CAI-CLAC Legislative Update: AB 1410

CAI-CLAC

LEGISLATIVE Update: AB 1410 BY: NORDBERG | DENICHILO, LLP

In what may be a record, only one piece of legislation specifically addresses community associations in California this year. AB 1410 (Rodriguez) started out as one of the most draconian bills aimed at California’s community associations that might have ever been introduced. It was even nicknamed by some as the “I hate HOAs bill.” However, with the work of CAI’s California Legislative Action Committee, the bill that ultimately was enacted has little impact on associations and is much more easily manageable.

AB 1410 impacts California’s community associations in three ways. In what is perhaps the most significant change, the legislature continues its efforts to create affordable housing by

creating additional rental opportunities. AB 1410 bans enforcement of any restriction in an association’s governing documents that prohibits the rental or leasing of a portion of an owner-occupied separate interest for a period of more than 30 days. The key to this part of the bill is that it only applies to owner-occupied units, essentially permitting roommates, so long as the rental is for a period of at least thirty days. It does not impact an association’s ability to restrict rentals of properties that are non-owner occupied.

AB 1410 also expands on the prior law that prevented an association from taking any enforcement action against an owner

for failing to water in times of Governor-declared drought. Under the new law, an association is prohibited from taking any enforcement action, excluding assessment collection, during a declared state of emergency if the nature of the emergency giving rise to the declaration makes it unsafe or impossible for the owner to prevent or fix the violation. California is almost always in some form of declared state of emergency. However, not many of the declared states of emergency make compliance with an association’s governing documents unsafe or impossible. Given that reality, it is unlikely that this provision will have a significant impact on community associations in the state.

Lastly, AB 1410 expands on the legislature’s previous efforts

to protect free speech rights in associations, by preventing an association from prohibiting an owner or resident from using social media or other online resources to discuss any of the following, even if the content is critical of the association or its governance: (i) Development living; (ii) Association elections; (iii) Legislation; (iv) Election to public office; (v) The initiative, referendum, or recall processes; or (vi) Any other issues of concern to members and residents. In addition, the law states that an association shall not retaliate against a member or a resident for exercising any of the rights to peacefully assemble and freely communicate with one another and with others with respect to common interest development living or for social, political, or educational purposes, whether in person, or on social media. Despite the right of a resident or owner to express themselves on social media, the bill makes clear that associations are not required to provide owners access to the association’s websites or social media accounts.

CRISIS:

California Community Association Insurance

BY: KIMBERLY LILLEY, CIRMS, CMCA, EBP, BERG INSURANCE AGENCY

Anyone living in California over the last five years has seen the dramatic increase in property losses caused by wildfire. Some say that since 2017 wildfire losses have equaled a dollar figure of two Northridge Earthquakes. Carriers that used to have money in reserves to fall back on in a “bad claims” year have fewer and fewer of those dollars, because every year in California seems to be a bad claims year.

Admitted insurance carriers in the state of California file their rates with the California Department of Insurance in order to be a part of the “traditional” insurance market in the state. But these approved rates limit how much a traditional market carrier can adjust their premiums to make up for large losses in their book of business. Because of this inability to rate for the real cost of wildfire risk, carriers in the traditional market are opting to pull out of the market entirely. Remember, insurance carriers are not charities. They are a business and need to make sound business decisions. This leaves a large number of associations in the hands of the Excess and Surplus (E&S) market, which has more agility, and fewer regulations. The California Department of Insurance really has no power over how they do business, unlike the traditional market, which can make it harder to address injustices, as well as making the premiums offered more subject to supply and demand market forces.

With so many wildfire losses, the supply of carriers willing to write policies has gone down, and continues to go down. If a traditional carrier is willing to accept the risk, they are pushing their rates to the top of their approval range, often limiting the amount of coverage, and demanding high deductibles. When a $40,000 premium for an annual policy becomes $455,000 the next year, with no indication of whether it will stay there, or even increase the subsequent year, the association’s response is usually, “We can’t afford that.” But, given the alternatives, these associations cannot afford NOT to. Not insuring puts the association in violation of their CC&R and opens up the association to a Directors and Officers Liability claim (D&O). It will also create a lack of financing for those looking to buy into the association. Fannie Mae and Freddie Mac will not back loans where an association is in violation of their governing documents, ESPECIALLY the insurance provisions. That means that those who can no longer afford to live there because of the increased costs of insurance, cannot find anyone to buy their home, potentially creating a different kind of financial crisis for the community association.

When we come to the question of what there is to do about all of this, flexibility and advocacy are key. Flexibility, because finding ways of helping the association obtain financing for the increased premium or rewriting governing documents for townhome-style condominium associations in order to allow them access to HO-3 policies instead of

“The best thing we can all do is to actively reduce the risk of wildfire in our communities, which will ultimately reduce the amount of wildfire damage, increasing accessibility to insurance in the state.”

the usual HO-6 policies can help the associations get through the next few years. Advocacy, because something has to change.

Community Associations Institute’s California Legislative Action Committee (CAI-CLAC) has an Insurance Task Force that has been working on the issue since early 2021, gathering information, setting up meetings with the Department of Insurance, leading calls to action, making comments on proposed regulations, and attending hearings regarding updates to the CA FAIR Plan. They have also been tracking and influencing legislation that might provide opportunities for relief.

California is in crisis. And it won’t be over any time soon. Making sure that we are communicating clearly about the issue is one of the best things we can do. The more we vilify the insurance companies, the more they leave the marketplace and reduce the supply of insurance, pushing up the cost. The best thing we can all do is to actively reduce the risk of wildfire in our communities, which will ultimately reduce the amount of wildfire damage, increasing accessibility to insurance in the state. We need to speak up, share stories and solutions. We can help each other through this.

Kimberly Lilley, CIRMS, CMCA, EBP is the Director of Business Development for Berg Insurance Agency and the Chair of CAI-CLAC’s Insurance Task Force. She may be reached at kimberly@berginsurance.com