By: Melissa S. Doolan, Esq.
Many condominium associations are finding that insurance premiums for their buildings are drastically increasing or that the insurance carriers are not offering to write any insurance coverage, regardless of cost. There are numerous reasons why insurance premiums have increased such as natural disasters around the country, insurers pulling out of the market leaving less competition, and inflation. The factors why an insurance company may no longer offer coverage can include an association’s high number of claims, aging communities with deferred maintenance, aluminum wiring in the buildings, Orangeburg piping, old roofs and having an underfunded or no reserve account.
With insurance increasingly becoming unavailable because of cost or simply no insurance company willing to provide coverage, a condominium association should take steps now to prepare for the future of high premiums or no insurance coverage. An association cannot simply have no insurance when its CC&Rs require that it insure the units without possible legal liability to the owners. A board of directors that allows an association to no longer insure the units when required by the CC&Rs is opening itself to liability for breaching its fiduciary duty and breach of contract. If a unit were to experience a loss, such as a fire, and the association did not have the required insurance on the unit, the owner could file a lawsuit against the association. This lawsuit could name the individual board directors for breaching their fiduciary duty by not obtaining the required coverage or not taking other proactive steps such as performing the required replacement of components, so the association could obtain insurance coverage. Further, if the association is not incorporated, the potential legal liability may extend to all owners in the association.
The bottom line is your association must start considering how it will fund the repairs required to obtain insurance, or pay for large increase in premiums. An association’s inability to obtain insurance is not simply going away without action.
An association should review the items it must maintain, such as roofs, pipes from the house to the main line, electrical wiring, parking areas, landscaping including drip system and irrigation timers, and start budgeting to repair or replace those items. This means continuing to increase the assessments each year to keep up with inflation and the increasing costs of labor and materials. An association should also continue or start funding a reserve account for maintenance and replacement of those items the association must maintain.
The information provided herein is for reference purposes only, is general in nature, and is not intended as legal advice. For specific questions or legal issues regarding your association, please contact us at 480-219-3633.