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Risk Management for HOAs & Large-Scale Repair Projects: Lessons from the Woodbridge Decision

Published on: October 20, 2025 | by Jennifer Berschauer, Esq.

*New Case Law

A recent appellate court decision, 11640 Woodbridge Condominium Homeowners Association v. Farmers Insurance Exchange (2025) 110 Cal.App.5th 211, marks an important development in HOA law and insurance policy interpretation. The Woodbridge case clarifies how “all risk” (or “open peril”) policies are applied during major construction repair projects. The case stands as a warning that broadly worded exclusions in these policies are not a “free pass” for insurers to deny coverage.

Case Overview

In Woodbridge, the Association sustained more than $3.5 million in water damage when storms struck during an ongoing reroofing project. The Association’s insurance carrier denied coverage, and the Association sued for breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court granted summary judgment in favor of the insurer, but the Court of Appeal reversed. The appellate court found triable issues of fact on both claims and suggested that the insurer’s conduct could rise to the level of bad faith and potentially justify punitive damages.

What This Means for HOA Boards and Managers

Coverage Can Exist Even During Repair Projects

The Woodbridge decision confirms that coverage can remain intact during in-progress construction, even when structural elements are dismantled. In Woodbridge, the carrier argued that the structure no longer had a “roof” once portions were removed. The Court disagreed, pointing to the policy’s definition of covered property, which expressly included “repairs and alterations.”

Takeaway: HOAs should not assume they are uninsured during construction. Many policies, including the policy in Woodbridge, cover structures under repair. Claims should not be abandoned without a thorough policy review. When in doubt, legal counsel should be consulted early.

Broad Exclusions Will Be Interpreted Narrowly

The insurance company relied upon broad exclusions in the “all risk” policy to justify its decision to deny coverage, relying specifically on the ‘water damage’ and ‘faulty workmanship’ exclusions to support its denial. The Court emphasized that exclusions are interpreted narrowly against insurers to protect the reasonable expectations of policy holders.

Takeaway: An insurance carrier’s reliance on broad, vaguely worded exclusions will be closely scrutinized and, where ambiguous, resolved in favor of the insured. When faced with a claim denial, Associations should press for a clear, documented rationale and, with the help of legal counsel, push back against unjustified denials.

Negligence Alone Doesn’t Automatically Bar Coverage

In Woodbridge, the carrier argued that the loss was entirely due to the contractor’s negligence. The Court rejected this, noting the insurer failed to demonstrate that the damage would have been avoided if the contractor had followed industry standards. The carrier did not establish that, but for the negligent work, no rain would have entered the HOA’s property.

Takeaway: In short, negligence, without a showing that it contributed to or caused the damage, may not void coverage. If “faulty workmanship” is cited as a reason for denial, consider whether other contributing causes, such as weather, are present.

Denial of Coverage Can Trigger Bad Faith and Punitive Damages Exposure

The Court found that Farmer’s denial, based on questionable policy interpretations, exposed it to bad faith and punitive damages liability. Insurers must treat their insured’s interest with equal consideration and investigate claims thoroughly.

Takeaway: If an insurer issues a sweeping denial, fails to investigate, or prioritizes cost savings over coverage obligations, the Association may have remedies beyond mere coverage.

The Woodbridge decision reinforces that insurance coverage during major repair projects is not as fragile as some insurers suggest. For homeowners association boards and managers, it’s a reminder to read policies closely, push back on overbroad denials, and recognize that even allegations of negligence may not be the end of a claim. Boards and managers are advised to secure proper coverage before construction begins, document protective measures taken during the project, such as tarping and site inspection, and seek legal guidance at the first sign of a dispute.

Are Your HOA Volunteers Covered for Injuries?

Published on: August 24, 2023 | by Bradley Walker, Esq. and Steven J. Tinnelly, Esq.

hoa-workers-comp-insurance-300x178 Homeowners Associations (“HOAs”) rely on the efforts of their volunteer directors, officers, and committee members to perform all manner of tasks needed in assisting the HOA with its operations. Participation by these HOA volunteers in common tasks such as site inspections, including slope inspections, landscape committee walk-throughs, and even meeting room set up and take down can all create a risk of personal injury to the volunteer. If such injury were to occur, would the volunteer be covered by the HOA’s insurance policies?

