Published on: February 22, 2004
It is winter in New England, and, as you have no doubt noticed, a particularly messy one, at that. Some people (one of my partners among them) managed to fly off to much warmer and snowless Houston to watch the Patriots win the Super Bowl. I stayed behind to field phone calls–eight in one day alone – from community associations grappling with frozen pipes and the assorted legal and insurance problems they are creating.
Typically, a pipe bursts in a common area or a single unit, spewing water into one or more adjoining units as well. In the best cases (and, alas, the infrequent ones) all of the affected owners have individual unit owners’ insurance policies, and their policies include a provision that will cover the deductible in the association’s master policy – no small matter, given that those deductibles now start at around $5,000 and rise steeply from there.
In these relatively happy circumstances, the homeowner pays his/her own deductible, which typically will be much less than $5,000, and an insurance policy – either the association’s or the owner’s or both, depending on the circumstances – takes care of the clean-up costs. But many owners don’t have that deductible coverage and a staggering number don’t have individual unit owner’s insurance at all. So now there’s a $5,000 or $10,000 clean-up bill no one wants to pay. The owner whose unit was damaged says the responsibility lies with the association or with the owner whose pipe burst; the manager and trustees respond, quite rightly, that the association is responsible only if it was somehow negligent, and it is very difficult to establish negligence in these situations.
It’s true the weather was cold, but what exactly was the association supposed to do about that?
The next step isn’t difficult to predict. The owners involved sue and counter-sue each other and probably the association as well, piling legal fees on top of cleanup costs, and creating ill will that will linger long after the ceilings have been repaired and the carpets have dried.
The association’s concerns about mold and mold liability simply complicate the mess. In the past, associations might have been content to let owners deal with water problems confined to their units, assuming they would either clean up the mess or live with it until the courts sorted out the liability. But a delayed or inadequate response to water damage will create a breeding ground for mold, which could spread quickly to common areas and surrounding units, where the association almost certainly would have potential liability. A $5,000 clean-up could blossom quickly into a $2 million claim.
Paying it Forward
Given those risks, when owners balk, some associations are deciding to pay for the clean-up themselves and recover the cost later, if they can. This strategy has obvious risks, including the possibility that an owner will bar access to the clean-up crew dispatched by the board or won’t like the way the association handles the repair.
There is legal authority on which boards can rely in these situations. The condominium statute gives a board the authority to enter a unit to deal with an emergency, and preventing water damage or mold that could affect other units arguably qualifies. That is clearly the case if the frozen pipe is in a unit owned by “snowbirds” wintering in warmer climes, who decided to turn their heat down or off while they were away. But an emergency response may also be justified when an owner doesn’t respond to a water problem, or when there is cause to question whether the clean-up will be adequate. The fallout from an angry owner is likely to be less severe and less costly than the potential liability to residents who suffer property damage or health problems caused by the spread of water or mold.
Of course, other owners won’t necessarily applaud a board’s “pay first, recover later” response. In their view, the association is spending money to fix a problem for which the affected owner ought to pay. And paying these clean-up costs out-of-pocket may create cash flow problems for associations that have not anticipated the expenditure nor budgeted for it. So boards that try to do the right thing may end up fighting both the owner with the broken pipe and the other owners who resent paying for it – making this issue not much different from many others association boards confront.
A Better Way
These conflicts may not be avoidable, but there are some steps association boards can take to address mold liability concerns specifically and insurance issues generally. On mold, we suggest that boards adopt resolutions or amendments similar to those rental property owners are now incorporating in tenant leases, specifying that owners are required to maintain their units so mold doesn’t grow in them and are required to report any leaks immediately to the association board or manager. This won’t necessarily prevent mold-liability suits, but it takes an important step toward shifting liability away from the association.
On the broader insurance issue, boards should consider adopting resolutions detailing the association’s responsibility when insurance claims are filed and specifying how those claims will be processed. This will avoid situations in which the board is trying to create procedures ad hoc, in the middle of a crisis.
A somewhat more aggressive measure, but an advisable one, is to amend the association’s bylaws to require all unit owners to obtain homeowners’ insurance. Owners’ policies would solve a million problems – more than a million if they include deductible coverage. Questions about who is responsible for what disappear when the insurance coverage is right. Among the other benefits, an insurance company, concerned about its liability, is likely to be more concerned about the quality of a clean-up than a budget-conscious homeowners, concerned primarily about the cost, thus reducing the risk to the association that a relatively small clean-up bill will turn into a massive liability claim.
Some associations are beginning to recognize and address these insurance concerns, which is a good thing, but progress is likely to come more slowly than the arrival of the next New England winter. So I’m looking at the Super Bowl schedule for 2005; when pipes start to burst in community associations this time next year, I’m planning to be somewhere else.