By Bryan Farley, Association Reserves - CO
Q) What is the difference between loss assessment coverage and special assessment coverage?
A) Loss assessments are the result of sudden and accidental damage that is covered by an insurance company.
A Special Assessment is an extra fee charged to the owners of an association to pay for projects that are not the result of sudden and accidental damage or a covered loss. For example, if a property has not budgeted for the eventual replacement of the roof, owners may need to be charged a special assessment to pay for the replacement of the roofing system.
Q) What is the difference between a sudden loss, capital improvements, and maintenance?
A) A sudden loss is something that happens unexpectedly, a capital improvement is an upgrade or large planned project, maintenance is something that is done regularly so that the asset can achieve its expected life.
An example of sudden loss is a hailstorm that causes damage to the association roof.
A capital improvement would be if the association wants to install a playground within the property when no playground previously existed.
Maintenance is the general upkeep of the assets that help the asset achieve its expected useful life. For example, items such as asphalt sealing, roof patching, siding painting, wood staining, boiler repairs, etc., will help these items achieve their expected useful life. Typically, ignoring maintenance projects will shorten the life of the asset or may even cause the eventual replacement value to increase due to lack of maintenance.
Q) Will an HO6 insurance policy cover a special assessment that is due to deferred maintenance?
A) No, it will not.
For example, an asphalt composition shingle roof was installed in 2000 is expected to last approximately 20-25 years. The roof is now, in 2023, approaching the end of its expected useful life. An owner is expected to maintain the roof, and the failure to do so is not a sudden and accidental occurrence that would result in a successful insurance claim.
Loss assessments are the result of sudden and accidental damage that is covered by an insurance company, special assessment is for special projects that are not the result of sudden and accidental damage or a covered loss.
Q) What is deferred maintenance?
A) Deferred maintenance occurs when s common area component needs to be repaired or replaced, but the association chooses to not the make repairs, and instead pushes the project back. For example, if the roof needs to be replaced this year, but the HOA does not have enough money to pay for this project, the board may decide to defer the project another year.
Q) What are the consequences of deferring our projects further?
A) Consider the roof will soon need to be replaced (with a remaining life of 0 years) per the recommendation of a qualified inspector. If the board chooses to defer the project, then there are a couple of outcomes:
- The roof will fail catastrophically with damage to the interior of a unit, which would now require a large restoration project to mitigate this issue. This will also negatively impact the HOA since the failure was caused due to board negligence. This could possibly result in lawsuits or other costly issues.
- The roof project will be deferred, but the cost will be higher in the future due to inflation and other unknowns (supply chain issues, labor issues, etc). The HOA will now need to charge the owners more money in this scenario to make up the difference in cost. This can result in a special assessment or large loan requirement.
Overall, deferring a project will always cost the owners more money. It is best to complete a project when it comes due.
Q) If we complete this project now, won’t our dues go up and that may negatively impact our resale value?
The data shows that well-funded reserves increase the resale value of a home. A well-funded association can increase the resale value of its homes by ~12% relative to a poorly funded association.
When a property is experiencing component failure due to deferred maintenance, a prospective buyer will see that they are buying a property in an HOA that cannot maintain its current financial obligations, and therefore may be less incentivized to pay top dollar for a property that is underfunded (roofs leaking, paint peeling, potholes in the parking lot) and cannot pay for basic maintenance needs.
Ultimately, the board has three options to pay for the upkeep of the common area assets:
1) Regular budgeted contributions into the reserve account
2) Special Assessments and Loans
3) Doing nothing
The most affordable option is to pay equally distributed contributions into the reserve account since every owner over the life of the property should have paid into this fund. Every owner will pay their fair share of their usage of the common area assets.
A special assessment and loan are sometimes necessary if the HOA does not have adequate reserves, however, these are more costly than regular budgeted contributions.
Doing nothing is the costliest because deferring maintenance could lead to structural damage, and potentially cause life safety issues for the property.
Each board has a choice to make, and the choices are not easy, but there is clearly a right choice and a wrong choice. The wrong choice could lead to costly emergency projects, or at the absolute worst, building failure.
The right choice to make is to spread out the inevitable costs of the ongoing deterioration of the common area components to all owners of the HOA. This way, every owner, regardless of when they happen to live at the property, will be paying a fair share of the reserve contribution obligations.
Bryan Farley is the President of Association Reserves, CO and has completed over 3,000 Reserve Studies and earned the Community Associations Institute (CAI) designation of Reserve Specialist (RS #260). His 12+ years of experience includes all types of condominium and homeowners’ associations throughout the United States, ranging from international high-rises to historical monuments.