The answer is yes with respect to an HOA’s worker’s compensation policy, but only if the HOA affirmatively “opts-in” to such coverage by adoption of a written declaration. California Labor Code section 3363.6(a) provides that: “…a person who performs voluntary service without pay for a private, nonprofit organization, as designated and authorized by the board of directors of the organization, shall, when the board directors of the organization, in its sole discretion, so declares in writing, and prior to the injury, shall be deemed an employee of the organization” for purposes of being covered under a policy or workers compensation insurance. Absent such a written declaration, injured volunteers will likely be excluded from the definition of an “employee” and not covered under the workers compensation and insurance laws. (Labor Code section 3352(a)(9).).

In the course of our experience representing HOAs and community associations throughout California, we are finding that many HOA Boards form committees of volunteer homeowners without making this written declaration. To make matters worse, they often fail to even memorialize the formation of the committee and the persons to serve as its members. This is problematic. At a minimum, Boards should memorialize the creation of the committee and the names of its members within the minutes of the Board meeting in which the Board passed the motion to form the committee.

The better approach is for the Board to pass a written resolution that memorializes (a) the Board’s creation of the committee, (b) the Board’s appointment of named individual volunteers to serve as members of that committee, and (c) the Board’s adoption of a formal charter for the committee that defines the scope of authority and responsibility vested in the committee’s members. This resolution and charter should be drafted by the HOA’s lawyer and made part of the Board’s meeting minutes. As the composition of the committee changes (i.e., as different people are appointed or removed from the committee by the Board), the Board may simply document those changes in its meeting minutes without having to pass a new resolution or amend the charter.

If your HOA Board has not made a written declaration to “opt-in” to workers compensation coverage for volunteers, the HOA may be exposed to direct claims of personal injury. Adding so called “participant” or” volunteer” accident insurance coverage to the HOA’s general liability policy may be another option but, in any event, Boards should confirm adequate insurance coverage for their volunteers with their HOA’s insurance agent, and verify precisely what their insurance carrier requires in terms of a written declaration for the purposes discussed above.

What If Our HOA’s Insurance is Cancelled Due to Risk of Wildfires?

Published on: August 4, 2023 | by Bradley Walker, Esq.

fire-gb0de99a85_1920 If your homeowners association (“HOA”) is located in a high-risk fire area, what can your Board of Directors do if the current master policy of fire and casualty insurance on your condominium or townhome buildings is not renewed? Due to the massive wildfires that have swept California over the past two years, many insurance companies (and their re-insurance partners) are reassessing their willingness to underwrite fire and casualty insurance in the state. Those carriers that are willing to write coverage are limiting their risk exposure by greatly reducing the coverage limits available for purchase. To compound this problem, the premiums being quoted are 5-10 times the amount of the prior year’s premium for much less coverage.

In order to protect the HOA and the members’ investment in their homes, members should contact their own insurance broker and inquire into purchase of an HO-3 policy that will cover the portion of the condominium (or townhome) building containing that member’s unit. An alternative insurance product, combining “Building Property” coverage with the member’s HO-6 unit policy, may also be available. Members should also consider adding “Loss Assessment” coverage to their current unit policy to offset exposure to future special assessments.

Many HOAs are finding that they are unable to purchase “full replacement” coverage for the attached common buildings at any price. These HOAs are electing to purchase whatever reduced coverage is available and affordable and passing the increased premium costs back to the members as a special assessment. With the current lack of any legislative solution from Sacramento, combining reduced coverage under the HOA’s master policy with individual purchase of an HO-3 policy may represent the only available option for members to protect their investment for the foreseeable future.

HOAs facing this problem should carefully consult with their insurance broker and legal counsel to assure that the Board is acting reasonably and obtaining the maximum amount of fire and casualty insurance coverage that is available and affordable. Boards of Directors should also consider whether any amendments to the HOA’s governing documents are needed to limit the risk of claims against the HOA for underinsuring the project and requiring members to obtain additional building property coverage on their individual unit policy.

Non-renewal of an HOA’s master casualty and liability insurance policy can have disastrous effects on the HOA’s finances and the value of the member’s separate interests. This is why HOA’s should immediately contact their legal counsel in the event they receive a notice of non-renewal.

Asked and Answered: Paying for Increased HOA Insurance Premiums

Published on: March 3, 2023 | by Steven J. Tinnelly, Esq. and Ramona Acosta, PCAM

*Asked & Answered

Asked – Our insurance was cancelled and with the new policy the premium sky rocketed. There is not enough money in the operating account or budget to pay for the new premium. Can we pay from reserves?

