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April 10, 2008
Are California HOA Managers Immune From Liability?
In California, there are at least two well-known industry groups that serve and train homeowner association managers. In this training, managers are presented with "model" management contracts to offer clients. This makes sense. Managers want as much protection as they can get from Boards who do not follow their advice and from the membership or other outsiders that decide that the manager is the cause of whatever grief they suffer. Being an HOA manager is not an easy job. They are often expected to provide advice on a myraid of subjects for which they are not fully trained, such as construction matters, legal matters, insurance matters, etc.
So, back to the contracts. As with other vendor proposals, these contracts are designed to specify what the manager is paid to do, and to protect the manager legally, for mistakes or errors that lead to legal culpability.
These contracts, unless they contain "mutual protections", are geared to favor the managing agent, not the other party to the contract (the HOA). By "mutual protections", I mean things like indemnification and insurance coverage.
Most of these contracts specify the insurance the HOA must carry, but not anything about insurance the manager must carry. For instance, the Association would be required to carry commercial liability (for accidents on premises, etc.) and directors and officers liability coverage for lawsuits that allege Board misbehavior or negligence. The contacts require that the manager be named as "an additional insured" on these insurance policies.
Most of these contracts specify that the manager shall be protected (held harmless and indemnified) by the Association for any claims against the manager because of something that happens HOA related. This is a somewhat complicated legal concept but simply put, it is intended to make sure that the manager is covered by the Association if there is any legal claim against the manager made ... by anyone.
"Mutual Protections" would mean there were provisions that both parties be insured for their mistakes, and each indemnifies the other for liability that arises because of the misconduct or negligence of the other.
It is fair that managers get some protection from claims against the HOA, as managers can become a target, even for acts of board members, disgruntled owners, contractors, employees etc. Sometimes the manager did nothing to invite the wrath, or legal claim. Sometimes they are the sole cause. Sometimes the problem is a combination of poor management and an inattentive board. There are very many reasons why a legal complaint can be brought, some justified, some not. The point is that managers tend to have a lot of protection, sometimes more than deserved.
The California courts have recently spoken to this problem. In two cases, managers have been found to have to account for their roles in (1) choosing vendors and signing contracts for the HOA and (2) violating the HOA contract.
I will be addressing both of these cases in E-Newsletters in April and May. If you want to receive these free newsletters via email, you need to sign up for the list. Go to my website at http://www.californiacondoguru.com, "enter", and you will find the option to sign up for the newsletter. Please do not send me your email address and asked to be added. You need to do this through the website.
I plan to put some focus on these subjects in the coming weeks. It is my belief that the parties who act irresponsibly or with disregard for the rights of others ought to be the ones who make it right. One of the courts in a manager contract case agreed with me in this statement:
"On top of all of this, there is the reductio ad absurdum of the property management company's position vis-à-vis the association's contract claims (as distinct from negligence claims). Under the property management company's interpretation, it could just outright plain fail to do any work at all for the association, such as hiring a gardening company or arranging for insurance or the typical things that property managers do, and the clause would protect it even from a breach of contract action by the association for having paid for services never performed." Queen Villas Homeowners Association v. TCB Property Management - February 2007.
Perhaps you want to "get on board" and read more on this subject. Join the E-News team. Sign up now. http://www.californiacondoguru.com.
Posted by Beth Grimm at April 10, 2008 9:34 AM