By Kiki N. Dillie, Altitude Community Law
No one feels good about collections. Board Members don’t relish sending their neighbors to collections. Professionals, be they managers or account techs or attorneys, don’t enjoy it either. However, the reality is that collections is a necessary reality for nearly every Association at some point.
Sometimes a homeowner is in a bad financial situation through no fault of their own, such as a medical issue. Sometimes a homeowner is unable to pay an emergency special assessment. Sometimes a homeowner just doesn’t want to pay because they are unhappy with the Association’s lack of maintenance. Regardless of the reason behind the non-payment, the end result is the Association now has a homeowner with a delinquent balance. Inevitably, the Association where you are a Board Member or an Association you manage or an Association you represent will have someone that is unable or unwilling to pay their balance.
This situation can be uncomfortable for everyone involved. The Board has responsibilities to the Association and is obligated to ensure all homeowners are complying with the governing documents of the Association, which includes paying assessments timely. But, the Board is also aware that they are sending their neighbor to collections, which can be awkward when meeting that homeowner at the mailbox or park. Conversely, the Association has its own responsibilities to uphold and relies on all homeowners paying their assessments timely. If some homeowners do not, the Association may not be financially able to provide the services and amenities it is contractually obligated to provide. If enough homeowners fail to pay their assessments timely, it could result in the need for a special assessment, essentially making the paying homeowners pay their fair share plus a portion of their neighbors’ shares.
The Board has a duty to uphold the governing documents of the Association, including the Association’s Collection Policy. Therefore, when a homeowner falls delinquent, regardless of the circumstances, the Board should follow the Association’s Collection Policy and send the notices as listed under the policy. However, if a homeowner reaches out to the Board before the balance has been sent to an attorney for collections, it is generally recommended that the Board and homeowner have an open dialogue to try to reach a resolution. Both the Board and homeowner should be reasonable and try to resolve the situation. For example, a waiver of late fees and/or interest may be a reasonable solution. Alternatively, an extended payment plan option may be reasonable.
However, it is important for both the Board and homeowner to understand the limitations of the discussion as well. Generally, a waiver of assessments is not recommended or permitted by the Association’s governing documents.
Additionally, the Board should be careful to avoid possible selective enforcement claims. All homeowners in similar situations should be treated similarly. Having standard practices in place can help avoid selective enforcement. For example, a Board could have a blanket practice that any homeowner that initiates settlement discussions with them will be offered a waiver of late fees and interest if the remaining balance is paid in full. What Boards should avoid is unilaterally waiving a balance for a homeowner or deciding to not follow the Collection Policy for a particular homeowner just because they happen to know about a medical condition or financial misfortune impacting that homeowner. It is entirely possible that other homeowners are experiencing the same misfortune, but the Board does not know about it, resulting in potential selective enforcement claims.
Collections is often uncomfortable for all parties involved and most people want to reach an acceptable resolution to help the homeowner get out of debt to the Association. It is important for Board Members to be aware of the potential problems with waivers or settlement negotiations, such as waiving assessments or selective enforcement. However, with the proper knowledge, collections can be done with compassion, while also being sure the Association is properly funded.
“Kiki Dillie is a Shareholder and Debt Recovery department head at Altitude Community Law, P.C., located in Lakewood, Colorado. Altitude Community Law specializes in representation of community associations all over Colorado and has offices in Lakewood, Loveland, Colorado Springs, Frisco and Durango.”
By Jennifer Kinkead, Goodwin & Company
90% of the Community Management Business is the relationships we build with our vendors, our peers, and, most importantly, our Boards of Directors. The relationship between the Community Manager and the Board of Directors can be defined as the most important relationship to nourish. The role and responsibility of a Board member is so important when it comes to managing an HOA correctly and accurately. We can all agree that being a Board member can be a thankless job at times, as they are homeowners who are graciously volunteering their time to serve the community they love.
The best way to understand the role of Board member is to understand their responsibilities to the Association they are serving on. The most important role of the Board of Directors is the fiduciary responsibility they have to the Association. It is crucial that all Board members commit to enforcing the Governing Documents of the Association, that is their job. This can be difficult for some Board members as some rules can be a point of contention to their fellow neighbors. Board members dedicate their time to guaranteeing the Association is being managed according to the law and Governing Documents of the Association. Current Board members play a huge role in developing current and future leaders in the Association who will represent the Community once they are gone.
I think it’s safe to assume that serving a community cannot be done without some assistance; and this is where the management company comes in. Boards entrust the manager, the same way the homeowners entrust the Board members. Together, the Board and management company accomplish the duties of the Association. It’s important that managers nourish the relationship with the Board, as that can also be the defining factor in them continuing to work with the management company they represent.
