Monday, June 26, 2017

Why Should Your HOA Maintain A Workers Compensation Policy

Truman and Gail Lawson had an unwieldy 50-foot palm tree in their front yard and they wanted it trimmed. It seemed like an easy task. The Lawsons hired Eliseo Lascano, owner of Anthony’s Tree Service, to perform the work. Lascano agreed to charge the Lawsons $450 and assigned Miguel Fernandez, one of Lascano’s employees with more than four years’ tree-trimming experience, to the task. Unfortunately, Fernandez fell from the tree while performing the work sustaining serious injuries.
 
The California Business and Professional Code requires a contractor’s license to trim a tree measuring 15 feet or more. (Bus. & Prof. Code, § 7026.1, subd.(c)). Despite apparent misrepresentations to the contrary, neither Lascano, nor his company,
Anthony’s Tree Service, were licensed. State Compensation Ins. Fund v. Workers’ Comp. Appeals Board (1985) 40 Cal.3d 5, 12-16 Labor Code, makes an unlicensed contractor who is performing work for which a license is required an employee of the hirer of the unlicensed contractor, for the purpose of workers’ compensation. In other words, the Lawson’s, by hiring an unlicensed contractor to do the work, had now automatically become the injured worker’s employer.
 
Could the above scenario occur at a common interest development? Absolutely. Despite the constant and well-intentioned warnings of cautious community managers, Boards of CID’s often hastily hire vendors to do work and never think of confirming the existence of the vendor’s workers’ compensation policy.

California law requires ALL employers to maintain workers' compensation insurance - California Labor Code, Section 3600(a). Furthermore, nearly every set of CC&R’s require a Board of a common interest development to purchase workers’ compensation coverage “to the extent necessary to comply with applicable law.”
 
Nevertheless, many Boards ignorantly argue the coverage is unnecessary thinking that an injured worker will “be covered somehow.” Unfortunately nothing could be farther from the truth. If Miguel Fernandez were injured at a common interest development, could he sue the Association and seek coverage under the Association’s general liability coverage? No. All general liability policies covering community associations contain specific exclusionary language which eliminates coverage for “any obligation” of the Association “under a workers compensation (sic) law.” (ISO Language – 1992 – CG 00 01 10 93).
 
If the Board is sued by the homeowners for failing to purchase coverage, surely the Board would have coverage under their Directors & Officers Liability policy. Unfortunately, again the answer is “no.” Consistent in every Directors & Officers Liability policy is a specific exclusion for any claim “arising out of, directly or indirectly resulting from or in consequence of, or in any way involving”… bodily injury or sickness -- whether workplace related or not. In other words, if the Board is sued for a failure to maintain workers’ compensation coverage, they will find themselves without any benefit of D&O protection.


Thanks to Timothy Cline, CIRMS, Timothy Cline Insurance Agency, Inc., Santa Monica, CA for sharing the information in this article.




 



 

 

Monday, November 21, 2016

New Law Requires Owners To Provide Information


On September 28, 2016 Governor Brown signed and approved Senate Bill 918, which became part of the Davis-Stirling Common Interest Development Act, specifically Civil Code§ 4041. This law goes into effect on January 1, 2017.

The new law addresses an important issue for community associations and where important notices
should be sent. Section 4041 requires owners, on an annual basis, to provide the association
with written notice of all of the following: 

(1) The mailing address to which notices from the association are to be delivered 

(2) A secondary address to which notices from the association are to be delivered 

(3) The name and address of their legal representative, if any, including any person with power of attorney or other person who can be contacted in the event of the owner's extended absence 

(4) Whether the property is owner-occupied, rented, vacant or undeveloped land. If an owner fails to make these disclosures, the onsite property address is deemed to be the proper mailing address. While most CC&Rs contain a similar type of provision § 4041 imposes this obligation whether the association's governing documents addresses it or not. In the new statute, the association must solicit the annual disclosure to the membership and must update the association's records at least 30 days prior to making the association's annual disclosure in accordance with Civil Code § 5300.

Monday, November 14, 2016


 
Directors Failure To Investigate

The business judgment rule protects directors from personal liability provided they conduct a reasonable investigation (due diligence) before making a decision.

In a recently published case, the Court of Appeal found that board president Edna Parth was subject to personal liability for failing to investigate matters before taking action. The court was disturbed that, among other things, she:

1. Hired a roofing company without soliciting bids, checking references or licensing, without verifying insurance, or consulting management or legal counsel. The company proceeded to perform defective work that required additional repairs.

