted. Advanced preparation and education are the two crucial tools to combat the growing problem.
The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of Mutual of Omaha Bank. For any matters concerning your specific needs and objective, you should seek the professional advice of your own independent legal counsel, insurance advisors or other consultants.
By Brad Henderson, Network Insurance Services
It's no secret, the marketplace for habitational insurance is changing rapidly. What used to be a broad offering of insurance carriers and products has now been whittled down to a select few insurance carriers offering products that 10 years ago no one would have thought viable options. The marketplace for habitational insurance today is a hostile one.
Winds of change are driving the property insurance market in this new direction. Hurricane Harvey hit Texas in August of 2017. Harvey was followed by hurricane Irma in Florida, which was followed by hurricane Maria hitting Puerto Rico shortly after. The losses from these storms amount to over $100 billion dollars.
It’s not just hurricanes that are causing the disruption to the marketplace. Wildfires devastated over 1.2 million acres of land in California in 2017. And as we are familiar with here in the Rocky Mountains, hail storms are becoming more frequent and more damaging than ever. Colorado experienced the costliest hail storm in our history on May 8th of last year, with insured losses exceeding $1.4 billion dollars.
With natural disasters on the rise, insurance carriers are taking note (and losses) and adjusting their underwriting discipline to remain profitable. Over the last few years, carriers have introduced percentage deductibles for Wind & Hail losses as a method to insulate them from this catastrophe. The deductible is a percentage of the Total Insured Value of the property, not the value of the claim.
For example, a building with $10,000,000 in Total Insured Value may now be subject to a 2% Wind/Hail Deductible, or $200,000. Many insurance companies have recently announced that they are moving to a mandatory 5% Wind/Hail Deductible on all habitational accounts. That $200,000 deductible just increased to $500,000.
Insurance carriers are also becoming stricter on enforcing a ‘No Grills on Balconies’ underwriting guideline to protect themselves & their customers from life safety claims related to fires. The National Fire Protection Association (NFPA) indicated an average of 8,900 grill fires occur per year in the United States.
These 8,900 fires cause an annual average of 10 civilian deaths, 160 reported civilian injuries, and $118 million in direct property damage. While gas grills may seem safer than charcoal, 83% of grills involved in home fires are fueled by gas. State & local fire codes vary with respect to grilling on balconies, however many insurance carriers are following the standard adopted by the NFPA which prohibits grills within 10 feet of a frame multi-family structure.
While its clear that the tides are changing in the property insurance market nationwide, there are ways to prepare the associations you manage for these changes and insulate them from dramatic changes to their policies.
With respect to the increasing Wind/Hail deductibles, there are a couple of solutions to consider. Depending on the by-laws of the association, there may be little to no flexibility in moving to a percentage deductible. Deductible buy down policies can be put in place to cover the difference in the deductible offered by the insurance carrier and what is required by the associations by-laws. With more flexibility in the by-laws, the tenant’s policies can possibly be structured in a way to offset the assessment to the owners for their share of the Wind/Hail deductible.
Educating the board of directors of local fire codes and communicating them to residents is a proactive way to soften the blow that many who have had grills on their balconies for 20+ years will no longer have that option. Additionally, most insurance carriers will allow for electric grills on balconies as a substitute to their open flame counterparts.
Network Insurance Services has been partnering with property managers and the communities they represent for nearly 20 years. In a chaotic and rapidly changing insurance market, experience makes the difference. Our office is certified by DORA to offer CE Credits to Community Association Managers through our education on these topics in further depth. As one of the Denver Business Journals Top 25 rated Colorado Insurance Brokers and a member of CAI-RMC, we have the resources and expertise to help our customers weather the storm of today’s rapidly changing property insurance market.
By Derek O’Driscoll, CPPA, SPPA, AIC, Impact Claim Services
Colorado ranks #2 in hailstorm property losses, with estimated losses exceeding $2.286 billion over the last five years. Subsequently, the dynamics and requirements for proper recovery after a hail and/or windstorm have evolved. It has never been more challenging for Colorado Community Associations to fully recover all amounts owed under an insurance policy following a damaging hail or wind storm.