Board members are also trusted to represent the homeowner and speak on their behalf. It’s important to make sure there are active Board members at all times, and any vacant seats get filled according to the Governing Documents.
How is that done? Board recruitment!
Board recruitment is an on-going process as Board seat terms do expire and finding volunteers also cannot be easy, but it is meaningful to the Association. Below are just a few ways to recruit Board members:
As any relationship requires attention to grow; the same applies with your Board relationships. Once you are assigned to a new community, or a new Board has just been elected to your current community, don’t be afraid to nourish the relationship you have with them. The goal is gaining their trust to ensure you are serving the Community as one voice.
About the Author: My name is Jennifer Kinkead, senior community/ special district manager for Goodwin & Company. I so thrilled to be a part of an industry that is so rewarding, and I’m so proud to help bring Goodwin & Company to Denver Colorado!
By Nicole Hernandez
Putting it in today’s terms, one of my biggest “cringe” moments being an HOA insurance specialist is when a Board of Directors decides they do not wish to procure Directors and Officers Liability Insurance (D&O). In my mind, (and I’m sure many of you share this same opinion), this coverage is absolutely necessary to protect the Board from allegations of wrongdoing and the defense against such claims. Often, I find that the reason a Board may choose to decline procuring D&O coverage is because they do not understand why this coverage is necessary and what exactly it covers.
I recall the time I experienced a discrimination complaint in my prior life as a Community Manager. A resident was dissatisfied with the general landscape maintenance of the common areas and filed a complaint with DORA against the Board of Directors, the landscape company, Management, and the Association itself. Fortunately, we did have a D&O policy in place and coverage for the response and defense was provided by the insurer.
The first step in the complaint was gathering all the documentation related to the matter to bring forth with our response. In this case, we wanted to provide records of all landscape work orders, all planned and executed landscape projects and architectural control records related to landscape modifications. Additionally, any meeting minutes that mentioned the same and phone records were requested. I imagine with today’s technology, the compilation of these records would be much more streamlined, but back then it was a process to collect all this various documentation. Additionally, as management contracts often work, the additional time required to gather the records, copies and claim management were outside of the standard routine services as defined in the management agreement, so this all resulted in additional expenses for the HOA.
The greatest expense for the community was the attorney fees and court costs required to respond to the complaint. The attorney had to review the records through the lens of the complaint and draft a response to the State regarding the allegations. As is common with such claims, additional information needed to be provided before the State eventually closed the complaint with no finding of any violation by the defending parties.
Due to the nature and desired resolution of the original complaint and the Board’s sincere desire to rectify the issue and resolve any lingering feelings of being wronged, several meetings were held with the complaining party, Board and landscapers trying to come to a satisfactory resolution of the landscape in question. The additional meetings required a mediator, which was also provided and funded by the HOA itself.
In the end, the response and defense of the claim took over nine months and an estimated expense of $50,000 in attorney fees, court costs, and settlement expenses, all of which would have been funded by the association if it had not carried D&O coverage. I am not aware of any communities that regularly budget a $50,000 contingency, attorney fee expense, or other relevant line item, so it is likely that a loan or special assessment would have been necessary to fund this unexpected expense.
It seems like such a silly example. We had to engage attorneys, a mediator, and the court system to resolve an aesthetic issue with common area landscaping (I hear the chuckles coming from my Community Management friends now….do I dare mention native grasses?!), but these are common situations when we live in proximity and are unable to find common ground on matters that may be seen from different perspectives.
I use my personal example of landscaping to illustrate the types of D&O claims we experience in HOAs. Allegations of discrimination, unequal covenant enforcement, improper meeting notice or elections, ACC processes, or decisions are all examples of an issue that may arise at any point in our communities. Without Directors & Officers Liability coverage, the community would be left to self-fund the additional expense related to the response and defense of the claim. Remember, this is not just attorney fees and court costs; the additional time and energy costs should be considered too.
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With over twenty-two years of combined Community Association Management & Insurance experience, Nicole understands the structure of Community Association Management and the challenges Managers and Boards face daily. Nicole is passionate about helping Boards and Managers assess their risk and designing proper insurance programs that cater to their communities.
By Aletta Marciano, ADV Insurance Agency
If you’ve spent any time working for, or around, community associations, you know that they tend to carry a lot of insurance. These standard policies include general liability insurance - to cover the slips, trips, and falls that can occur on association ground; property insurance - to insure the value of the common areas, association property, and buildings and clubhouses the association is responsible for; directors & officers insurance - to protect the interests of the community members serving in their capacity as elected board members; and workers compensation - to protect the association in the event an employee is injured during the course of work at the association (to name a few, many associations have additional policy types, but these four are standard).
