 Hi, good afternoon everybody and thank you for joining us for another weekly edition of condo insider. So with me today I have my guest my special guest, Mike Eisen with insurance associates. He works very closely with the President Sue Savio. So he's our guest today and we're going to talk a little bit more about dno insurance. We want to cover it quite a bit but we want to really go into a little bit more detail about breach of fiduciary duty and when negligence comes into play. We both think it's a really, really important topic that we need to remind board members, especially with some of our aging buildings are doing a lot of repair contracts, and have the duty to make sure that they're complying with their governing docs and making the repairs are being done. They're not being ignored, or they're not being like oh don't want to look at it don't want to talk about it kind of a thing. So, so Mike thank you for being with us today. I really appreciate you. Thanks for having me. Great. So let's start off with, when it becomes the breach of their fiduciary duty, you know they have their governing docs and 514b. So, where is that line drawn when they start to cross that line of reaching their fiduciary duty. Well, you know that that's for. There are other people to decide what first what has to happen is, someone makes a complaint to this to the association to the board. And they could say hey I'm upset. I think you did something wrong. That's not really a dnl claim yet what will happen when it's in writing when you have a written demand for damages. At that point, it becomes crucial that you put the directors and officers liability policy on notice, and then no either go to, you know you could go to arbitration, mediation litigation you could determine if the board was responsible with the negligent. So when someone files a claim, is it arbitration or is it mediation is there like a mandatory step. Before you take it over that. And I mean you could have, you could have a claim could come in through various ways, it could come in simply as an email saying I want you to. You know, allow me to paint my, my front door pink, or you can, or it could come through a lawsuit, it could come through a civil lawsuit, it could come through a criminal complaint it could come through the EEOC complaint so there's very, there's various ways that it could come Okay. And when we talk about breach of their fiduciary duty. So let's talk about repairs in general because that's really the biggest one of the biggest items is the maintenance and repair. So, and the buildings are all aging, you know, I mean, majority of them are all aging they're doing a lot. A lot of things are breaking down, you know, like recently a lot of people are doing pipe repairs or pipe. Which is to me is really scary to even think about it, you know, because how do you get in between the walls replacement. You know, but, you know, some people can take some boards can just kind of like take a blind eye to it. And you know, some of these condos were built in the 70s, or even earlier than that. The pipes are all galvanized. Right. Yeah. And so the leak is, it might not be visible, because it's in between the walls, but you know, they only last for so long. Where they're going to start making little pukas rust pukas. And if the board just keeps ignoring it and ignoring it or saying or or I can imagine that they're saying oh no the leak is in somebody else's unit. You know, and they're not really doing the proper investigative thing. So where does it come that were insurance wise it's like a breach of their fiduciary duty. Well, which what you got to do. I mean, there's other think tech videos I've seen earlier. That there's many and they what what the boards need to do is make sure that they're doing what they can get educated, educate themselves can talk to reserve specialists talk to construction. People because insurance people we I could, I don't know how long pipes last you know we're not experts in pipes you got to talk the boards need to do what they got to educate themselves and make sure they do the right things and as long as they're doing that, then, then it's easier to defend against claims against breach of their fiduciary duty. So the due diligence would be like, okay so we have we know we have this constant flow of water we're not sure where it's coming from, we've gone unit by unit. Yeah, done some examinations, you know to see if anything, anything obvious is leaking. They can't find the source. So now they're trying to hire or find someone that can even, because this is the machines that can, can kind of, I kind of want to say x-ray the walls, and then you can kind of see where it's wet, right. So as long as they're doing things like that to try to figure it out. Yes, yes, and come to a plan, get trying to develop my try to do what a prudent person would do to try to solve the solve the problem that they have if they keep doing that, then it's a lot easier to defend a claim against for breach of their fiduciary duty. If they're starting to do things where they're making decisions based on their own personal interests, then you might not have coverage when you try to have, you know, the you as a board member, if you're doing things not in the best interests of the board of association, I'm sorry. The association as a whole, right. So doing something like on based upon their own personal interests. Yeah, would be like they want a specific contractor to do the