Do Your Association Clients Need Anti-Harassment Policies?

Our sister publication, HOAleader.com, recently reported that one of its readers was informed by a potential directors and officers liability insurer that their association would need to have an anti-harassment policy to obtain coverage.

The reader stated, “We didn’t want to be involved in the policing-how-neighbors-treat-each-other business, but we have to, it turns out.”

Is that true? And should you advise your clients to adopt formal anti-harassment policies? Read on to find out what our experts think.

The Policing Question

First, let’s talk about the reader’s conclusion that boards have to police how neighbors treat each other. The U.S. Department of Housing and Urban Development (HUD) likely wouldn’t put it that way, but it did issue a regulation in 2016 that your clients might interpret as just such a requirement.

The regulation makes associations liable in certain circumstances for harassment committed by third parties—including other owners—when the harassment was based on a protected characteristic (race, color, religion, sex, familial status, national origin, or disability).

Specifically, an association is liable if it:

• Knew or should have known of the harassment
• Had to power to correct and end it, and
• Failed to take prompt action to do so.

It may be difficult for your boards to believe that they have the power to stop harassment between neighbors. But HUD has stated that “a community association generally has the power to respond to third-party harassment by imposing conditions authorized by the association’s CC&Rs or by other legal authority.”

The Policy Question

Presumably, it’s the threat of liability under the HUD regulation that prompted the reader’s new D&O insurer to require an anti-harassment policy.

“We’re seeing more of these claims—harassment, discrimination, bullying—than ever before,” says Kevin Davis, president of Kevin Davis Insurance Services Inc., in Los Angeles. “Owners end up blaming the board for not doing something about it. Our rates are going up because of this.

“Most of the time it doesn’t go anywhere, but there are times when there are huge judgments when an owner has really crossed the line. Regardless, though, insurers have to pay continuous defense costs.”

Davis hasn’t seen any insurers require an anti-harassment policy, but he thinks it’s a good idea for an association to have one. “At seminars for associations, we recommend having an anti-harassment policy so, if they get sued, they can say they have a policy against it. Most don’t; it’s like a foreign language to them.”

Robert Ducharme, an attorney who has represented New Hampshire associations for 20 years, hasn’t run into such a requirement either. “That hasn’t happened in New Hampshire,” he says. “I represent about 300 associations and have been talking to a bunch of insurers, and it hasn’t come up.”

He sees the merit in having an explicit policy, though. “I don’t think it’s a bad idea at all. The whole goal of community associations is to create a community. If people are going to push back against that, the board should do what it takes to make it comfortable for everyone to live there.”

A Pre-Existing Alternative for Extreme Cases

Zachary Wilson, an attorney with Law Firm Carolinas who focuses on community association law, suggests your clients might already have the weapons they need to combat severe harassment, even without a formal written policy. “A lot of times the covenants give the association some discretion in enforcement,” he says.

“I’m working on a situation now where a bad actor owner is committing bad behavior, and it’s hard to nail down specific acts to restrict or prohibit. But there are sometimes broader provisions in restrictive covenants, like nuisance, which can potentially give you a wide breadth of things you can regulate if they get to an extreme level.

“Our experience has been that, while HUD may believe that HOAs have a general duty to address discriminatory behavior, most communities have little or no viable authority to do much because of the limited scope of their authority in enforcing the community’s restrictions.”

Wilson references a recent case out of Indiana where some owners engaged in racially discriminatory behavior against their neighbors. Among other things, the harassing neighbors used racial epithets on multiple occasions.

“If the behavior is so blatant and clear and nasty,” he says, “you can potentially point to the nuisance provisions in the covenants and argue that people using racial epithets and slurs are a nuisance, and I think a court could possibly see it similarly.

“But vague nuisance language doesn’t the board authority to enforce in any conceivable instance.”