With so many different policies and coverage types, many associations fail to see the need for an additional short-term policy, because these underlying policies should be more than sufficient, right? Not quite. The policies listed above are designed to protect the association during the day-to-day activities seen on premises, not for the types of risks seen during a special event. Special event insurance should be obtained if the association is planning any of the following:
Now, you may very well be thinking, “every event in the history of enjoyable events has one of these features”, and you’d be right! Special events insurance should be obtained for any out of the ordinary planned occurrence where people may congregate to ensure the association is adequately protected from the additional risk present as a result of the event. The benefits of this type of policy are tremendous, but for convenience and quick reference, the four biggest benefits are listed below:
The premium for a special events policy averages $250 for a one-day event and can provide coverage of $1 million per occurrence (per claim). This coverage would apply to property damage and bodily injury that arise as a result of the event.
Many cities and counties require permits for large events, and require they be listed as an additional insured in order to obtain the permit. Instead of adding them to the liability policy for the association, and then taking them off again after the event (a hassle for both you and your insurance agent), you can simply add them to this short-term policy to satisfy the requirements to obtain a permit.
If you’re serving or selling alcohol at the event, you need liquor liability insurance. This will protect the association from claims of contributing to the intoxication of a person, serving to underage patrons, and/or violating ordinances or regulations relating to the distribution or use of alcoholic beverages.
If your association has no employees, they may not carry workers compensation insurance. If this is the case, obtaining this coverage as a part of your special event insurance policy will provide for medical, disability, or death benefits in the event an “employee” is injured in the workplace.
These policies are quick and easy to obtain, and provide a tremendous amount of coverage and an additional layer of protection for your community. There are programs online where board members can input the event specifics and have a policy in hand the very same day, and any insurance agency specializing in community associations will be able to assist boards and managers in reviewing and obtaining these types of policies should more assistance be needed. Insurance should provide peace of mind, and in obtaining special event insurance you’re purchasing just that! Plan the party, get the policy, then relax and enjoy your hard work!
ADV Insurance Agency is an independent insurance agency specializing in habitational risks and community associations, working closely with board members and managers to provide the education, products, and understanding needed to empower associations to make the best insurance choices for their communities. Aletta Marciano is the Lead Community Association Producer for the state of Colorado, and has specialized in community associations since 2019.
By Tressa Bishop, USI Insurance Services
Picture this: The association’s manager hires a contractor to trim trees and bushes on the community’s property. They require the contractor to provide a current Certificate of Insurance (COI) showing General Liability coverage and Workers’ Compensation coverage. The dates on the COI show that the policy will cover the dates that the work is scheduled to be completed. During the project, a worker is injured and goes to urgent care for treatment. The claim is reported to the contractor’s Workers’ Compensation carrier, however, it is denied as the policy was canceled the prior month due to nonpayment of premium.
Community associations frequently use independent contractors to perform various services. It is difficult, if not impossible, for an association to verify with absolute certainty that all of the independent contractors they use have an in-force Workers’ Compensation policy at the time work is being performed onsite. Even a signed statement by the independent contractor verifying their independent contractor status may not be enough to keep an association out of a claim.
Under certain circumstances Colorado statutes allow individuals who are injured while in the service of another to make a claim against that person or organization for Workers’ Compensation benefits without regard to previous representations by such person that they are an independent contractor. Contrary to popular belief, it is not possible to sign a waiver eliminating a statutory requirement. If the injured party is successful in showing that they were an employee, as defined by Colorado’s Workers Compensation statute, and that their injury occurred during the course of serving an association, they, or their heirs, are entitled by law to Workers’ Compensation benefits.
The Commercial General Liability coverage carried by community associations does not apply to Workers’ Compensation claims. In fact, it specifically excludes coverage for such claims. The only way to fill this gap in coverage is for community associations to carry a Workers’ Compensation and Employer’s Liability policy.
Community associations carrying Workers’ Compensation policies with no direct employees are rated on zero payroll. The carrier is not intending to cover anyone under the policy but will respond to a claim if any exposure presents itself during the term (referred to as If/Any coverage). They will audit the policy during or after the term to pick up any incidental payroll for contractors who weren’t able to provide proof of coverage.
In addition to the If/Any coverage afforded to associations by a zero payroll Workers’ Compensation policy, there are some policies offered in the marketplace which include Volunteers in the definition of Employee. This could be very helpful for an association with an active volunteer pool. If a person volunteering for the association at the direction of the Board is injured, the volunteer may be covered under the policy.