The goal of every insured, in the event of a loss, is to recover all money properly owed under its insurance policy as quickly and painlessly as possible, so damaged property can be repaired. When explaining the anatomy of a hail claim to policyholders, I use a simple analogy of the two “hurdles” that must be jumped in order to fully recover after suffering a hail and/or wind storm loss. Those two hurdles are the “Coverage” hurdle and the “Amount of Loss” hurdle. Both hurdles uniquely affect the claims investigation and adjustment processes, as well as the settlement or dispute resolution methods available to an insured community in the event of a disagreement with their insurance carrier.
The Coverage Hurdle
Simply explained, overcoming the coverage hurdle is accomplished upon the acknowledgement by an insurance carrier that a loss has occurred and caused damage to property, that the damage occurred during the insurance company’s policy period, and that the loss was caused by a peril that the applicable insurance policy insures against.
The coverage hurdle is overcome when the carrier acknowledges a single dollar is compensable under the policy for the given loss, even if the dollar value of that damage is below the deductible. Overcoming the coverage hurdle can be as simple as an adjuster inspecting the property and confirming there is coverage due under the policy, or it can require an exhaustive investigation by the policyholder and experts to corroborate the cause and extent of the loss and that coverage is due under the policy. For a policyholder, establishing the cause of loss and overcoming the coverage hurdle frequently requires a comprehensive investigation utilizing the services of specialized experts such as Forensic Meteorologists, Forensic Engineers, Building Consultants, Roofing Consultants, Contractors, and scientific laboratory testing.
One of the most common defenses of insurance companies in a hail claim investigation is what the industry refers to as “post loss underwriting”. That is to evaluate and take into consideration the condition of the property only after a notification of loss is provided, rather than at the inception of the policy and the acceptance of the policyholder’s premium and the promise of coverage in the event of a loss. This generally goes hand in hand with the company’s assertion that any observable hail damage to a building predated the inception of their company’s policy period. This defense is common with insurance companies in hail claims, specifically in Colorado, due to the frequency of hail storms and the overwhelming amount of hail caused damage that goes unidentified by policyholder’s on a year over year basis. This commonly leads to an insurance company identifying a historic weather event that they assert was more severe than that of the pending claim, and the subsequent attempt to place the cause of the damage on that other storm and the insurance company whose policy was in effect at that time, seemingly without limitation. Our firm has personally experienced insurance companies attempt to attribute hail damage to a storm 30 years prior to the inception of their policy.
What is important to understand is the impact of the specific type of insuring agreement in your insurance policy, on the burden of proof that must be met in order to assert any exclusion under a property insurance policy. Specifically, does the policy provide coverage on a “Named Peril” or “Open/All Peril” basis. This distinction has a direct and significant impact on who bears the burden of proof in establishing its claim and corresponding position on the loss and subsequently has a profound impact on an insurance company’s attempt to “Post Loss Underwrite” a loss. It is important that an insured understand the nature of its coverage, so we encourage community associations to consult its agent, attorney or a licensed public adjuster.
There are several steps an insured can take to prepare for a possible claim due to hail and/or wind damages that can be instrumental to overcoming the coverage hurdle as painlessly and expeditiously as possible. The most critical steps are:
Obtain Proper Documentation of Property Conditions NOW
Having a full analysis of your property done by a well-trained insurance claims professional will ensure that all facts and evidence that can become of material significance are fully and properly preserved into evidence. This should include some baseline testing of the building envelope such as moisture surveys, leak mapping, and complete photo documentation. Having such an evaluation done by typical contractors and/or maintenance professionals will not suffice.
Obtain Prior Insurance Inspection Reports
Request a copy of any property inspection reports and underwriting reports that have been performed by your insurance company, agent or broker, to include photos. These reports can provide crucial evidence in support of a community association’s claim, however they can be nearly impossible to obtain following a notification of loss, so be proactive and get them now.