job. Well, yeah, maybe, maybe, maybe you're on the board and you happen to be your spouse happens to own a construction company. That's the worst, you know, and then, you know, you could see how there could be a conflict of interest there and so, you know, as a fiduciary of the association you have to make sure you disclose all of that. And main thing as long as you're operating with the best interests of your association, not yourself but the association, then you really shouldn't have problems when you put in a dental claim or want to claim this put in. Okay. In a repair situation. So, and I'm like really scary because I know I know a lot of board members are really taking their time to do their work on it. You know, especially with the pipe repairs. Because I know there's several condos going through that right now, plus the added on top of that with the fire sprinklers and doing all that kind of stuff. You know, I'm sure it's getting to the point where some of these boards are got a lot on the plate. Yes, yes. And that's understandable. I talked to some underwriters about that, regarding what you can do the main thing is if you have a plan, and you show, you know, you document that you're trying to improve things you're trying to get things better. You're trying to fulfill your duties, as described in your governing documents. That's, that's, that's, that's, you know, all that could be expected of you I think. And what about, like the board you know everybody thinks thinks that they're they walk right in the silent that silent little office and they don't disseminate the information so how would you suggest a board, be able to communicate to their owners like hey, these are the steps we're taking. This is the issue, so that all the owners know what's going on so you don't have someone coming up on a left field and say, Well, you know you guys never tell us what you're doing. Yeah, why are you doing this now. You know, you know I think it depends on the scope of the project that you're doing. I mean when you get to really complex you probably might as good idea to get a, you know, construction manager, construction consultant involved to help organize that because you know it's complicated where you have to move people out of units and things can get very complicated it really depends on the scope and the, the, you know the expertise that you already have on the board, you might have people who are very familiar with construction on the board so it really varies by association. So keeping every homeowner all the homeowners involved in like the planning stages. Hey, we're going to be replacing our windows. You know, they're 30 years old and they're starting to the seals are starting to break off. You know we're getting a lot of issues, and it's starting to affect, you know, the value of your home. Yeah, yeah. Because the water's coming in, right. Yeah, it becomes more costly and if you don't do anything it's going to just leads to bigger problems. The drywall. You know, I think I think it's, I would say work with your property manager work with whoever you depending on the scope of the work you know work with construction managers, but whatever it is you know communication is key to to preventing disagreement. Okay. So, let's go to this one other topic. So now everybody's under, you know, there's a lot of contracts out there now, or pending contracts to go out there for like these right pipe repairs because that's a big issue, and anything regarding their fire sprinkler stuff, or compliance with the riff sack. So, a lot of contracts are being formed, or being talked about. So, where does it come into because that was one thing that I read a lot about was some claims are against the ales and the dnl for breach of contract. When it comes to their contract with a contractor. Yeah. So how does that affect a dno insurance. Dnl insurance, they typically will pay for the defense of a breach of contract claim. And it's usually a vendor that feels that they got fired inappropriately. And that a lot of times what happens is, you'll have a breach of contract claim when you have contentious board, and one group of people overthrow another group of people, and the new, the new, the new board. The new board fires a lot of vendors and they, they bring in their own people. And that's when you can get a brief this one you're likely to have a breach of contract claim. But you got to keep in mind that when you do that it's not going to cover. It's only going to cover the defense of that claim. But whatever you do. Repair work, big, big repair work is very important that the board of directors is making the decision they first look into their governing documents, because you could have, you can have requirements in your government documents, for example, that require you to have bonding. So there might be requirements that you as a board member you need to comply with, and you're not going to know unless you read your government documents, and you might, you might engage in a contract that was in conflict with your governing documents and then you could have an upset unit owner saying you, you didn't follow the governing documents so it all goes back to the board members have to educate themselves. To know what, know what they're responsible for. Can cannot contractor or is it possible where the board has signed a contract with with a contractor, but it's been like as we all know permitting takes forever. I mean there's no timeline on how long they're going to