Answered – California has suffered significant wildfire damage in recent years. Coupled with several years of severe drought and increased wildfire risk, fewer and fewer insurance companies are willing to write policies for communities that may experience wildfire damage. In addition, admitted carriers are highly regulated by the Department of Insurance, which limits the amounts they may charge for insurance premiums. This has caused many associations to be cancelled or non-renewed by admitted carriers or those in the “primary” market.

As a result, HOAs are left to purchase insurance from the non-admitted or “surplus” market. Carriers in the surplus market are less regulated and, when demand is high and supply is low, prices skyrocket. The HOA’s CC&Rs generally include language specifying that the association “shall” purchase insurance, and may require coverage to provide for “full replacement cost.” If the association does not purchase the insurance as required by the governing documents, the association and its board of directors could be exposed to liability for failure to obtain adequate coverage.

So, what is an HOA to do if it doesn’t have the money to pay for the skyrocketed insurance premiums? Yes, an HOA may temporarily borrow funds from reserves in this situation without membership approval because this act would be needed to “meet short-term cash flow requirements or other expenses.” (Civ. Code § 5515(a).) This action should only be taken with the guidance from the association’s legal counsel due to the significant procedural requirements that must be satisfied under Civil Code section 5515. Those requirements include, among others, providing the membership with notice of the board’s intent to borrow the funds. The notice must additionally include the reasons the transfer is needed, the options for repayment, a description of how the funds will be restored to the reserve account within one (1) year of the date of the transfer, and a whether a special assessment will be utilized for that purpose.

A special assessment will likely be the mechanism utilized to restore the borrowed reserve funds. However, special assessments greater than five percent (5%) of an HOA’s annual budget cannot be imposed without membership approval. Civil Code section 5610 fortunately exempts boards from having to comply with this membership approval requirement in situations where the special assessment (regardless of its amount) is needed to address an emergency expense which “could not have reasonably been foreseen by the board when preparing and distributing the annual budget report.” While this emergency special assessment could allow for the board to restore the borrowed reserve funds the first time, the question then becomes whether levying a similar assessment in future years would remain a legally valid option as the assessment would no longer be tied to an unforeseen expense. HOAs should therefore consult with legal counsel on this issue before imposing an emergency special assessment to understand its implications on future budget planning.

HOAs should also consult with legal counsel and their association’s insurance professionals for guidance as to how the increased premium expense may be mitigated carrying forward. For example, boards may be able to reduce their association’s insurance premiums by increasing deductible amounts. To illustrate, if the HOA has a $5,000 deductible, an increase to $25,000 or higher may be sufficient to generate a significant premium decrease under the master policy. That is because more risk (the higher deductible amount) is being transferred from the association’s master carrier onto the individual homeowners and the carriers of their respective HO-6 insurance policies. The HO-6 (aka “unit owner’s insurance”) policies are designed to cover anything that the association’s master policy does not—namely, anything below the deductible on the association’s master policy. Most sets of CC&Rs fortunately allow the board to make these adjustments to deductible amounts without triggering the need for any membership approval or vote on the matter.

Other options may include reducing the scope of insurance coverage the association is required to purchase under the CC&Rs. For example, if the CC&Rs require full replacement cost, or an ‘All-In’ policy, consider an amendment to a ‘Bare Walls’ policy, which only covers the common areas. This type of amendment would likely require membership approval and should therefore only be considered if the board is ready to devote the time and resources needed to properly educate the membership and secure enough participation in the voting process. We typically recommend in these situations that the board conduct one (or more) townhall meetings to show the cost comparisons of (a) the special assessment(s) and/or assessment increase(s) that would be needed to maintain All-In coverage over the coming years versus (b) shifting to Bare Wall coverage for the association and each homeowner only incurring a minor increase in premium under the average HO-6 policy.

This is often successful in giving the membership a clear and powerful explanation as to why voting for the amendment is in their best interest; in our experience, this substantially increases the likelihood that the ballot measure will be successful.

-Blog post authored by TLG Attorney, Steven J. Tinnelly, Esq. and Ramona Acosta, PCAM.

Retain Your HOA Counsel Throughout Insurance Claim Matters

Published on: August 3, 2022 | by Vivian Tran, Esq.

unnamed Homeowners Associations (“HOA”) are encouraged to report potential and actual claims to their insurance carriers. In fact, there is usually a provision within the HOA’s Declaration of Covenants, Conditions, and Restrictions (“CC&Rs”) that delineate the circumstances when an HOA’s manager should report a claim. If there isn’t such a provision, HOAs should adopt standard protocols regarding reporting a claim with its insurance carrier in situations where there may be coverage while also immediately taking action to mitigate any damages internally.

