Why Associations Need D&O Insurance

Dispute Over Assessments and Lien/Foreclosure

An Association, in an attempt to rectify years of neglect and improve the safety and property value of the Association as a whole, approved a general assessment for the purpose of repair and/or replacement of the sidewalk areas located in front of the individual homes. The sidewalk area constituted limited common elements, which were the responsibility of the respective unit owners under the governing documents. The Association retained an engineer to inspect the walk areas in front of an around all homes within the Association and recommend whether repair was necessary. In the event that a property owner objected to the repair and associated costs, the owner could submit a request for reconsideration.

In this instance, the Claimants objected to the replacement of the sidewalk slabs in front of their unit arguing that they had recently repaved that area, including placement of decorative stones within certain areas of the walkway. The engineer however, recommended replacement of certain of the slabs (which would include removal of the decorative stones). The Association, agreed with the engineers’ assessment and proceeded to replace the sidewalk area in front of the Claimant’s home. The Claimants refused to pay the assessment, arguing that it was invalid and not within the Association’s prerogative to commence repair and replacement the sidewalk area without the Claimants’ consent.

When the Claimants refused to pay their share of the assessment despite repeated requests, the Association placed a lien and proceeded with a foreclosure action against the Claimants. The Claimants counter-sued the Association for the allegedly inappropriate lien and for declaratory relief that the lien was not valid.

Result
One of the impediments to settlement was that any settlement could have triggered additional litigation by other unit owners arguing against the assessment. Ultimately, this matter was tried. The Court ruled in favor of the Association and dismissed the Counterclaim. Defense Costs totaled $25,000.

Property Ownership/Easement Dispute and Assessment Dispute

Sunnyside Gardens is a group of garden apartment complexes with individual courtyards and a communal recreational area, including tennis and racquetball courts, a pool area and a child play area for its members. Adjoining Sunnyside is Maui AOAO, a neighboring homeowners association (“the Claimant”). A dispute arose out of the continued payment of fees by Claimant’s homeowners to Sunnyside for use of Sunnyside’s recreational facilities.

The dispute was based on language in the original Deed whereby Sunnyside granted the Claimant and its residents a perpetual nonexclusive easement and rights over all areas within Sunnyside. The Deed also provided Sunnyside with the right to collect an annual fee from the Claimant for use of its recreational facilities by its owners, but made no reference to a per-owner obligation. The parties operated for some time under the assumption that the Deed authorized Sunnyside to collect an annual per owner fee from the Claimant’s residents for use of the recreational areas. Notably, the Claimant’s owners did not account for a full proportionate share when calculated with the total amount of individuals who had access to the recreational areas.

When Sunnyside came under new management, Sunnyside demanded that the Claimant be responsible for a proportional fee, although the costs had never been calculated along those guidelines. The Claimant, however, refused to change its practices arguing that the Deed did not specify that the Claimant’s residents were required to pay a proportional share, but just that the Claimant pay a fee and was entitled to an easement. Sunnyside then closed off access to all non-members, including Claimant’s residents.

Result
The Judge ruled on Summary Judgment that the Deed was ambiguous and that additional discovery was necessary. During the course of litigation, the parties ultimately came to an agreement whereby Claimant’s residents would pay their original fee, but would have limited access, including a specified number of day passes, which could only be used during off-peak hours. Defense Costs totaled approximately $75,000.

The examples provided in this material are for illustrative purposes only and any similarity to actual individuals, entities, places or situations is unintentional and purely coincidental. In addition, the examples are not intended to establish any standards of care, to serve as legal advice appropriate for any particular factual situations, or to provide an acknowledgement that any given factual situation is covered under any CNA insurance policy.