The inability to overcome the coverage hurdle relegates a policyholder to resolving a claim dispute in a Court of proper jurisdiction, as coverage disputes cannot be adjudicated in any other venue. Subsequently, the coverage hurdle is the most important to overcome in the pursuit for a fair and complete settlement by an policyholder in the most painless manner possible.
The Amount of Loss Hurdle
Overcoming the amount of loss hurdle is the process of identifying and agreeing to the scope of the covered damage and the corresponding costs associated with completing those repairs. In my experience, this is where the majority of claims encounter disagreements, and conflicting positions between policyholders and insurance companies arise, for two prevailing reasons; The first is failure by an insurance company to fully investigate a loss with a view to identifying all damage potentially covered, sometimes combined with employment of outcome-oriented experts, consultants and contractors, who whether intentionally or unintentionally, undervalue the extent of damage and the amount of loss.
Quite apparently, insurance companies have a financial interest to minimize the amount of a claim payment, which may lead to a practice of failing to investigate and identify all damage that is compensable under a policy issued. Their investigations are frequently abbreviated and superficial when compared to that of a policyholder who has retained professionals to conduct a complete and thorough investigation of their own. These complete and thorough investigations frequently expose extensive omissions and oversights on the part of an insurance company. I cannot begin to quantify the amount of time our firm spends overcoming these types of superficial or misleading investigation results and expert analyses, but it is without question the overwhelming majority of our time spent in most hail and/or wind claims.
In addition to incomplete and truncated investigations, insurance companies are the faucet by which many contractors, engineers and construction consultants rely for a steady stream of business. The service providers are commonly beholden to these insurance companies and will do what they must to keep insurance companies happy. This usually means investigation results, scopes of repairs, and estimates that serve an insurance company’s needs, but are rarely congruent with the coverages purchased by a policyholder or compliant with the general best construction practices in the industry. This factor also frequently contributes to suppressed claims payments and disputes regarding the extent of damage and the amount of loss.
Dispute Resolution
Unlike a coverage dispute, which again can only be put before a Court, a dispute regarding the amount of loss can be resolved in several alternative fashions. Most policies of insurance outline an alternative dispute resolution method called Appraisal. In an appraisal, both the Insured and Insurer select and retain an appraiser, who will take a fresh look at the claim and come to their own independent conclusions of the “Amount of Loss”. Both the chosen appraisers will also select an Umpire, who will be the tiebreaker in any disputes that the Appraisers cannot resolve amongst themselves. The Appraisal process is a powerful alternative dispute resolution method, which is intended to be a faster and less costly remedy when compared to litigation. An appraisal also puts an “amount of loss” determination into the hands of industry professionals – Insurance Adjusters, Public Adjusters, Engineers, Contractors, Lawyers and Judges – which generally leads to a more accurate determination of the amount of loss, when compared to that of a jury of civilians unfamiliar with insurance principles and construction requirements.
In addition to appraisal, disputes regarding the amount of loss can be resolved through mediations or arbitrations, which can also be a more expedient, inexpensive, and accurate remedy when compared to litigation. This is why the Coverage hurdle is so important to cross over when dealing with a hail and/or wind claim.
Summary
Insurance policies are complicated, as are their provisions and how they impact the claims investigation and adjustment process, the duties and obligations of the insured in the event of a hail and/or wind loss and the methods for resolving disputes.
Most community associations do not appreciate that under an insurance policy it is incumbent upon you to present a claim for damages to your insurance company in the event of a loss; that is to say, it is your responsibility to tell your insurance company how much it owes you and why. Understanding how varying types of insuring agreements and forms affect the burden of proof, how a community association’s governing docs and insurance policy integrate with coverage, and how principles of insurance drive the amounts that are due to a community in the event of a hail and wind loss requires extensive experience and specialized training. It is imperative to proper recovery and ensuring both claim hurdles are overcome, that policyholders secure independent evaluations from specialized professionals following a hail or wind storm, rather than relying solely on your insurance company to tell you what they owe you.
