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Your Association’s Insurance Policy is Cancelled – Now What?

Written by: Ellen Schuster, Esq.

Apr | 4

Part 1 of 3: California HOA Insurance Issues

Insurance carriers throughout California are non-renewing homeowner association insurance policies. As a result, premiums and deductibles for available policies are increasing exponentially and the level of coverage offered is decreasing. In part one of a three-part monthly series, we discuss what to do when insurance policies are cancelled.

Your association’s insurance policy is not renewed and affordable alternatives are nearly impossible to find. What do you do? What options are available? How should you communicate the situation to the members? Below are considerations for associations facing these immense insurance challenges.

Investigate Other Options
Boards and their managers should talk to their association’s current insurance broker, and potentially other brokers, about their options. There are occasions when different brokers have access to or are able to negotiate various options. Ask questions and learn about the association’s current and future options.

Emergency or Special Assessments
If an emergency or special assessment is needed to pay for increased insurance premiums or other expenses, boards should consult with legal counsel as soon as possible.

The law imposes detailed requirements for associations to properly levy emergency assessments and special assessments. For instance, the Civil Code defines what is considered an “emergency” for purposes of an emergency assessment. There are also various notice requirements, depending on the type of assessment being levied.

Assessments not imposed properly can be successfully challenged by owners – potentially a very costly mistake for associations already confronting financial concerns. By involving legal counsel early, boards can mitigate risk or avoid challenges altogether.

Communication with Owners
You have heard it before: communication is key! Some governing documents require associations notify owners about insurance coverage changes. Even without such requirements, it is crucial to keep owners informed. Some governing documents contain complicated or extensive insurance obligations. Work with legal counsel to understand the requirements and options pursuant to the governing documents and on how to communicate coverage, deductibles, and cost changes to owners. Like with assessments, involving counsel early in the process can help boards mitigate or even avoid certain risks.

Town Hall Meetings
Bring in the experts! Invite the association’s consultants – the insurance broker, legal counsel, a reserve study analyst, and/or a finance expert – to discuss the issues and answer questions at the meeting. Remember that a town hall meeting is not a board meeting! No decisions will be made and no minutes will be taken. The goal of the town hall meeting is to educate owners about the issues, answer owners’ questions, and, hopefully, assuage owner concerns. All of the written communications about the insurance issues should be prepared by or with legal counsel, so work with counsel to prepare the town hall meeting notice.

Difficulty Refinancing and Selling Separate Interests
Non-renewal and increased premiums can affect owners’ ability to refinance or sell their separate interest property. Associations should consider telling owners to contact their mortgage or real estate brokers to discuss concerns.

Risk of Litigation and Threats
Increased premiums can lead to increased financial pressure on associations. That pressure is felt by members, who may have concerns about their own ability to pay increased or new assessments as well as their ability to refinance or sell their property.

Owners facing personal financial issues either caused or compounded by assessment increases are more likely to attempt to block or reverse an assessment, challenge the association’s actions, or initiate litigation. Emergency assessments are especially prone to challenge because owners may balk at paying significant sums without their approval.

Avoiding or mitigating the risk of challenges, threats, and lawsuits are important reasons to involve legal counsel when there is significant change in the insurance status of the association.