Tuesday, March 31, 2015

Black, White & Gray

A wily Board member once said about governing documents:  "There is black & white, and there is gray, and gray is what I define it to mean."   When a community has poorly-drafted documents, a Board may find itself filling in the gaps where the documents are silent.  

One community had a problem with off-leash dogs.  The covenants were silent on the subject.  The Board used the generic nuisance provision in its violation notices, even though it was possible that a determined homeowner could successfully challenge it.

A Board may find itself getting creative within the boundaries of the governing documents, but realize that this ‘gray is what I say’ can also work against you.  This is especially true with service contracts, such as landscaping or pool maintenance.  One vendor hired to replace buried cast iron pipes left a path of plant destruction in the common area.  Although the contract included road repairs, it did not stipulate shrub replacement.    

It is not unusual for the wording in a contract to grow organically over time.  New situations lead the vendor to add wording which doesn't play well with the other sections.  Or an attorney ‘fixes’ items included by another attorney, which is ‘fixed’ in turn by yet another attorney.  

The longer the contract, the greater the chance that something important gets overlooked.   This is especially true when it comes to insurance.  These documents easily run 100+ pages, filled with a lot of ‘If-Then’ statements.  The contract definitions are not necessarily placed at the beginning of the document, and there may be other sections that completely redefine a definition.

For example:  How do you know whether a Board member’s spouse is being protected with the Association insurance policy?  With more and more claims being filed against spouses (as a way to get around the protection of a Board member), you want to be sure they are included in the General Liability, Directors & Officers, and Fidelity/Crime policies.

Even if your spouse is explicitly an ‘Insured’ in the definitions, 20 pages later there may be a listing of ways the spouse ends up excluded.  To avoid this snake’s nest, require the insurer to issue an Endorsement explicitly adding your spouse as additional insured and overriding exclusions listed elsewhere.

Community Association Managers also find themselves excluded from insurance coverage, even though the Association is required to provide protection.  Community managers act as agents for communities, but some insurance policies exclude agents from the definition of ‘employee’ when determining who should be covered. 

Another insurance document covers real estate managers, leading some to think this covers your manager.  However, in the State of Georgia, real estate managers are a distinct class from community association managers, making it a possible avenue to deny coverage.  Again, use endorsements to clear up any confusion.

The best way to manage the ‘gray’ in these situations is to insulate the Board with third party experts (i.e. an attorney).  If that gray item should suddenly become black & white, being able to shift the risk to the expert is an added layer of protection.   

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