2. Signed promissory notes for $900,000, $325,000 and $550,000, secured by the association's assets, receivables and property. Parth later testified that she had not reviewed the CC&Rs or bylaws and did not know whether she had authority to sign the notes and was not aware they needed membership approval.

3. Signed a five-year contract with a landscape company and later admitted she did not know if she had authority to sign it. She testified that her understanding of her authority under the bylaws was "none."

The court noted that the failure of a director to conduct due diligence is a breach of their fiduciary duty. In addition, conduct contrary to the governing documents may fall outside the business judgement rule. The court commented that directors cannot close their eyes to matters as basic as the provisions of the CC&Rs and bylaws and at the same time claim they exercised business judgment.

RECOMMENDATION: Board members should make sure their minutes reflect that they investigated and deliberated on issues before making a decision. In addition, they should consult legal counsel, management, and consultants as may be appropriate. Finally, they should have a working knowledge of their governing documents (and then follow them). To read the case, see Palm Springs Villas II HOA v. Parth

Thanks to the Davis-Stirling.com electronic newsletter for this information.

Tuesday, December 2, 2014

Trespass and Nuisance Meet Inconvenience Damages









Do you have unwanted intrusions such as water draining from your neighbor’s unit or your unit? Is this invasion annoying or does it inconvenience you in some manner? Recently, a California Court of Appeal discussed the available remedies for someone facing such an imposition. One such available remedy is awarding damages for annoyance, discomfort, and inconvenience.1

Gail and Lewis Wyatt were awarded damages after a lower court found their neighbor’s patio improvements caused water to continuously flow into the Wyatts’ property, which eventually caused mold and damage.2 The appellate court, however, did not agree with the lower court’s decision, and the reason for this disagreement is essential.3

The Wyatts did not live in the unit. To be eligible for annoyance, discomfort, and inconvenience damages, you have to occupy the unit. Your use and enjoyment of the property cannot be inconvenienced if you are not actually using the property. The Wyatts’ award for discomfort and annoyance damages were, therefore, taken away by the appellate court.4

As we all know, our actions have consequences. If you are causing a nuisance or trespass to your neighbor’s property, be prepared to have to do more than just cease your actions or pay for property damage. You may have to compensate your neighbor for his or her inconvenience and annoyance, which can be a hefty bill to pay. Before the appellate court found that the Wyatts did not qualify for such damages and took them away, the Wyatts were looking at receiving $300,000.00 in discomfort and annoyance damages.5 A fee most, if not all of us, would find astronomical!





While the association in this case was quickly removed from any liability, as the area causing the nuisance was one which the homeowner had the responsibility to maintain,6 the association must still keep in mind that it too could cause such problems to its homeowners if it fails to maintain the common areas. The same damages for annoyance, discomfort, and inconvenience could be awarded to the homeowners bothered by a nuisance caused by the association’s own failures to properly fulfill its responsibilities and duties under the governing documents. This could result in a hefty sum of money being paid to homeowners that could easily be avoided by keeping up with repairs and maintenance.





Thanks to Rachelle Harrington of Silldorf & Levine for this excellent information. If you want more information from Ms. Harrington you can reach her firm at http://www.silldorf-levine.com/index.php

Thursday, August 14, 2014

Update of California Drought Legislation


 
As you are likely aware, California is in the midst of a drought. Below is an update from Jakob Harle, of Harle, Janics & Kannen regarding recent legislation and how it affects community associations.
 
We had mentioned during our previous e-mail blast regarding Governor Brown's Drought Proclamation that there were multiple drought-related bills wending their way through the State Legislature. One such bill, AB 2100 (Campos), was signed by the Governor on July 21, 2014. Because the bill was declared to be an urgency statute, it became effective immediately, and therefore now applies to all residential common interest developments.

The bill amends Civil Code Section 4735, which deals with low water-using plants in residential CIDs, by adding new subpart (c). New subpart (c) prohibits residential associations from imposing a fine or assessment against a member for reducing or eliminating the watering of vegetation or lawns during any period for which either (i) the governor has declared a state of emergency due to drought pursuant to Government Code Section 8558(b), or (ii) a local government (i.e., a city or county) has declared a local emergency due to drought pursuant to Government Code Section 8558(c). The bill does not address other forms of HOA discipline, such as the suspension of HOA voting privileges or suspension of recreational facility use privileges; however, our best guess is that a court would likely hold that the intent and spirit of the statute is to prohibit HOAs from disciplining their members in any manner for under watering during declared states of emergency due to drought, so our view is that voting and recreational facility use privilege suspensions are probably off the table as well.