These relatively low-cost policies do have a few requirements that must be met in order for the volunteer coverage to be afforded:
Below are a few examples of volunteer claims* covered by such policies that include Volunteers in the definition of Employee:
Even communities that try to do everything possible to reduce the chance of loss can find themselves involved in a situation where they must “self-insure” or pay out of pocket for an accident that may have been covered by a low-cost insurance policy. It is highly recommended to speak to an insurance professional who specializes in community association coverage about the need for a Workers’ Compensation policy for your community.
*Source: https://www.caislive.com/coverage-considerations
Tressa Bishop, MBA, CIC, CIRMS is an Executive Vice President with USI Insurance Services. Tressa has specialized in the community association insurance niche for over seven years and has helped hundreds of communities with strategic insurance placement, claims advocacy, and Board and member education. She holds the Community Insurance Risk Management Specialist (CIRMS) designation through CAI, the Certified Insurance Counselor (CIC) designation through The National Alliance for Insurance Education & Research, and has earned a BA from Colorado State University and an MBA (Finance) from Fairleigh Dickinson University.
By Michael Schleich, Distinguished Programs
This article offers tips for community associations to manage rising insurance costs and mitigate losses after major disasters. The increasing cost of insurance premiums is due to catastrophic losses and the need for more reinsurance. To keep costs down, community associations should focus on risk management, regular maintenance, and work with experienced insurance brokers.
What happened to getting multiple insurance quotes and saving money each year on my insurance premiums? Where have the coverage enhancements and low deductibles gone?
The Surfside condo collapse in June of 2021 serves as a tragic reminder of the importance of having a robust risk management program that includes planning and setting aside reserves for the future. All properties age, and it’s never too early to develop a plan for roof replacement, structural engineering surveys, and implementing the subsequent recommendations. Consistent and regular inspections of buildings, facilities, and systems should be a part of every association’s risk management plan. With the help of property managers and their insurance advisors, I’d encourage board members to make risk management an important priority, not just once a year when the insurance renews but a consistent practice throughout the year.
The Increasing Cost of Insurance
Did you know that in 2022 there were 18 natural disasters in the U.S. – each causing over one billion dollars in damages? Bottom line, avoiding at least some changes to your insurance program in the coming year will be challenging. The question becomes – what to do about it?
Insurance is based on the principle that says the premiums of many pays for the losses of a few. So, when a hurricane or building collapse happens in Florida, it has a ripple effect on all insurance buyers, no matter where the association is located.
There has been a lot of discussion about reinsurance (insurance for insurance companies) as the leading driver in premium increases. Chances are your insurance provider purchases reinsurance to help stabilize the effect of catastrophic claims. Most insurance companies do. The size and scope of the devastating losses has forced reinsurers to charge insurance companies more premium, which is passed along to you.
The increased cost comes in the form of higher premiums, but it can also include increased deductibles, decreased capacity, and even reduced or eliminated coverage, i.e., wind or wildfire exclusions. Even if your association hasn't filed any claims, the losses resulting from other parties' claims will still impact everyone, including you.
Why a High Deductible Might Be the Right Choice for Your Association
I recommend that buyers opt for a deductible that is as high as possible but, at the same time, one that the association feels comfortable covering out-of-pocket in the event of a loss. This can help keep premiums lower, but it's important to ensure your association has reserves available. Governing documents may need to be reviewed or revised to allow for a higher deductible.
How Your Claims History Affects Your Association's Insurance Premiums
A common belief by underwriters is that a frequency of claims ultimately increases the likelihood of a severe claim – “frequency leads to severity.” Having several minor claims on your loss history might make underwriters think there is a chance the next claim will be a large one. For example, several smaller claims on older properties can indicate that maintenance is lacking. Underwriters may charge more for the risks with these characteristics than for a loss-free risk or decline to quote.
Your individual claims history is critical. A high deductible will help keep your loss history clean, and some savings might be available. Although sometimes a high deductible might be a minimum requirement to do business with certain insurance companies.
Conclusion: Ensuring Your Community Association Is Properly Protected for the Future
So, how do you get the best advice and receive the best options for your association’s insurance purchase? Find a broker committed to the industry. The best community association brokers tend to focus solely on community association insurance. Many individuals showcase their commitment by becoming CIRMS – Community Insurance and Risk Management Specialists. They are up to date on current trends and represent top-rated carriers in the market. These specialists can offer guidance and suggestions on keeping costs under control while ensuring that the board members' fiduciary duty to protect the association is not compromised.
