All posts by Steve Tinnelly

Directors & Officers (D&O) Insurance

Volunteer directors and officers of an association are required to make decisions which may have significant legal and financial implications for the association and its membership. Because directors and officers do not receive any compensation, they are afforded certain protections against personal liability that may result from actions they undertake on behalf of the association. This is necessary in order to ensure that an association will be able to recruit people to serve on its board. (See “Director & Officer Liability Protection.”)

One of the ways in which directors and officers are insulated from liability is through Directors & Officers (D&O) insurance. D&O insurance protects against errors and omissions made by directors and officers while they were serving on the board. The governing documents (i.e., CC&Rs) of an association typically require the association to purchase and maintain D&O insurance. Additionally, Civil Code Section 5800 protects volunteer directors and offers from liability in excess of the association’s insurance coverage subject to the requirements discussed below.

Civil Code § 5800 Requirements
A “volunteer officer or volunteer director of an association…shall not be personally liable” in excess of the required insurance coverage amounts “to any person who suffers injury, including, but not limited to, bodily injury, emotional distress, wrongful death, or property damage or loss as a result of the tortious act or omission of the volunteer officer or volunteer director if all of the following criteria are met:” (Civ. Code § 5800(a).)

Nature of Act or Omission – The act or omission was performed within the scope of the officer’s or director’s association duties, in good faith, and was not willful, wanton or grossly negligent. (Civ. Code § 5800(a)(1)-(4).) and

Minimum Coverage – The association maintained and had in effect at the time the act or omission occurred and at the time a claim is made one or more policies of the insurance for both general liability and D&O coverage in the following minimum amounts:

100 or Fewer Separate Interests: $500,000 – If the association’s development is comprised of one hundred (100) or fewer separate interests (lots or units owned by individual members), the minimum amount of coverage is five hundred thousand dollars ($500,000). (Civ. Code § 5800(a)(4)(A).)
More than 100 Separate Interests: $1m – If the association’s development is comprised of more than one hundred (100) separate interests, the minimum amount of coverage is one million dollars ($1,000,000). (Civ. Code § 5800(a)(4)(B).)

Exception for Owners of More than 2 Units
The protections under Section 5800 do not extend to a person who owns more than two (2) separate interests in the association’s development. (Civ. Code § 5800(e).)

Scope of D&O Coverage
The scope of coverage under a D&O policy may vary. For example, D&O policies may include coverage for both current and former directors and officers, committee members and other association volunteers, association employees, and managing agents. D&O policies also contain various exclusions (claims that the insurance carrier will not cover), such as breach of contract claims, discrimination and employment practices liability, and claims brought against one director by the board (aka “insured vs. insured” claims).

Commercial General Liability (CGL) Insurance

Commercial General Liability (CGL) insurance protects an association’s members from liability that may result from a person’s use of the association’s common areas. By statute, an association must carry minimum levels of such insurance for the benefit of the association’s members. (Civ. Code § 5805.) Civil Code Section 5805(b) states that a cause of action brought against a member solely by virtue of the member’s ownership interest as a tenant-in-common in the common area of an association must be brought only against the association (and not against individual members) if both the following insurance requirements are met:

The association has one or more policies of insurance that include coverage for general liability; and
The general liability insurance coverage is maintained in the minimum amounts discussed below.

Minimum Amounts of Coverage
The minimum levels of CGL insurance which must be carried by an association pursuant to Civil Code Section 5805 depend upon the number of separate interests (units or lots owned by individual members) within the association:

100 or Fewer Separate Interests: At least $2m – If the association is comprised of one hundred (100) or fewer separate interests, the coverage must be maintained in the minimum amount of two million dollars ($2,000,000). (Civ. Code § 5805(b)(2)(A).)
More than 100 Separate Interests: At least $3m – If the association is comprised of more than one hundred (100) separate interests, the coverage must be maintained in the minimum amount of three million dollars ($3,000,000). (Civ. Code § 5805(b)(2)(B).)

AB 2430. Transfer Disclosures & Escrow Documents.

Costs for producing transfer disclosure documents must be separately stated and billed from other charges. Seller is responsible for the HOA fees and costs in producing the requested documents.