take. So now there's, it's like a year down the road and I've seen some where they've been a year down the road before and they're still in permitting where the, maybe it's the opposite effect, you know the contractors like hey I can't hold on to this contract for the same price. It's a year later. The price doesn't hold for a whole year. Yeah, you know, and what do you do then the association goes after the contractor saying hey, you know that permitting is a little bit messed up, you know, you took the contract, and you, you know, and you do the guy even said the contract even said to the board that it's going to be a while takes a year for permitting you know. So, so what if the contractor goes back after the contract is signing say hey, we don't have our permits yet it's been a year so we're canceling this. Can the board go after would they and then and then probably the contractor will sue the board, right. It's probably important that before you sign the contract you check with your attorney to make sure there are, there are things you can do if you ever happen to have that situation. Because on the, on the other side, if the contractor starts to procure materials and things like that, they could be out of money, they could be out of money and they might have a legitimate issue. So I think it's probably best that before you sign a contract talks to your attorney, and make sure that those potential pitfalls are addressed. Yeah, you're gonna have this list of pitfalls. So what is your best recommendation, especially for these guys are undergoing a lot of type repair spalling repair especially, you know. Sometimes I'm afraid to go to all of them want to park underneath because you have areas that are roped up because you see the chunks of concrete falling down like I'm not parking under there. You know, but you have now all these issues coming up where you know the board's got to like pay attention. Absolutely. Be a little bit aggressive in their repairs, so to speak within their budgets but not be afraid. Like hey the reality is a reality we got to raise this race maintenance fees. Special assessment I mean that's the reality of the world. Right. Whether you live in a single family home that's not in association. The cost of doing cost of maintenance goes up. I mean, you can't just keep maintenance fees the same and that's just the reality. The reality is single family home you're constantly putting money away. Yeah, all the time because that roof repair is between 2010 and 20 grand right. You know, so hopefully that'll be done before your kids grow up and go to college. I don't have a dog in a cat. I was just talking to someone about that I'm like, Oh, no. I don't want to get that done before they go off. You know, the main thing is that the board members they have to read their governing documents you know we had an issue I had earlier this week, where there's an issue of who needed to maintain a particular area of the building. And really there's no common sense that that will tell you the answer. The only way you know the answer is you look into the government documents, because you'll define what the dwelling is. You'll define specifically what the dwelling is so no board with infinite wisdom could know it unless they read the governing documents so you really got to start there, start there and try to do what's best on behalf of your association because that was a learning for me I, I was surprised to see when I read the definition of dwelling in this particular condo association, it was it went to very a lot of detail, you went to a lot of detail to say what was part of the dwelling and what was not, you know, Oh really. Yeah. Wow that's interesting. Well yeah not that you bring it up because I had one. The guy's toilet overflowed. And you think it was can be covered under his own policy. Yeah, well it's actually covered under the condo master policy really not even like that too. They have certain things that's covered by the by the association. Yeah, that's, I mean that that's a topic for a whole another day but that is pretty much the case that most government documents will say that you have to ensure for the as built as built condition of the unit. Once that once there's a loss greater than the association deductible. The association policy is primary and is intended to pay for that. So, where does Hawaii stand on DNO interest, I know. Yeah, Sue had said many times that that were like the worst. So many carriers now. You know that you know that that is true, you know, just before COVID last year, last January they had the CI law convention in Las Vegas and I met with a couple of the, there's a handful of DNO companies, and they all roll their eyes when they see us Oh my god there the Hawaii guys come again. We're really, you know really bad anecdotally they told me one carrier who writes a lot said that an average claim in Hawaii will be between 50 and $70,000. Wow. Yeah, but what what what it's important to understand is Hawaii is really small, you know, there's only a handful of companies that write directors and officers liability. But if we have maybe 1000 to 2000 associations throughout the whole state. California and Florida, both have about 50,000 each. So, and we have 50,000 spread across a longer. There's, they have a lot more volume, you have a lot more volume than us so we put in a lot of claims, you know we had a bunch of, you know, foreclosure related claims recently, recent years. It just takes a few of those to