Michael Schleich, MBA is the National Business Development Leader for Community Associations at Distinguished Programs. Distinguished Programs has been providing insurance solutions through its broker partners to community association clients for over 25 years. With over 30 years of experience advising brokers and working with clients, Mike has developed a comprehensive approach to risk management programs for community association insurance clients.
By Zachary A. Goldberg, Winzenburg, Leff, Purvis & Payne, LLP
How concerned should Colorado common interest communities be about civil liability arising from third-party criminal acts committed on the Common Elements?
Until recently, a common answer may have been something like: Not terribly concerned at all, especially in communities where individual owners share fractional, undivided interests in the Common Elements. Trailside Townhome Ass'n v. Acierno, 880 P.2d 1197 (Colo. 1994) is a seminal case on this issue, involving a townhome owner severely injured after diving into a community swimming pool. Colorado’s Premises Liability Statute focuses on whether the injured person was a “trespasser,” who enters the property without the owner’s consent; a “licensee,” who enters the property for his own interests with the owner’s consent, like a social guest; or an “invitee,” who enters the property to transact business with the owner’s consent or at the owner’s invitation, like a vendor. In Trailside, the Supreme Court of Colorado held that the owner was not considered a “licensee” for purposes of premises liability analysis, but that the Declaration was the source of the applicable Association standard of care. Unlike an owner who has a right to use common areas without Association consent by virtue of her ownership, trespassers, licensees, and invitees have no right to enter the property without landowner consent. The Court concluded that if an Association’s governing documents contain a standard of care as to owners, those provisions control. If not, courts will look to general principles of negligence.
Thus, the crux of premises liability concerns—at least relative to individual owners—has historically been linked to an association’s standard of care per the governing documents, if any, coupled with a standard negligence gap filler. Thus, even for planned communities, or others in which Common Elements are association-owned, common law negligence principles, as opposed to the Premises Liability Statute, are the source of a community association’s duty of care, at least to individual owners. But a recent, as-yet-unresolved, skirmish among Colorado courts and legislatures stemming from the 2019 mass shooting at the Rocky Mountain Planned Parenthood (RMPP) in Colorado Springs could signal a broader Association duty to owners and tenants, and proportionately broader liability risk, relative to third-party criminal acts.
Why, one might ask, would that tragedy perpetrated by a mass shooter with religio-political motives have any bearing on common interest communities’ duties of care and potential liability?
Like RMPP, a common interest community is considered a “landowner” for premises liability purposes and may now be a more prominent and frequent target for lawsuits stemming from shootings and other violent attacks. In Rocky Mountain Planned Parenthood, Inc. v. Wagner, 467 P.3d 287 (Colo. 2020)., the Supreme Court of Colorado granted certiorari to weigh in on whether individuals who cause mass casualties without regard to their own survival or capture are necessarily the predominant cause of harm to their victims, such that a landowner cannot be liable under the Premises Liability Statute. The Colorado Court of Appeals held, and the Supreme Court of Colorado affirmed, that a landowner can be held liable as a substantial factor in causing harm without considering whether a third-party criminal act was the cause of that harm.
In 2022, the Colorado State Senate introduced Colorado Senate Bill 22-115 which, if codified into law, would directly contravene the Wagner holdings on this issue, and a related one as to the foreseeability of third-party criminal conduct based upon whether the goods or services offered by a landowner are “controversial.”The Bill expressly states that the Wagner cases “are contrary to the stated purpose of the landowner liability statute to the extent that it does not create a legal climate that will promote private property rights and commercial enterprise and foster the availability and affordability of insurance.” In addition to an express declaration that the Wagner cases were improperly decided, the bill would redefine “landowner” under the Premises Liability Statute as “an authorized agent or a person in possession of real property and a person legally responsible for the condition of real property or for the activities conducted or circumstances existing on real property.”
Nevertheless, and although Trailside is still “good law,” unless or until the legislature scales back the substantial landowner liability augmentation effect of the Wagner cases, community association Boards, managers, and insurers may be more exposed to lawsuits by victims, and potential related civil liability and costs, following violent criminal acts within the communities they serve. While community associations may provide services less controversial than Planned Parenthood services, entities offering “controversial” services and “noncontroversial” services alike are now susceptible to heightened potential liability in connection with third-party criminal acts committed on property they operate and control and, importantly, this issue will have important liability insurance coverage and cost implications.
Zachary A. Goldberg is an attorney with the law firm of Winzenburg, Leff, Purvis & Payne, LLP, headquartered in Littleton, Colorado. His practice includes counseling and advocating on behalf of Colorado common interest communities.
