Worker's Compensation Coverage - A Follow Up

Back on April 2, 2013, we posted information about the importance of an Association maintaining Workers Comp coverage - even if it did not have employees or permit volunteer activity.  We have had several questions (which we love!) on this topic, so this post is a follow up!  

To clarify, there are two primary types of Workers Comp that a Board can purchase for the Association:

Volunteers and Committee Members

As the name implies, this type of insurance would cover all people acting on behalf of the Association who are not compensated by the Association.  If the Social Chair is injured while hanging Holiday Decorations or a Board member falls while changing a light bulb - they would be covered under this type of Works Comp policy. Liability limits are generally $1 million but can be underwritten for higher.  Premiums typically start in the $750 - $850 range.

Payroll Driven

These policies are underwritten for people who are working on behalf of the Association, are compensated and are not covered under their own policy.  To underwrite, the insurance company will need to have an estimated twelve (12) month payroll for the vendor.  They will also require a description of the duties of the contractor(s).  The premium would then be based on both the payroll and job duties.  The contractor(s) would be placed into a worker’s comp rating code that most closely matches the provided job description.  The riskier the duties, the higher the rating and resulting premium.  At the end of the policy period, the insurer will require accounting proof from the Association of the actual payroll dollars paid to the contractor(s).  If the actual is higher than the estimate, additional premiums will be due.  Conversely, if the contractor was paid less than the estimate, a premium credit would be given by the carrier.  Multiple contractors can be covered under the same policy if their duties are similar.

The Board should work closely with their agent to identify the type of coverage best suited to fit their objective.  Make sure the payroll driven coverage does not over or understate the job duties of the contractor and accurately projects expected compensation levels.   

Although “Payroll Driven” Workers Comp is a higher priority, Access Management strongly encourages all Associations to obtain both types of coverage due to the potential risk.  While a current Board of Directors may prohibit any type of volunteer activity, unauthorized volunteerism and future Board decisions do expose the Association to liability.  Consult with your legal counsel and insurance broker about this urgent issue.

What's in a Name?

“What exactly does a community association manager do?  What makes one successful?” 

The scope of a management contract lists various duties - ranging from basic accounting operations, up to the frequency of meetings and community inspections - but a manager is defined by more than just a collection of tasks.

Center-most, managers are navigators of a landscape populated with legal, engineering, accounting, psychological, insurance and maintenance challenges.  When an Association selects a management professional, it is adding another layer of protection against potential pitfalls and missteps.  A manager may not have all the answers, but guides the Board of Directors to effective resources for overcoming or avoiding each obstacle.  Some specific ways a manager accomplishes this include:

• Serve as a liaison between the Association/Board of Directors and legal counsel
• Provide information and guidance to the Board as it sets policies and makes decisions
• Educate and advise the Board of its role and responsibilities
• Organize and participate in meetings of the membership and of the Board
• Maintain insurance coverages (e.g., casualty, fidelity, liability, property, workers comp) in accordance with governing documents, statutes, and Board policy
• Represent the community association to the outside community (e.g., interface with local government, media, local public agencies)
• Analyze trends when preparing the budget
  
• Develop and update a multi‑year expense and reserve projection, seeking professional assistance as necessary
• Analyze the financial statements and reports, and report significant variances to the board
• Identify the exposure to potential loss
• Develop and implement safety programs and disaster plans
• Develop and implement preventive maintenance policies
• Ensure preparation of bid specifications and requests for proposals
• Review a contract for key elements (e.g., parties, scope of work, compensation)
• Ensure compliance with local ordinances prior to commencement of contracted work
• Seek interpretation of and invoke contract warranties as necessary
• Develop and implement effective assessment collection and accounts receivable processes

Five years is considered normal for a manager to become “seasoned” and able to operate efficiently in all of the above.  Those not “making the cut” normally drop out during year two or three.

If considering a career in community management,  just realize that the job interview never ends!  Each Board meeting is another examination where your words and actions can be scrutinized.  You are constantly working to instill confidence and to bridge potential credibility gaps.  Only the strongest in customer-service skills need apply!

Pass It On!

A frequent question raised by potential clients, potential employees and vendors is, “How does Access Management Group obtain new business?” 