be very expensive and all of a sudden, you know, as an insurance company, you could write 100% of the condos in Hawaii, and you'll lose business you lose money so because we're such a small, small piece of the whole market is very easy for Hawaii to, you know, we don't have much leverage I guess you can say. So, so we have so we have another issue too is we have high unit values, our unit values tend to be higher than than most, most places in the country. So, the higher your unit values are you tend to the theory is that you tend to have a greater likelihood to be able to sue, be more likely to have a complaint. So, you know, as, because on the on the directors officers liability applications, it's often asked what's what's the average value of the units there because as the value goes up, the likelihood of getting a complaint goes up. So, well that's interesting to know. So we have high values, we have low amount of volume in relation to everyone and just slim picking so Hawaii is, it's kind of unfortunate it's very it's a very hard market. It's that ratio set math ratio that throws us out of the ballpark. Well that's good to know. So what is your best advice for a new board member that's coming on to the board. Oh, in making sure that they protect themselves and the board and the project as a whole. You, you first have to start by, you know, reading your governing documents and if it doesn't make sense to you asked, if there's a part that you don't understand, try to find some clarity by asking around, educate yourself, however you know attend the different communication meetings, watch videos like this and watch, watch all the other videos on fiduciary duties and things like that, educate yourself. That's the best you can do. And when, when you make decisions, make educated, don't don't just think your common sense is better than everyone else just do what you can to educate yourself. I mean really your decisions have to really come from your heart that you've done your best due diligence on investigating. You know, like one of the rules is like, just because everybody says yes, don't, don't just be a follower. I mean, you know, it's okay to, if you firmly believe it, that it should be no I mean, you know, it's a no right. Absolutely. And as the main thing is, you're, you're doing what you think is best for the association after doing your due diligence. When you do that I think you won't have any problems, or you shouldn't have, you're less likely to have problems, you're going to have problems anyway. Okay. Okay, so we're nearing the end. And we covered the three topics I really wanted to cover for today. So, but I really want to thank you for being on here today. I know there's going to be a lot more talk about negligence and fiduciary duties, especially as it comes to repairs, because that's the biggest hot ticket item lately. But I also want to put in a little reminder to everybody. And I just recently read it. So that's what kind of threw me off a little bit I was reading the article about the Florida collapse and they had talked about the H06. So some people may get may will get compensation out of their H06 policy. But one part of the article said that if in the in the Florida article it said that people that have there have no mortgages might not have an H06 policy because insurance carrier does not have to have I mean the mortgage company does not require it because there is no mortgage company. So what is your advice to that even if you have zero mortgages. You should have you should have a homeowner's policy anyway. Yeah, yeah, you should have a six. I mean some some associations already require it under what 514b 143g I think. So, whether you have a mortgage here or not you might your board, your association might require it. But unless unless you can afford to self insure a loss. It's a great idea to have a homeowner's homeowner's insurance. I just kind of want to put that tidbit into people that if you have a zero balance, even if it's a single family, a condo, you don't owe any debt on it, you still need the insurance to cover your stuff. I mean, single family home I mean, you know, just because there's not a mortgage you still need to rebuild. How are you going to do that if you don't have insurance right. So the policy is not going to cover your loss of use as well so if you have to stay in a hotel or get other accommodations. Right. That's the only policy where you'll get the coverage. Yeah, yeah. So everybody's got to just FYI that you need the 806 policy with or without the debt of a mortgage. Okay, absolutely. I think those are that you have any closing remarks that you wanted to make anything to No, not really I think the main thing is when we talk about directors officers liability. The main thing is that the board is just, you know, working the best interest of your association and to do that, educate yourself I think that's the most important thing you can do. Okay, cool. And you can always come to our ACCA events. A lot of people will email us questions, and then we'll reply back as well to whatever the question is. And I want to say very, I want to say user friendly, because we really try to, I mean our whole purpose is to educate so we really want to get that information out there. So again Mike I want to thank you for joining me today. I know it was a little time out of your day, but thank you so much for being here and covering all these topics with us. Thanks for having me. Okay, thank you. Thank you.