By Aaron J. Goodlock, Orten Cavanagh Holmes & Hunt, LLC
Employment law issues can seem daunting to community associations, which are typically governed by volunteer boards of directors. This is due, in large part, to the myriad of complex state and federal employment laws, administrative regulations, labor standards, tax codes, and case law governing employers and employees. And although most associations don’t directly employ staff, having employees can be advantageous depending on the community’s particular needs. For example, many condominium and resort communities employ onsite managers, operations and housekeeping staff, and maintenance personnel.
The following is a brief overview of key employment law concepts and considerations in the context of community associations.
Classification of employees and independent contractors. A fundamental concept with respect to employment is understanding the distinction between association employees versus independent contractors.
Colorado employment laws define “employee” as any person, including a migratory laborer, performing labor or services for the benefit of an employer. Relevant factors in determining whether a person is an employee generally include (1) the degree of control the employer may or does exercise over the person, and (2) the degree to which the person performs work that is the primary work of the employer. Individuals who are primarily free from control and direction in the performance of the service, and who are customarily engaged in an independent trade, occupation, profession, or business related to the service are not considered employees.
If an individual meets the criteria for an “employee,” the Association has an obligation to comply with applicable employment laws.
Misclassification of workers as independent contractors instead of employees creates risk, including civil and statutory penalties (i.e., fines) for violation of state and federal employment laws, in addition to liability for unpaid employment taxes. In Colorado, if an employer willfully misclassifies an employee, the employer may be fined between $5,000 and $25,000 per employee.
To avoid these risks, if the worker meets the criteria of an employee, the association should classify the individual as an employee and pay applicable employment taxes and premiums, etc. If the worker is not considered an employee (i.e., if they are engaged as an independent contractor), the association should ensure that specific language to this effect is included in the written contract between the Association and the worker.
Employee payroll and employment taxes. Employers are obligated to withhold employment and payroll taxes (e.g., income tax, social security tax, Medicare tax, unemployment tax). Failure to properly remit employment taxes could subject the association to additional tax liability, fines and other penalties from state and federal tax authorities.
For federal employment and tax purposes, it’s important to note that Colorado law and the IRS have different criteria for defining employees and independent contractors. Associations should review IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to determine if workers should be treated as employees or independent contractors for federal tax purposes.
Workers Compensation. Most associations carry workers compensation insurance to protect against liability even if the association doesn’t have employees. Under the Colorado Workers’ Compensation Act, associations are required to carry workers compensation insurance covering association employees. Workers compensation insurance provides coverage for employee job-related injuries and substantially protects the association for additional tort liability.
Wage and Labor Laws, Employment Practices. Associations with employees must comply with applicable minimum wage laws, overtime pay requirements, mandatory meal and rest period regulations, employer record-keeping and posting requirements, and Colorado’s employment discrimination laws.
With limited exceptions, the Colorado Wage Act (“CWA”) requires employers to pay employees overtime at one and a half times the regular rate of pay for any work in excess of: 40 hours per week; 12 hours per day; or 12 consecutive hours, regardless of the start and end time of the workday.
The CWA also requires employers to provide minimum meal breaks and rest periods based upon the length of the employee’s work shift.
The Colorado Anti-Discrimination Act (“CADA”) encompasses a broad range of employment-related practices that most employers are strictly obligated to comply with. CADA prohibits discrimination in the workplace based on protected class, which includes disability, race, creed, sex, sexual orientation, gender identity, gender expression, religion, age, national origin, ancestry, and pregnancy. In that vein, CADA also prohibits: (1) refusing to hire employees; (2) discharging employees; (3) refusing to promote employees; (4) demoting employees; (5) harassing employees; (6) discriminating in compensation; and (7) discriminating in the terms, conditions and privileges of employment, based on or because of an employee’s protected class or in retaliation for engaging in protected activity. CADA also requires employers to provide reasonable accommodations to employees with disabilities.
Other Employment Issues - Vicarious liability. Associations can be vicariously liable for an employee’s negligent acts. If an employee causes damage or injuries to another person and the damage or injury occurred while the employee was acting within their scope of employment, the association may be vicariously liable for any damages or injuries sustained. In addition to maintaining appropriate liability insurance, associations can mitigate the risk of liability by exercising reasonable care to prevent negligent or careless behavior. Adopting and implementing policies and employee handbooks, providing training, and ensuring reasonable employee oversight will help to mitigate this risk.
Understanding the distinction between employees and independent contractors is important, especially when analyzing how employment issues can impact an association’s relationship with workers and services providers. Additionally, because the landscape of employment law is continuously changing, consulting an attorney or other employment specialist can be helpful to proactively mitigate and manage employment-related risks.