Georgia Statutes, Section 43-40-25(b)(26) “Licensees shall not engage in any of the following unfair trade practices: …Obtaining a brokerage agreement…while knowing or having reason to believe that another broker has an exclusive brokerage agreement…unless the licensee has written permission from the broker having the first exclusive brokerage agreement; provided, however, that notwithstanding the provisions of this paragraph, a licensee shall be permitted to present a proposal or bid for community association management if requested to do so in writing from a community association board of directors;”

  

The State of Georgia requires that, with very few exceptions, all community association managers operate under a licensed broker.  The provision for broker solicitation is very clear:  Unless the existing management company of a community has given permission, another management company may only present a proposal upon request by a Board of Directors.  In simple terms, management companies in the state of Georgia can not actively solicit new communities.  They are only able to provide proposals to those communities that first approach the company requesting a quote.

Unfortunately, some management companies choose to push the boundaries on how much interaction is acceptable. When these companies choose to skirt the law - through aggressive advertising and pricing - it's at the expense of quality service.  The Atlanta region as compared to other areas of the nation, is known for cheap managerial contracts and low paid managers.  The predictable result is a migration of talent to those markets that are willing to pay for quality...all because certain companies are not playing by the rules.

What can a community expect of a management company resorting to such tactics to obtain business?  What other “short cuts” may be taken?  Rather than place a stain on the community association profession, Access Management chooses to let word-of-month referrals by existing satisfied customers attract a clientele that places a premium on a community’s reputation - rather than associating its name with questionable vendor partners. 

A reputable client paired with a reputable management company adds value to both.  How does Access Management Group obtain new business?  By consistently treating its employees, vendors, and clients with exceptional respect. 

Better Late Than Never

One of the Board's (many) responsibilities is ensuring a uniform community appearance.  The curbside appeal of a community directly impacts it's home values.  To accomplish this task, the Board may establish an architectural review committee, which homeowners petition when desiring to make a change to their properties. 

For communities where building guidelines have not been monitored over a period of years, a new Board must ask, “How do we go about implementing controls?”

The first step is to inventory the number and type of compliance violations that exist.  Learning how long these violations have existed limits how the Board acts.  If several homeowners installed storage sheds four or five years ago, the Board will have a difficult time requiring shed removal:  A Georgia two-year statute of limitations exists, starting at the point the violation began, not when it was noticed. 

A homeowner in one community wanted to install a second driveway.  The court upheld his ability to do so, when he provided evidence that most of the other homes in the community already had such driveways - a widespread violation may preempt enforcement altogether (for this particular violation).

This leads to the second step:  Putting the community on notice.  A letter acknowledging that enforcement has not occurred, a start-date for the Board’s commitment to begin monitoring, and a copy of the approval request form should be provided to each homeowner.  This is also a great time to call for volunteers to staff the review committee.

The glacial pace of the judicial system makes it impractical to pursue violations existing more than 18 months.  For more recent violations, the Board should issue a letter to the homeowner stipulating a request be provided immediately for review, or have the offending items removed.   For those homeowners who refuse, the next step is to file notice in the county courthouse records of the violation, so that any future homeowner will be aware that the violation requires correction upon purchase of the home. 

A homeowner in one community installed a hot tub on his patio without approval.  He refused to remove it, and sold his home prior to notice of the violation being filed in the property records.  Because of this, the condition was grandfathered in with the new homeowner. 

For this situation, along with those in which the statute of limitations expired, the final recourse is to tie it with conditional approval of future architectural requests.  In the above example, the new owner wanted to install double-pane windows, and agreed to have the hot tub removed at the same time.

By maintaining detailed records of approvals and denials for each home, the current Board sets the standard for all future Boards to follow.  To avoid creating loopholes, be sure to consult with management and legal counsel when starting up architectural compliance – each Association is unique in its stipulations.

FHA-Approved Condos

What attorneys predicted has finally occurred:  A condominium Board of Directors that failed to apply for FHA certification is being sued by a homeowner.  The plaintiff is a single mother who approached the Ohio Civil Rights Commission with a complaint of discriminatory action.  Her FHA bank loan was denied since the community had chosen not to renew a lapsed FHA approval.  This is devolving into a Fair Housing violation claim.

Many Association governing documents require the HOA to conform with FHA/VA lending guidelines. A high number of rentals or excessive delinquencies may prevent a condominium qualification.  Whether or not an Association can qualify, is it a fiduciary duty for the Board to apply for the certification?   Lack of certification reduces the pool of eligible buyers, impacting sales, and possibly conflicting with the Board’s duty to enhance and protect property values.

It may be argued that the Board chooses to not seek FHA approval because they don’t want the higher risk of foreclosures, which drive down property values:  FHA borrowers do not provide large down payments and qualify under lower credit scores, raising the risk of loan default.  The Board’s position could be viewed as protecting the value of the community, or a blatant attempt to ban “undesirables”.

