Condo Media - September 2014 - 27

The final piece of the risk management team is volunteers. I contend that
the board only functions as a "body" at
a properly noticed board meeting. The
board members rarely have any duties
outside of the board meeting other
than those directly given to them by
the board as a whole during the properly noticed board meeting. After the
task is delegated to the board member,
when he or she leaves the board meeting, he or she is acting as a "volunteer."
The pain and suffering of many board
members and their boards is when they
forget this concept and entertain issues
of association members outside the
board meeting and try to resolve those
issues for which they really do not have
the authority to do.
Most association member issues
should be directed to the manager for
handling, and if it is an issue that is
not within their authority, the manager should bring it to the board in the
normal course of business. If there is
an emergency, the unit owner should
call 911. When board members exit
the board meeting, they should remove their board hat.

How Is the Community Association Risk Management
Program Funded?

The board risk manager has two key
exposures to protect in addition to
the lifestyle issues. The lifestyle issues
are protected by enforcement of the
governing documents. The other two
categories are "wear and tear" and
"unexpected perils."

Wear and Tear

The keystone to the wear-and-tear
exposure is the properly completed reserve study. In a perfect world, this was
originally done by the developer or the
"transition team" at the time control of
the association was turned over. There
are some developers who have the mission that they do not want to sell you
"a house," but they want to sell you
"all of your houses."
Accordingly, it is in their best interest
to have a transition study done. I recom-

mend that they should commission an
independent reserve/transition study on
behalf of the association. If there are any
issues, knowing them as soon as possible
is better. The older we get, the clearer it
becomes that the sooner we know of an
issue, the easier and cheaper it is to fix.
When done properly, the reserve
study is the blueprint of the wearand-tear portion of the risk management program. This is also key for the
insurance professional so he or she is
able to use it to put together the insurance program and to use it as a check
and balance against a property walkthrough, a review of the existing insurance program, review of the governing
documents and the corresponding
insurance requirements, and discussions with the board risk manager and
in most cases the community manager.
Having handled thousands of D&O
claims over the years, we can often
see their genesis from the absence of
a properly completed, updated, and
funded reserves study. In our opinion,
it is worth its weight in gold.
The reserve study is the key to setting
an association's "budget." This should
present the basis of what is necessary
to properly operate the association on
a daily basis and the anticipated cost of
taking care of wear and tear. We can have
lengthy debates regarding whether it is
better to fund a reserve study as close
to 100 percent as possible or whether
we should leave it to the owners at the
time things need to be fixed. The key to
community association risk management
is "certainty" and the ability to avoid as
many surprises as possible. The goal, contrary to the belief of many, is not to keep
assessments as low as possible. Rather,
the board risk manager is obligated to
protect the assets of the association and
place the association interests above his
or her own interests. We have never seen
any governing documents that indicated
that low cost is a goal. Rather, the goal is
to protect the assets.

Unexpected Perils

Unexpected perils happen. Many perils
are insurable, and some are not. In

addition, some items that are insurable
have a heavy price tag. California has a
big earthquake exposure. Florida and
Texas have a hurricane exposure. In our
opinion, community associations must
obtain this coverage notwithstanding
price based on the duty to protect the
association interests. In reality, this
does not always happen.
The duty of the board risk manager is to obtain the best coverage
available. As a board risk manager,
the board needs to use a community
association insurance professional
to do the evaluation and to make a
proposal. In our opinion, "shopping
insurance" does not mean looking for
the best policies available (which for
many translates to the cheapest) but
to shop for the appropriate community association insurance professional.
If they are truly a professional in this
industry, they will know the best markets available.
If you do not like what the insurance professional has done or the
service prior and after the insurance is
obtained, fire him or her and interview
another.
How to Select a Community Association Insurance Specialist to Develop
the Insurance Portion of the Community Association Risk Management Program
* Shop for the community association
insurance specialist (licensed insurance agent), not the product.
* How long has the insurance professional been involved with community
associations?
* How many associations does the
professional handle, including ones
like yours?
* Obtain references to contact at
neighboring associations handled by
the specialist.
* Ask what they need to analyze your
program.
Condo Media * September 2014

Condo Media - September 2014

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