Real Estate & Property Law

The Questions About EQ Insurance Never Stop Coming!

I get quite a few emails from people who are frustrated, about this ... about that ... about the other .... and especially about earthquake insurance. Some say: " I can't believe our board is spending $@!$%!*& on earthquake insurance. If there's a big one, everyone is going down together anyway, so why not use the money for something with a reward!"

Others say: "I have been speaking with my neighbors and we cannot believe that the Board has dropped the EQ insurance on our homes. Many owner/neighbors agree with us that we should purchase EQ insurance and we believe we have sufficient funds to do so. Are there any actions we can take to make this happen? A petition perhaps?"

There are actions, yes. Will they be fruitful? That is to be determined.

In California if 5% of the members sign a petition asking the Board to call a special meeting to take action on something (this is in an incorporated HOA and falls in the Corporations Code), the Board is required to call a meeting and there are certain timelines involved for getting out notices and scheduling the meeting. However, there is a possible glitch when it comes to asking for action on earthquake insurance. If the cost requires an assessment that is more than the Board can approve (more than 20% increase in regular assessment or a special assessment that is more than 5% of the budgeted gross assessments for the fiscal year), there are election requirements for a different kind of vote than can be taken at a meeting (double envelope secret ballot system) so this complicates things.

Additionally, the petition has to be for a "valid" purpose. Thus, if your HOA documents say the Board makes the decision on earthquake insurance, rather than the members, the Board can come back with: "That's not a valid purpose because the owners cannot usurp the Board's authority or power." And attorneys fight over this all the time, i.e., whether a petition on this subject could trigger a homeowner vote or not.

I think it unfortunate when Boards drop EQ coverage based on cost alone and do not explore risk alternatives. I have written about these on my blog, and I have several articles that are free on my website at http://www.californiacondoguru.com. But I also understand the realities HOAs are facing right now with the foreclosures and delinquent assessment accounts increasing and the bottom line moving up all the time.

I might even question whether keeping the swimming pool open is as important as having earthquake insurance protection - however, others might shoot me for saying that. Because its true (I can hear it now), the pool is a sure thing, the "big one" is not.

Even if an HOA board decides to put the question to a vote of the members, which I do think it legally could do even if it has the discretion to make the decision, there still are likely to be a number of homeowners upset by the outcome. That is because even when a Board sends out a vote, it commonly comes back about about half and half for and against meaning communities are commonly split on the question, and alot of that depends on "place in life" considerations of the owners (see articles referenced below that I have written on the subject). Also, when a Board takes a vote - it commonly fails to explain to owners what alternatives are available, what owners can do themselves to try and cover any "gaps" in coverage, and what can happen if there is no insurance and there is a quake.

There is no foundation on which to build if there is an earthquake that severely affects any HOA, where if there is insurance, at least there is some kind of "foundation" to start with. But that's my opinion and concern. If you want to know more about the pros, cons, how to go about analyzing the risks and getting questions answered, visit my website. You will probably find just about as much free information there as anywhere else about analyzing the cost vs. benefit for HOAs.

Full post as published by California Condo & HOA Law on February 02, 2009 (boomark / email).