Although HOAs are prohibited from disciplining for under watering during declared drought emergencies, it is our view that HOAs can still require members to properly maintain their lots in ways that are not water-related, such as requiring lawns to be kept free of weeds, and requiring owners to remove plant material that has died as a result of under watering.

 Stay tuned for future updates on other drought-related bills affecting CIDs!
 
We would like to thank Mr. Harle for providing this information. For more information on his firm, visit their website at www.hjklawfirm.com or call them at 714-429-0700.

 

 

Monday, February 10, 2014

FHA Loans - Are They A Civil Right?

Ken Harney writes an award-winning, nationally syndicated column for the Washington Post on “The Nation’s Housing.” On January 27, he interviewed me for an article he was writing about the vulnerability of associations to discrimination claims related to FHA certification.

His interest was triggered in part by an article I wrote last November about an Ohio Civil Rights Commission investigation of alleged familial discrimination when a condo board declined a single mother's request to certify the development for FHA financing (so she could buy a unit).


After a six-month investigation, Ohio's CRC found insufficient evidence the association had violated the law. However, they left open the door that the buyer could file an action in federal court for disparate impact discrimination. If that were to happen, the Department of Justice could pursue the matter against the association.

Ken Harney noted that the current administration has already aggressively pursued disparate impact discrimination against mortgage companies. In other words, condominium associations could be open to civil rights claims for not seeking FHA certification because their decision has the practical effect of discriminating against minorities. To read the article, see "Condo Boards Could Face Discrimination Claims."


RECOMMENDATION: As I noted in last year's article, any decision not to seek FHA certification must be based on non-discriminatory reasons, which should then be recorded in the board's meeting minutes. Boards should seek legal assistance drafting the board resolution before it is recorded in the minutes.
Thanks to Adrian J. Adams of Adams Kessler PLC for this excellent information. If you want more information from Mr. Adams you can reach his firm at www.adamskessler.com.

Wednesday, October 23, 2013

California Appeals Court Upholds Reasonable Election Rules


Friars Village Homeowners Association v. Hansing: Relationship Rule


According to the Court of Appeal in San Diego County, a homeowners association may adopt, by rule, a Board candidate qualification where the qualification is reasonable and does not conflict with the Association's other governing documents.  So ruled the court in Friars Village Homeowners Association v. Hansing, an opinion published October 9, 2013. 

The rule in question prevented a person from seeking election to the Board if the person was related by blood or marriage to a current Board member or a current candidate for election to the Board.  (The court referred to the rule as the Relationship Rule.)  

Association member Charles Hansing challenged the Relationship Rule.  Mr. Hansing's wife was a member of the Board.  When the Association denied Mr. Hansing's request that his name be placed on the ballot, he sued.  Both the trial court and the court of appeal upheld the Relationship Rule.  The Court of Appeal held the rule was reasonable and cited with favor the rationale given by the Association for adopting the rule (to protect the Board from the possible wrongdoing by directors from the same household and to prevent a situation where two directors would constitute a substantial voting bloc).  The court rejected Mr. Hansing's claims that the rule, by establishing a new qualification, was inconsistent with the Bylaws or that the rule violated his right to self-nomination.   

This case stands for the proposition that a Board may adopt, via an election rule, a qualification for election to the Board that goes beyond what is set forth in the Bylaws or Articles, provided the qualification is "not inconsistent" with the Association's governing documents and the qualification is, in the opinion of the court, reasonable.  Also, by implication, a homeowners association is not required to include a non-qualified candidate's name on the ballot for election of directors.  

The Friar Village case was decided on specific grounds, involving the language of the Association's governing documents, the Board's purposes for adopting the rule and the court's opinion on the reasonableness of the rule.  But the case's holding represents a potentially broad grant of authority to Boards regarding adoption of qualifications by rule and the authority of associations to exclude nonqualified candidates from the ballot.
 
Thanks to the Law Firm of Fiore, Racobs & Powers for this information. A leading firm in the practice of community association law. For more information on their firm, check their website at www.fiorelaw.com