INSURANCE
Minimum Insurance for Common Interest Developments By Mike Rey
I
n 1992, Ms. Ruoff suffered catastrophic injuries while falling down defective common-area stairs. Her husband sued every homeowner in the community stating that each unit owner was liable for her injuries because each unit owner jointly owned the common area stairs. The court of appeal agreed that each unit owner was jointly and severally liable for her injuries. The cost for such a loss of injury exceeded the $1 million liability limit the association insurance policy held in coverage. (Ruoff v Harbor Creek HOA, 1992)
AS SUCH, CIVIL CODE 5805 WAS ADDED TO THE DAVIS-STIRLING ACT THAT MANDATED MINIMUM REQUIREMENTS IN LIABILITY COVERAGE FOR ALL COMMON INTEREST DEVELOPMENTS AS:
1) Minimum liability limit for associations with less than 100 units must carry $2 million liability coverage.
2) Minimum liability limit for associations with more than
the larger the community, the more liability the policy should carry. That is not to say that smaller communities should not carry higher limits, but their exposure could be a lot less than a larger community. Communities should also look at umbrella liability policies between $5 and $15 million. They are usually an affordable way to add additional coverage to protect your community. I’m often asked by new board members, “Could I be sued individually if I join the board?” Civil Code 5800 (a) (4) offers protections for individuals and the board members as a whole. Individuals doing work on behalf of the community are protected as a whole unit and therefore, would not be singled out in the event of a lawsuit brought against the board or its individual members. Of course, intentional acts of individual board members would not be covered. The minimum requirements for D & O (Directors and Officers) coverage are as follows:
1) Associations with less than 100 units, a minimum of $500,000 in D & O liability is required.
100 units must carry $3 million liability coverage. Although these are minimum requirements, they are by no means set as the only limits a community should consider. Associations should base their liability limits after considering their exposure, the health of their reserve account, and any assets of the community. In most cases, 18
Quorum February, 2021
2) Associations with more than 100 units, a minimum of $1 million D & O liability limit is required. Since we live in such a litigious state, it is recommended to purchase more coverage than the minimum requirements stated in Civil Code 5800(a).