Current Status: Chaptered

FindHOALaw Quick Summary:

Civil Code Section 4530 requires an association, upon written request, to provide an owner, or his authorized recipient, with a copy of specific documents relating to transfer disclosures which a seller is required to make to a prospective purchaser of the seller’s property. AB 2430 (Maienschein) would require that the costs for providing the documents be separately stated and billed from other charges that are part of the transfer, and that the seller is responsible for paying the those costs. The bill would also require the seller to provide the prospective purchaser certain documents that the seller possesses free of charge.

*UPDATE: AB 2430 was approved on July 23, 2014 and its changes to the law become effective on January 1, 2015.

View more info on AB 2430
from the California Legislature's website

Civil Code Section 4736. Limitations on Pressure Washing.

(a) A provision of the governing documents shall be void and unenforceable if it requires pressure washing the exterior of a separate interest and any exclusive use common area appurtenant to the separate interest during a state or local government declared drought emergency.

(b) For purposes of this section, “pressure washing” means the use of a high-pressure sprayer or hose and potable water to remove loose paint, mold, grime, dust, mud, and dirt from surfaces and objects, including buildings, vehicles, and concrete surfaces.

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AB 2104. Water-Efficient Landscapes.

Increased protections for homeowners installing low-water using plants and water-efficient landscapes. Limits HOA regulatory authority.

Current Status: Chaptered

FindHOALaw Quick Summary:

Current law provides that an association may not prohibit low-water using plants as a group. AB 2104 (Gonzalez) would amend Civil Code Section 4735 to also render void and unenforceable any provisions of an association’s governing documents that prohibit, or have the effect of prohibiting, the use of low-water using plants as a group or as a replacement for existing turf.

*UPDATE: AB 2104 was approved on September 18, 2014 and its changes to the law become effective on January 1, 2015.

View more info on AB 2104
from the California Legislature's website

AB 2100. Yard Maintenance: Fines; Drought.

Increased protections for homeowners utilizing water-conservation measures during declared drought periods. Limits HOA regulatory authority.

Current Status: Chaptered

FindHOALaw Quick Summary:

In April 2014, the Governor signed an Executive Order prohibiting associations from fining, or threatening to fine, owners “who comply with water conservation measures.” AB 2100 (Campos) would codify the Order by amending Civil Code § 4735 to prohibit an association from imposing a fine or assessment against a member for reducing or eliminating watering of vegetation or lawns during any period for which the Governor or a local government has declared a state of emergency due to drought.

*UPDATE: AB 2100 was approved on July 21, 2014 and its changes to the law become effective on July 21, 2014.

View more info on AB 2100
from the California Legislature's website

AB 1738. Dispute Resolution.

Allows for either party to IDR to be assisted by an attorney at their own cost; Any resolution reached at IDR must be in writing and signed by both parties.

Current Status: Chaptered

FindHOALaw Quick Summary:

Civil Code Sections 5910 and 5915 require an association to provide a fair, reasonable and expeditious dispute resolution procedure for resolving a dispute between an association and a members. This is commonly referred to as “Internal Dispute Resolution” (or “IDR”). AB 1738 (Chau) would allow for either party to the IDR to be assisted by an attorney or another person in explaining their positions, at their own cost. It would further require that any agreement obtained in IDR be in writing and signed by both parties.

*UPDATE: AB 1738 was signed into law on September 18, 2014. Its changes to the law become effective on January 1, 2015.

View more info on AB 1738
from the California Legislature's website

AB 968. Common Area: Maintenance & Repair.

Clarifies repair and replacement responsibilities under Civil Code Section 4775 with regard to exclusive use common area.

Current Status: Chaptered

FindHOALaw Quick Summary:

Unless otherwise provided for in an association’s CC&Rs, Civil Code Section 4775 establishes the default apportionment of common area maintenance and repair responsibilities of an association versus those of the individual owners. Section 4775 is somewhat ambiguous with regard to exclusive use common area; Section 4775 fails to state whether an owner is responsible for the “repair and replacement” of exclusive use common area, not simply “maintenance.” Industry practice has held that the responsibility to repair or replace exclusive use common area is the association’s. AB 968 (Gordon) seeks to codify industry practice by amending Section 4775 to state that, unless otherwise provided for in the CC&Rs, the owner is required to maintain exclusive use common area, and the association is responsible to repair and replace exclusive use common area.

*UPDATE: AB 968 was signed into law on September 18, 2014. Its changes to the law will become effective on January 1, 2017.

