Catastrophic Damage: Can HOAs Absolve Themselves of Responsibility? Preston Tower Court Case May Provide Guidance

Do homeowners’ associations (HOAs) have the ability or right to hold their buildings blameless when an accident occurs that the building is admittedly responsible for?  At first blush, I’d have thought that they were on the hook.  After all, part of what homeowners pay in HOA dues goes towards funding large insurance policies for just such occurrences.  I’d have also thought they couldn’t scamper away because if the same damage were caused by a neighbor, it would be the neighbor who paid to repair any damages. Why would an HOA be any different?

We may well get a good indication of this legal construct soon.  A case has been winding its way through the Dallas courts for over a year involving Preston Tower and one of their owners.

You may recall in February 2015 there was a pretty catastrophic flood at Preston Tower when a water booster pump failed and sent water cascading from the penthouse level pretty much to the ground.  The gush of water poured unabated for 80 minutes through the building.

It was decided by the HOA Board, management company Intercity Investments (ICI) and likely others that instead of the building’s insurance company forking out for the repairs to so many units, they’d fob off the cost of unit repairs to homeowners and their individual policies.

Why this decision was made, I do not know. Certainly it was cheaper for the HOA.  Would the resulting rate increase to the building’s insurance been too much to bear? Would the claim have made it difficult-to-impossible to get insurance in future? (Because you know insurance companies, they love to collect premiums and punish for claims.)

One owner said “no” and sued the HOA and ICI.  I won’t bore you with the details (there’s over 300 pages of court paperwork filled with claims and counterclaims) but suffice it to say the booster pump was located inside the wall and clearly the purview of the building to service and maintain and therefore also their responsibility in the event of a failure.

(For those who want to read more, click here and enter case number DC-15-08890.)

If the HOA wins, the result should cause all homeowners within any HOA to review and force their HOA Boards to spell out specifically what their responsibilities are when catastrophic damage occurs.  After all, if the building is afraid of rising premiums, so should the homeowner if they’re now responsible for building infrastructure failures that damage their homes.

Condo insurance policies generally cover from the drywall in while the building policy covers what’s behind the drywall.  Regardless of the age of a building, failures occur. Of course because of gravity, water is the enemy of all high-rises as was the case at Preston Tower.

This case has been going on for over a year and on December 14, there will be a hearing where the homeowner is asking for summary judgement and a motion for costs.

Stay tuned.

P.S. It goes without saying that I’m not a lawyer nor have I ever played one on TV.

Remember:  High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement.  If you’re interested in hosting a Candysdirt.com Staff Meeting event, I’m your guy. In 2016, my writing was recognized with Bronze and Silver awards from the National Association of Real Estate Editors.  Have a story to tell or a marriage proposal to make?  Shoot me an email [email protected].