By Scott J. Sandler, Esq.
On September 15, 2015, the Connecticut Condominium Owners Coalition (“CCOC”) posted an article by Patricia Ayars, Esq. titled Ask Attorney Pat: How to Get the Association to Pay and Repair Ice Damming.
This article depicts board members as stubborn jackasses in need of a
good clubbing with a two-by-four, who are wrongly refusing to pay to
repair units damaged by ice dams. A more appropriate title for the
article would have been How to Get Your Neighbors to Pay to Repair Damage to Your Unit that Should Be Covered by Your Insurance Policy.
Per-Unit Deductibles
The
insurance industry is employing more and more creative methods to avoid
having to pay claims. The imposition of per-unit deductibles is one of
these methods.
Insurance
companies that sell master insurance policies to associations are now
more commonly requiring that the policy contain a per-unit deductible
for damage caused by ice dams. The policy then treats each damaged unit
as a separate occurrence.
On
a per-unit scale, damage from ice dams often costs less than the amount
of the deductible. However, because a large number of units may be
damaged, the total repair cost that is not covered by the master policy
can be substantial.
Master Policies and Homeowner Policies: Primary and Secondary Coverage
Section
47-255 of the Common Interest Ownership Act (“CIOA”) requires the
association of most communities to purchase a master insurance policy
that covers both the units and the common elements against claims for
property damage. CIOA does not require the association to insure the
units in communities where the units are completely detached, or where
the units are constructed as duplexes.
Section
47-255 also requires that, in the event of a loss, the master policy
provide “primary” coverage. CIOA does not state that the master policy
will provide “exclusive” coverage. The distinction between primary and
exclusive is one of major significance, and it is one that is often
overlooked.
Most
individual unit owners have purchased their own insurance policies.
These policies provide for coverage for damage to the unit, as well as
coverage for the owner’s personal property.
When
there is damage to the property, the master policy provides primary
coverage. This means that the association must first look to the master
policy for coverage.
However,
nothing in CIOA prohibits the association and the owners from seeking
secondary coverage from another source of insurance, such as the
insurance purchased by the unit owner. And doing so makes perfect
sense, since the coverage is already in place and is designed to protect
the owners from bearing the cost of repair. The very reason unit
owners pay insurance premiums is to protect them from this cost.
Repair Costs as Common Expenses
Section 47-255 of CIOA states that the cost of repair that exceeds available insurance proceeds is a common expense.
First,
CIOA refers to “available” insurance proceeds. The provision is not
limited to just the proceeds available under the master insurance
policy. Proceeds may also be available under the owner’s policy.
Second,
while common expenses are generally shared by all owners, there are a
number of situations where CIOA permits the association to assess an
expense against just a few or even only one owner. Subsection 47-257(c)
states that the declaration of the community may require the following:
1. That the association assess the cost of maintaining,
repairing, or replacing a limited common element solely against the unit
that it serves;
2. That the association assess the cost of insurance against units in proportion to risk;
3. That the association assess the cost of utilities in proportion to usage; and
4. That the association assess a common expense, or any potion
thereof, that benefits less than all units, solely against the units
that receive the benefit.
The
cost of repairing a unit damaged by an ice dam is an expense that
benefits that unit. While that cost is a common expense, the
declaration may require the association to assess that expense solely
against the damaged unit pursuant to Subsection 47-257(c) of CIOA.
We Have Met the Enemy and They Are Us
Unit
owners, including board members, are all too often subject to the “We
vs. Them” mentality. They forget the most important part of living in a
common interest community, the part about it being a “community.”
To
save money, board members will identify expenses to push back onto
individual owners. Likewise, the individual owners will expect the
association pay for anything and everything that is related to the good
and welfare of the community.
The
fact that gets lost in these competing views is that, in the end, there
is only one source of income for the community: the individual owners.
Either the owners pay for expenses directly, or they pay common charges
which the association uses to pay the expenses. But no matter what,
the owners pay.
Protecting the Community
If
the association really wants to save the community money, and to
insulate owners from the burden of uncovered repair costs, it must look
for resources outside of the community. That is why it is so important
to tap into the insurance purchased by individual owners as secondary
coverage.
Attorney
Ayars focuses her article on forcing the association to pay for the
cost of repairing damaged units. That only results in costing all
owners more money.
The
real focus should be on how to tap into sources of insurance other than
just the master policy, so that more of the expenses are paid from
sources outside of the community.
Many insurance companies that sell policies to individual owners will cover these costs without question.
However,
some companies have engaged in the same flawed interpretation of CIOA
as Attorney Ayars has. They see “primary” and think “exclusive.” They
see “common expense” and think of the general rule of assessing all
owners, not just those that benefit from the expense. However, if the
declaration specifically requires the association to assess these repair
costs solely against the damaged units, then even these companies will
cover these costs.
It
is for this reason that the second edition of the Common Interest
Ownership Manual, published by the Connecticut Bar Association, includes
a model declaration that provides for assessing these costs against the
damaged units. The authors of the manual, having consulted with other
attorneys, insurance professionals, and the Connecticut Insurance
Department, concluded that the best way of protecting the community from
the burden of these costs was to require the association to assess
these costs against the damaged units, thus triggering coverage under
the polices purchased by individual owners.
Responsibility to Repair
Attorney
Ayars is correct when she states that the association cannot refuse to
make repairs when units are damaged by events covered by property
insurance. Section 47-255 of CIOA requires the association to make
these repairs. Once the adjusters hired by the association and
homeowner’s insurance companies have fully inspected and documented the
damage, the association must proceed with the repairs as promptly as
possible.
It
is understandable that angry and frustrated owners and board members
will point fingers and attempt to avoid incurring additional expenses.
However, suggesting that the board members should be clubbed with a
piece of lumber is not the answer. The real answer is to structure the
responsibility for the loss in a way that protects the entire community
against the expense.
Attorney
Sandler is a partner in the law firm of Perlstein, Sandler &
McCracken, LLC, located in Farmington, Connecticut. His firm represents
over 400 condominium and homeowner associations throughout the state.
Mr. Sandler is a fellow of the Community Associations Institute’s
College of Community Association Lawyers. Since 2010, he has served as
the chairman of the Legislative Action Committee of the Connecticut
Chapter of the Community Associations Institute. He is also a member of
the Institute’s Government & Public Affairs Committee. Mr. Sandler
served the Institute as president of its Connecticut Chapter from 2008
through 2009.
