Northwest Condo & HOA Law Blog : Washington & Oregon Construction Defect Lawyer & Attorney : Barker Martin Law Firm : Homeowner Associations, Condos : Seattle, Portland

Within the past two weeks, I have been asked by three separate persons whether the Washington state legislature passed new laws this year related to homeowner and condominium association disclosure requirements tied to home sales.  The short answer is, "No."  Although there were several engrossed bills in the state house and senate involving homeowner associations that included added disclosure requirements, none of these bills went to a full vote by the legislature.

The current law in Washington is as follows:

• Association meeting minutes are not required to be included in a condominium resale certificate (The 18 separate statements or disclosures required to be included in a condominium Resale Certificate may be found at RCW 64.34.425.)
• Homeowner associations, other than condominiums, have no disclosure requirements related to sales of homes; however, individual sellers still need to complete a Seller Disclosure Statement, otherwise known as NWMLS Form 17.  

Although there is a movement to incorporate a resale certificate-type of disclosure requirement upon all homeowner associations in Washington, no such laws have been enacted to date.

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I get that lawyer bashing has become a national pasttime and that plaintiff lawyers are as far down on our society’s popularity chart as politicians.   But what I do not understand is how insurance companies--the quintessential example of corporate largess--have rocketed up the chart.  Madison Avenue has done an amazingly effective job transforming large cap insurance companies into friendly, pro-consumer institutions in the eyes of many.

To emphasize my point, think of the three most popular insurance companies? I bet Geico was one of the first names that came to mind. What image pops up? How about a docile animated gecko that speaks in a British accent? Or what about PEMCO Insurance, you know, the “We’re a lot like you, Greenlake power walker or blue tarp camper guy.” What about arguably the industry leader for this transformation change, the AFLAC duck?  But strip away the cute computer generated geckos and ducks, and the numbers reveal the truth about the insurance industry.

Fact: For the past three years and continuing into 2008, the insurance industry in America has achieved record-breaking profits. This fact is nearly astounding considering Hurricane Katrina occurred in 2005.

The numbers:

• 2005: $44.8 Billion profit (Source: LA Times)  
• 2006: $63.7 Billion profit (Source: Insurance Information Institute)
• 2007: Dollar figure not released. "Many insurers delivered strong earnings during the year powered in large part by healthy underwriting profits that could approach $25 billion in 2007, which would be the second largest underwriting profit on record after the $31.7 billion earned in 2006. 2007’s survey results indicate that the continuing respite in catastrophe losses in 2007 combined with strong performances in virtually all major lines of property/casualty (P/C) insurance will propel the industry to one of its best underwriting performances in the past 80 years" (Source: Insurance Information Institute)
• 2008 projected: "Analysts expect the industry’s profitability to continue in 2008. . .The ratio of losses and expenses to premiums for 2008 is projected to be 97.3, a deterioration from an estimated 93.8 in 2007. The 93.8 estimate for 2007, if accurate, would represent one of the top 12 best underwriting performances over the 88-year period beginning in 1920." (Source: Insurance Information Institute)

In light of these record-breaking profits, the insurance companies are paying out less and less in claims against builders and developers.  Wthin the past twelve months alone, several of our homeowner association construction defect clients with multi-million dollar claims are facing zero contribution from insurance, as the insurers have included stringent exclusions to policies, including no payment for losses involving “condominium” or “multi-family residential” construction. Several of the developers and contractors allegedly did not realize they were without insurance on their construction projects.  The developers and contractors obtained CGL policies and paid CGL premiums, but when it came time for the insurance companies to indemnify the insureds for the losses, sued the policy holders in declaratory judgment actions to avoid payment.  As a result , homeowners are left holding the bag on multi-million dollar repairs with no source of recovery because builders have created single-asset LLCs and distributed all income after the project was sold, and less and less insurance is available.  This shift has occurred in the context of insurance companies obtainng record profits.

One possible answer to the current disparity in loss and recovery in Washington is through the Condominium Qualified Warranty program created by the Washington legislature in 2004. RCW 64.35, et seq. Under the program, there is a two-year materials and labor warranty, a five-year building envelope warranty and a ten-year structural defects warranty. The program allows an award of reasonable attorneys' fees to the substantially prevailing party, yet in no event may such fees exceed the reasonable hourly value of the attorney's work. This provision should appease the lawyer-bashing critics.  Surprisingly, no insurers have funded the warranty program.  One can only speculate the lack of participation by insurers has everything to do with cutting into their bottom lines.  

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Friday, March 7 was the last day to consider opposite house bills in the legislature, so any bills that have been voted on by both houses will not pass this year.  Of the numerous condo and HOA-related legislation introduced this year, only two bills passed both houses and now await signature by the governor.  The governor has five days, excluding Sundays, to take action on bills passed by the Legislature unless adjournment occurs within those five days, in which case the governor has 20 days to sign or veto (excluding Sundays.)

HB 2014, relating to protection of tenants of conversion condos, passed both houses and awaits signature.  HB 2014 was revived from last session, but amended with a substitute bill in the Senate on January 18.  The bill passed both the senate and the house in this form. 

The second bill to pass this year is SB 6215 relating to reserve accounts for condominium associations.  After passing the senate, SB 6215 was amended by the House Committee on Judiciary to include a few clarifying terms and to require disclosure of the lack of reserve study if none has been undertaken.

The bill creating a cause of action for negligent construction, SSB 6385, amended in the Senate committee to exclude condominiums, passed the senate in that form and was passed out of the House Judiciary Committee on February 28.  On February 29, it was passed to Rules for a second reading, but never made it to the House floor. 

ESB 6745, which was the bill recommended by the HOA task force, was substantially amended on the floor of the senate, including amendments to make its application retroactive, to add numerous clarifying definitions, to remove the “open meetings” provision for board meetings, and to reduce the quorum requirement for association meetings.  Another amendment disallowed the use of liens against a person’s homes for failure to pay fines as opposed to assessments.  The engrossed bill passed the Senate unanimously.  It was then referred to the House Judiciary Committee on February 20, but inexplicably never made it out of committee.

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