Condominium and Homeowner Association Board Member Fiduciary Duties. The Impending Statute of Limitation for Hurricane Wilma Claims.
Board members of homeowner’s associations and townhome associations owe fiduciary duties to the other homeowners for whom they serve. When particular attention is not paid, board members may inadvertently breach their duties and thereby expose themselves to liability and expense. This article looks at the general rules governing Board member duties with a special emphasis on the law in Florida. We then examine how a failure to properly investigate a loss or damage to the association’s property may breach a director’s duties and cause an association to lose valuable property rights – currently or in the future. Property managers should be alert to these issues and assist their association clients in identifying issues where these principles lie. The principles discussed often apply in other states as well.
- A director shall discharge his or her duties as a director, including his or her duties as a member of a committee: (a) in good faith; (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (c) in a manner he or she reasonably believes to be in the best interests of the corporation.
- First determine whether the terms of the proposed transaction are at least as favorable to the corporation and its shareholders as might be available from unrelated persons or entities; secondly determine whether the proposed transaction is reasonably likely to further the corporation’s business activities; and third ensure that the process by which the decision is approved or ratified is fair.
- The association’s property insurance policy is a substantial asset purchased by the association and constitutes part of the association’s capital.
- Board members are responsible as fiduciaries to the association members to capture all available benefits under the association’s insurance policies.
- In the event of a catastrophic loss such as Hurricane Wilma, one and possibly more association policies are likely to provide replacement coverage for most association property damaged in the loss, including major building components such as sliding glass doors, windows, roof, exterior cladding and interior damaged by water intrusions through openings or leaks created by the storm.
- In Florida if any damage to association property was caused by Hurricane Wilma, the property insurance policy is triggered, regardless whether the damage caused by the storm may have been originally estimated by an insurance company to amount to less than the deductible under the policy – it is highly likely that original estimate is low because many types of damage require expert evaluation to verify. The accuracy of the insurance company’s estimate must be verified by the Board using its own experts. Relying on the insurance company’s experts is not reasonable.
- In order to satisfy the fiduciary duty Board members owe to association members, Board members should have a credible opinion from someone with verifiable expertise in evaluating insurance claims for Policyholders about whether the response of an insurance company to a loss claim was reasonable – Board members cannot reasonably rely on the insurance company’s determination.
- The coming crisis for Board members is the statute of limitation for Wilma claims, which will bar any claim against an insurance company that is not filed in court by October 24, 2010.
- Whether current Board members properly met their fiduciary duties to obtain all available insurance benefits for a Wilma property loss will be revealed during the next catastrophic loss cycle – insurance companies will deny coverage for damages they can argue were caused by Hurricane Wilma, and never repaired, when claims are made for the next major wind or other large loss event.
- Whether Board members sitting at the time the statute of Limitation passed met their duties to pursue insurance claims for Wilma losses before October 24, 2010 will be examined by a later Board faced with a denial of coverage at the time of the next large loss. Current Board members need to have the the insurance carrier’s claim decision regarding Hurricane Wilma losses properly evaluated well in advance of the October 24, 2010 deadline. If further action in the claim process must be taken, a reasonable period of time is necessary to either resolve the claim, or know suit must be filed before October 24, 2010.
- Claims already adjusted may be reopened, if appropriate, even if a payment was made or the loss was estimated below the deductible. Legal practitioners have seen a pattern of chronic underpayment of claims by insurance carriers where policyholders do not have proper representation.
- Finally, current Board members may reasonably rely on the opinions of persons with verifiable expertise, such as Public Adjusters and certain law firms who emphasize in their practice first party insurance coverage representing only Policyholders. An opinion from a person with verifiable expertise that benefits under an insurance policy have, or have not been, sufficiently pursued will protect Board members in the discharge of their fiduciary duties.