Aaron J. Goodlock is an attorney at Orten Cavanagh Holmes & Hunt, LLC. He provides general counsel and transactional services to community associations throughout Colorado and serves on the Colorado Legislative Action Committee for CAI.
By Ryan Hurley, AssuredPartners
What happens when products such as insurance, where the perception of quality is often based on how little it costs, suddenly becomes universally perceived as cost prohibitive? As consumers, we all recognize the importance of maintaining adequate insurance coverage, even if its sole purpose is to comply with mortgage lending requirements and applicable state laws. However, as premiums continue climbing towards record highs, these rising costs are beginning to impact community associations, especially condominium and townhome communities who, for the most part, are required to maintain adequate property insurance coverage on their residential structures.
As budgets continue to be blown out by unexpected rate increases, (in some cases as much as 500% or more over the expiring premium), many board members must make difficult decisions, which may even include the temptation to underinsure the Association's building property to intentionally save money. Before heading down the road of bad choices, we need to understand that there are many ways to adequately protect residential buildings other than relying solely on the traditional condo/townhome insurance approach.
The traditional condo/townhome insurance model, where the associations maintain high-limit property policies with low standard policy deductibles, is proving less effective and more expensive than ever. This model, when coupled with the Personal Lines HO-6 Insurance Carriers firmly (and rightfully) adhering to their 'excess' insurance role when losses occur within their insured's unit, results in more losses showing up on condo/townhome communities' loss history reports, which further drives up renewal premium and can even compromise an association's future insurability.
To manage costs without compromising coverage, we must begin thinking outside the box to design a more practical approach to transferring risk. Fortunately, covenant-controlled communities are a perfect candidate for implementing unorthodox coverage strategies thanks to the contractual influence the CC&Rs and supporting policies/procedures have over the association's master property policy and owners' personal HO-6 policies.
For many years, condo/townhome board members and individual unit owners have worked together to amend their association's governing documents to reduce the burden placed on the association by assigning more insurable interests to the respective owners, usually through amending the insurance section of their CC&Rs from “all-in” or “original construction” responsibilities to a version of the “bare walls” coverage model while staying within the guidelines set forth by CCIOA. This time-tested, proven strategy has helped reduce associations' master insurance costs while enabling individual homeowners to have more significant control over the reconstruction processes when losses occur within their homes. Yet this is just the beginning of what is possible when we intentionally establish policies and procedures to spread risk between the association and individual owners.
For example, we can establish non-traditional coverage models using peril-specific wildfire deductibles and/or a sub-limit to reduce the obligation on the primary insurance carriers for communities in high-risk wildfire zones. Including parametric insurance products and establishing contractual language to trigger the individual owners' HO-6 policies to fill in the gaps, we can further stack deductibles and limits to reduce the primary layers' costs without compromising the coverage quality. These non-traditional risk management strategies will soon become even more valuable as Colorado legislatures continue working on House Bill 1288, a quasi-governmental backed "last resort" insurance product, to offer primary coverage options to homeowners and associations in areas deemed uninsurable by the private insurance markets due to high risk of wildfire.
However, to effectively design and implement these non-traditional coverage models, we must address how board members often direct their community managers to shop for alternate insurance options. As stated for years by many of my insurance counterparts throughout CAI, the old-fashion approach of blasting out RFPs to as many agents as possible does not work and will likely lead to much higher premiums. It may even compromise a community's ability to insure its property to total replacement cost values as agents block each other out of the limited carrier availability in this volatile insurance market. Furthermore, these new coverage strategies don't come in a “one size fits all” box, but require input from a knowledgeable HOA Insurance Agent working with an experienced HOA Attorney. Board members who take the time to interview multiple insurance agents before selecting a single agent to design their renewal coverage platform will have far better pricing and coverage options for their upcoming coverage term.
Throughout our industry, we all agree that change is inevitable, and how we respond to it will dictate our success in the future. This is an opportunity for us to collectively work together to develop more efficient ways to insure Colorado's condo/townhome communities. By intentionally developing risk management strategies to address costs while implementing policies/procedures to expedite reconstruction processes when losses occur, we can reestablish more predictability during the budget season while better managing losses as they occur within our communities.
Ryan M Hurley, Executive Vice President
I started my insurance career in the late 1990s as a personal insurance agent before transitioning to commercial insurance. I have specialized exclusively in Colorado's Community Association Insurance Industry for nearly twenty years. As the head of AssuredPartners' Community Association Insurance Department, the value my team offers our client communities is the unique understanding of the relationship that exists between the personal lines and commercial insurance forms that make up a complete community association coverage platform.
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