In most instances after a claim is reported to the HOA’s insurance carrier, an adjuster would be assigned. If the situation may be resolved with only the insurance adjuster, the HOA’s general counsel, the Board of Directors (“Board”), and HOA’s manager involved, then great. Oftentimes though, the insurance adjuster will assign insurance defense counsel as the claim might be a bit more complicated. In most cases, insurance assigned defense counsel will take over the matter and be the point of contact between the HOA and the insurance adjuster. HOAs will usually opt to not have their general counsel remain on the case as the HOA’s insurance carrier only covers insurance defense counsel’s attorney’s fees not the HOA’s general counsel fees. While that is understandable, we would urge Boards to reconsider taking the HOA’s general counsel completely off an insurance handled matter simply to conserve costs. In the long run, such a decision might end up causing greater liability and headaches for the HOA.

To provide a bit of background, attorneys in California are required to follow what is known as the California Rules of Professional Conduct (“Rules”). As a matter of fact, these Rules are so important that they are tested on the California State Bar and attorneys are required to complete continuing education courses pertaining to ethics every few years. These Rules serve to protect the public, the courts, and the legal profession. Thanks to cinematic arts and social media platforms, attorneys are already viewed as “sharks,” so these Rules promote the administration of justice and confidence in the legal profession. An attorney’s failure to comply with an obligation or prohibition imposed by a rule is a basis for invoking the California State Bar’s disciplinary process. It is important for HOAs and their Boards to know and understand the foundation of a good attorney-client relationship and why an HOA’s general counsel will usually be more invested than an HOA’s insurance defense counsel.

When a Board decides to forego having their general counsel involved in an insurance matter until resolution is achieved, the HOA might be resolving the claim in such a way that is not in the best interests of the HOA. For example, if insurance defense counsel fails to keep communications lines open between insurance defense counsel and the Board as required by Rule 1.4, when it becomes time to settle, the Board does not fully understand what they are agreeing to settle. Most insurance defense counsels work in some capacity for the HOA’s insurance carrier therefore, even though they have an attorney-client relationship with the HOA and should advocate zealously on the HOA’s behalf, the reality is the HOA’s insurance carriers are their bosses. As such, there is a slight conflict of interest. If the HOA’s general counsel is not involved in mediation, settlement negotiations, or preparation of the settlement agreement, the HOA’s Board might end up agreeing to something detrimental to the HOA. At that point, damage control would necessitate a malpractice lawsuit concerning insurance defense counsel and a bad faith insurance lawsuit—neither of which any Board wants a part of.

To avoid such an outcome, HOA Boards should at least retain their general counsel on major decisions throughout the duration of the insurance claim. If the Board does not want HOA general counsel to be directly involved, then the Board should routinely update their general counsel to obtain appropriate advice and risk mitigation strategies.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

AB 1101 Signed! Welcome Clarity to HOA Financial Protection Requirements

Published on: October 11, 2021 | by Carrie Heieck, Esq.

*New Legislation

AB 2912, passed in 2018, provided welcome protections to homeowners in HOA’s from fraudulent activities by those entrusted with managing an HOA’s finances. AB 2912’s protections included: 1) requiring Associations to secure fidelity bond insurance in an amount equal to or exceeding current reserves, plus three months of assessments; 2) requiring a monthly review of financial statements rather than quarterly; and 3) prohibiting electronic transfers of funds without board approval. However, certain provisions of AB 2912 were unclear.

To settle any confusion, AB 1101 was passed by the California Legislature in September of 2021. Effective January 1, 2022, Civil Code Sections 5380, 5502, and 5806, will be amended in order to clarify existing law by:

1) Specifying that HOA funds shall be deposited into accounts insured by Federal Deposit Insurance Corporation or the National Credit Union Administration Insurance Fund. This ensures that HOA funds are properly preserved and not invested in any high-risk investments or stocks.

2) Establishing clear limits before board approval is required for the transfer of HOA funds. While AB 2912 provided a process by which HOA’s should approve major expenses, the process for calculating those limits was somewhat confusing and was subject to change based on the amount of money on deposit in the HOA’s bank accounts. With AB 1101, the process is clear. For HOA’s with 51 or more units, transfers of $10,000.00 or more must be approved by written approval of the board. For HOA’s with 50 or fewer units, transfers of $5,000 or greater must be approved in writing by the Board.