View more info on AB 968
from the California Legislature's website

AB 569. Real Property: Divided Lands.

Adds an exemption to the requirement for directors to be elected pursuant to formal election procedures for associations that make every member a director.

Current Status: Chaptered

FindHOALaw Quick Summary:

Chapter 6, Article 4 of the Davis-Stirling Act (commencing with Civil Code Section 5100) establishes the procedures for the election of an association’s directors. The bylaws of some stock cooperatives provide that one member from each separate interest is automatically a director. AB 569 (Chau) would add subpart (f) to Civil Code Section 5100 in order to exempt these communities from having to utilize the balloting/election procedures for director elections.

*UPDATE: AB 569 was approved on September 27, 2014 and its changes in the law become effective on January 1, 2015.

View more info on AB 569
from the California Legislature's website

Small Claims Collection Actions

An association that has recorded an assessment lien against an owner’s property is permitted to enforce the lien through suing the owner personally and obtaining a money judgment (aka a “personal money judgment” or “PMJ”). (Civ. Code §§ 5700(a), 5720(b); See also “Money Judgments (Assessment Collection).”) Once the association obtains the money judgment, the assessment lien is extinguished and the underlying debt of the owner merges into the judgment obtained by the association. (Diamond Heights Village Assn., Inc. v. Financial Freedom (2011) 196 Cal.App.4th 290, 301.)

The money judgment may be sought in Small Claims Court, subject to the limitations discussed below.

$5,000 Claim Limitation
Although an owner (a “natural person”) may sue an association in small claims for an amount up to $10,000, an association may not sue an owner in small claims for an amount exceeding $5,000. (Code Civ. Pro. §§ 116.220, 116.221.) The limitations on foreclosure of an assessment lien set forth in Civil Code Section 5720(b) (i.e., foreclosure may not be instituted until the amount of assessment debt totals at least $1,800) do not apply to small claims actions:

“An association that seeks to collect delinquent regular or special assessments of an amount less than [$1,800]…may not collect that debt through judicial or nonjudicial foreclosure, but may attempt to collect or secure that debt…[b]y a civil action in small claims court…The amount that may be recovered in small claims court to collect upon a debt for delinquent assessments may not exceed the jurisdictional limits of the small claims court…” (Civ. Code § 5720(b).)

$2,500 Claims Twice Per Year
An association may not file more than two (2) small claims actions per calendar year in which the amount demanded exceeds $2,500. (Code Civ. Pro. § 116.231(a).)

Appeal of Judgment
If a judgment is obtained by the association against the delinquent owner, the delinquent owner may appeal the judgment; however, the association (as the plaintiff) may not appeal an adverse judgment. (Code Civ. Pro. § 116.710.)

Attorney’s Fees on Appeal
The appeal on a small claims judgment is heard in Superior Court, where both parties may be represented by an attorney. However, even if the association prevails on appeal, it cannot recover all of its attorney’s fees, as the available fees which may be recovered are capped at $150. (Code Civ. Pro. § 116.780(c).)

Money Judgment
Once the association prevails and obtains a money judgment, it may enforce the money judgment through recording an abstract of judgment (a “judgment lien”) and through levying the delinquent owner’s wages or bank account. (See “Money Judgments (Assessment Collection).”)

FindHOALaw

All posts by Steve Tinnelly

Directors & Officers (D&O) Insurance

Commercial General Liability (CGL) Insurance

AB 2430. Transfer Disclosures & Escrow Documents.

Current Status: Chaptered

FindHOALaw Quick Summary:

Related Links

Civil Code Section 4736. Limitations on Pressure Washing.

AB 2104. Water-Efficient Landscapes.

Current Status: Chaptered

FindHOALaw Quick Summary:

Related Links

AB 2100. Yard Maintenance: Fines; Drought.

Current Status: Chaptered

FindHOALaw Quick Summary:

Related Links

AB 1738. Dispute Resolution.

Current Status: Chaptered

FindHOALaw Quick Summary:

Related Links

AB 968. Common Area: Maintenance & Repair.

Current Status: Chaptered

FindHOALaw Quick Summary:

Related Links

AB 569. Real Property: Divided Lands.

Current Status: Chaptered

FindHOALaw Quick Summary:

Small Claims Collection Actions