Although the Association may argue that it is the lender discriminating (the Association does not have direct knowledge of a borrower’s status or circumstances), the Fair Housing law operates under a concept of “disparate impact”.  This provision prohibits actions/policies that unintentionally impact certain protected groups.  Institutions are placed in the position of being guilty until proving themselves innocent, a long and expensive process.

A federal official of the Justice Department has stated the agency is the guardian of the Fair Housing act.  Recently, the Justice Department agreed to not pursue whistleblower cases against the city of St. Paul, Minnesota.  In exchange, the city agreed to drop a suit that the U.S. Supreme Court had already agreed to hear, that would have gutted the “disparate impact” portion of the Fair Housing act.  Having local taxpayers suffer a $200 million loss by not defending the whistleblowers was deemed acceptable collateral damage.

While the outcome of the Ohio case remains to be seen, all Boards should carefully weigh their decisions in light of the current regulatory reality. 

Keep your Minutes "MI-nute"

When recording the happenings of a Board meeting, the Secretary types up a document known as Minutes, which is an official legal record retained for the life of the Association.  Although the name of the document is pronounced the same as a unit of time on your clock, the recorder should be thinking of the word “minute” with the stress on the first syllable, changing the meaning to “exceptionally small” or something that is carefully examined.

Your Board Minutes are subject to review in a court of law, and what appears in these documents may embarrass not only the Board, but also the entire homeowner association if not carefully considered.  One reason that the minutes are composed after a meeting and approved at the next meeting is to permit clearer heads to prevail, especially in considering contentious issues.

Ensure potentially damaging material is not recorded by limiting the length of the Minutes to fit on a single page.  The goal is to record actions or decisions taken by the Board without a blow-by-blow description of debates.  Leave the discussion out.  At its simplest, the record will only show what topic was being considered and whether or not the Board approved any action on it.  On certain items, a Board member may request that how each director voted be recorded, but this is the exception, not the rule.

There are basic elements that appear in each set of Minutes:

At the top of the document:

• The title “Minutes”
• Board of Directors for <name of the Association>
• Location the meeting was held, including physical address
• Date of the meeting

In the body of the document:

• Time meeting called to order, list of those in attendance, whether quorum obtained
• Approval of the prior meeting’s Minutes
• Summary of reports provided (Treasurer, Management, etc.)
• Decisions on items left outstanding from previous meetings
• Decisions on new topics
• Establishment of the next Board meeting

End of the document:

•  Time of Adjournment
• The phrase “Respectfully Submitted,”  
• Name of the individual that composed the Minutes, followed by the title Secretary
• “Secretary Pro Tem” is used as the title if another Board member acts as the Secretary

On occasion, a Board may be tempted to outsource the recording of Minutes.  This is a risky practice, as ultimately the Board is liable for any errors or omissions.  If the Bylaws do not specifically grant permission to assign this function to a non-Board member, the best course of action is for the Secretary to conduct this duty.

Get the LED Out!

We are bombarded with messages about “Going Green” and taking energy conservation steps.  Often the talk is short on specifics.  One practical step that takes a sizable bite out of your electric bill is converting your lighting system.  Consider this - 

On average, an incandescent bulb last 1,000 hours, a fluorescent 10,000 hours, and a LED 100,000 hours.  If you burn a bulb 24 hours a day, seven days a week, you will be replacing the incandescent in one to two months, the fluorescent in a little over a year, and the LED after 10+ years.  You are also probably paying for labor each time a bulb needs replacement.

A fluorescent bulb uses five times less energy than an incandescent, and a LED uses three to five times less than a fluorescent bulb - to produce the same amount of light.

Four-foot long fluorescent fixtures typically use two 40 watt bulbs which actually burn 96 watts total because of the drain by the ballast that regulates energy flow.  Even if the fluorescent bulbs in tube-fixtures are burned out, energy is still being consumed by the ballasts.  For the cost of replacing a bad ballast (approximately $45), a single four-foot LED tube can replace two fluorescent bulbs, dropping hourly electrical usage from 96 to 20 watts.  LEDs do not require a ballast to operate.

On average, placing a LED in a four-foot fixture that is on 24/7 will pay for itself in nine months, including the labor costs for bypassing the ballast during the bulb replacement.

Converting a community with 100 four-foot fixtures to LED will lower the annual bill by over $5,000: That’s change you can believe in!