Never assume that your insurance company has conducted a thorough, complete and fair investigation. No matter how long their investigation takes, how many consultants or experts they retain, how polished their expert’s reports are, or how well thought out their position appears to be - CONDUCT YOUR OWN INVESTIGATION!
About the Author
Derek O’Driscoll is a Licensed Public Insurance Adjuster, and the President of Impact Claim Services, LLC, a Colorado based public adjusting, claims management and roof consulting firm. Derek and his firm specialize in securing fair and complete recoveries for property owners on large complex losses caused by hail and wind, specifically to commercial and multi-family properties throughout the country. Learn more about them at www.impactclaimservices.com
By Joel W. Meskin, Esq., CIRMS, CCAL Fellow, MLIS, McGowan Program Administrators
Volunteer board members are often baffled and incredulous when someone challenges or complains about a decision that they have made, a rule that they have been changed, or a special assessment that they have issued. I have touched in one way or another between five and six thousand claims and/or lawsuits against community Associations and their volunteer board members. As I travel around the country, people ask me what I have been able to distill from all these claims. Without skipping a beat, I respond by telling them that "ignorance is not bliss"!
The "ignorance" I refer to is twofold. First, unit owners do not read the governing documents they have agreed to comply with prior to purchasing their home in a common interest association. In most cases, these unit owners probably do not read the governing documents until they have an issue with the board, the association or their neighbors.
Practice Pointer 1: read the governing documents before you buy; ignorance of the governing documents is not a defense and an association member is presumed to have read the documents he or she has agreed to when they purchased their unit.
Second, the volunteer board members turn their volunteer board position into something beyond its purpose and their authority. This is further exacerbated by the fact that these volunteer board members are often the same unit owners that have not read the governing documents.
Practice Pointer 2: Each association member who wants to join the board should be required to confirm that he or she has read the governing documents before agreeing to become a board member.
What comes to mind each time this twofold dilemma comes up is a pearl of wisdom my father used to share with me. He would say "why do people never have time to do things right in the first place, but always have time to fix them"?
Practice Pointer 3: Each board should have an annual board training, even those who have been on the board. The value of an annual training far outweighs the cost, if any, as well as the effort. Both items will lead to both monetary and time savings when the board knows how to operate the board. The National CAI has great resources as well as on demand video courses on training. There is no excuse for not taking the time to prepare for a board position.
I tell boards and managers that in the normal course a board meeting should not take more than an hour. Yes, certain issues create exceptions, but that should in fact be an "exception." In response, I often hear "yah, right." The key is for board members to understand their obligation, responsibility and treat the management of the association as the business it is.
The board is a body comprised of individuals that is charged to manage the association pursuant to the by-laws and relevant statutes. The board is a body that makes decisions and policies and delegates to the individual who will carry out the delegated matter. When a board member exits the properly noticed board meeting, they have NO authority to act in their capacity as a board member except pursuant to the delegated authority expressly given them by the board during a properly noticed board meeting, or proper consent to act without a meeting. Remember, each board member has "one" vote whether he or she is also an officer of the association such as the president, Vice President or other.
Most delegated tasks by the board are given to the community association manager if there is one, or employees. Sometimes, there is no CAM or employee, and the action is delegated to a volunteer board member or other association member volunteer. In that case, the board member is carrying out the delegated action as a "volunteer" and not in his or her capacity as a board member.
Practice Pointer 4: Remember, a board member is not an employee, and apathy is not a defense. If the board member says I have to do it, because no one else will. However, if no one else will, there is a deeper issue that must be addressed, because again the "volunteer board member or "other volunteer" is not an employee. If no one will step up, the board should hire a management company or an employee. If the board is not willing to do that, then the board should go to court and seek a receiver which will end up costing the board and the association the money they did not otherwise want to spend. At the end of the day, the board is charged with protecting the association's assets and must take the steps to do so.
In addition to understanding the role as a board member, the following are additional practice pointers that will help simplify and shorten a board meeting and mitigate claims.
Understanding the board's duties and obligations and making sure unit owners receive, read and ask questions about governing documents is the best risk management tool the association can use.
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