3) Specifying that the HOA must not just maintain fidelity bond coverage, but that it must now also maintain crime insurance and employee dishonesty coverage, or their equivalent, for dishonest acts of the person or entity and their employees. This coverage would extend not just to the HOA and its directors, officers and employees, but also to managing agents and their employees.

Common sense legislation that protects the financial interests of HOA’s, which are unfortunately often targets for embezzlement, is a breath of fresh air. As always, HOA’s with questions regarding new legislation or legal requirements related to insurance or finances, should contact their HOA lawyer.

-Blog post authored by TLG Senior Attorney, Carrie Heieck.

Property Damage Claim and General Liability Coverage/Denial

Published on: March 3, 2021 | by Steven J. Tinnelly, Esq.

denied-stamp When there is a potential for litigation regarding property damage, your association’s legal counsel will sit down with the Board of Directors to analyze whether the alleged property damage resulted from the association’s negligence in any form. If the association is put on notice of a potential negligence claim, it is advisable to immediately report the matter to your Commercial General Liability (“CGL”) insurance carrier.

For example, a popular homeowner concern is a common area roof leak. Upon notice of the alleged leak, it is the association’s duty to follow-up with the homeowner and initiate an investigation within a reasonable timeframe. (Corp. Code §7231(a)). The association has a duty under its governing documents to determine if the homeowner’s allegation of a common area leak is true or not (i.e., hire a leak detection specialist). Upon analyzing the specialist’s report, if it is determined there is a leak within the common area, the association is bound by its governing documents to fix it. (Civil Code §4775.) Note that in the common area roof leak scenario, the association would repair the common area roof, but not any interior or content damage. Therefore, the homeowner may sue under the CGL policy for any interior repairs and content damage on the basis the association failed to maintain the common area roof. The association looks to the CGL policy for the insurance company’s duty to defend and coverage of the loss.

Of course, investigations are time consuming and costly as they often require the contracting of knowledgeable experts. The CGL policy may kick in if there is a clear allegation that the association was negligent in failing to repair and maintain the association’s common areas as required under the governing documents.

However, what if the insurance adjuster denies the claim because it is not covered under the CGL policy or falls under one of the policy’s exclusions? This is where your legal counsel will dispute the adjuster’s argument and advocate why the CGL policy should cover the claim.

There are key provisions within the CGL policy that your attorney will analyze. “Property damage” and “occurrence” are two of the main terms insurance adjusters will often use to either provide or deny coverage under the Commercial General Liability policy.

“Property damage” usually means:

Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use will be deemed to occur at the time of the physical injury that caused it; or
Loss of use of tangible property that is not physically injured. All loss of use will be deemed to occur at the time of the “occurrence” that caused it.

“Occurrence” usually means, “An accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Most CGL policies will cover a potential property damage claim if: (1) the property damage is caused by an occurrence within the covered area; (2) the property damage occurs during the policy period; (3) the association did not have notice of the property damage occurring, in whole or in part; and (4) the claim was reported as soon as possible to the insurance company. Usually, property damage will be deemed to have been known to have occurred at the earliest time when the association received notice of an occurrence or a claim. Therefore, it is extremely important to notify the association’s insurance agent, property manager and your legal counsel as soon as possible if there is a potential for a claim.

The above is but a snippet of a potential issue an HOA might face. For more on arguing bad faith claims, please see our blog post on Insurance Coverage Denied & Bad Faith Claims.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

New Case Highlights the Importance of Naming the Managing Agent as Additional Insured Under the HOA’s Directors and Officers Insurance Policy

Published on: January 7, 2021 | by Steven J. Tinnelly, Esq.

*New Case Law

Many homeowners associations (“HOA”) are professionally managed by a managing agent (“Manager”). The Manager is generally tasked with the obligation of carrying out the decisions of the HOA’s Board of Directors (“Board”), as well as day-to-day operations of the HOA. Because they operate as an agent of the HOA, most Managers require the HOA to indemnify them from any claims, damages and losses arising out of Manager’s performance, except to the extent that such claims, damages or losses are the result of Manager’s gross negligence or willful misconduct. Because of this indemnification obligation, HOAs typically name their Manager as “additional insured” under the HOA’s commercial general liability insurance policy (“CGL Insurance”). If the HOA and Manager are sued, and there is potential coverage under the policy, the insurer will provide a defense for both the HOA and Manager (at the insurer’s expense). However, as one HOA recently learned, it is equally important to name Manager as additional insured under its Directors and Officers insurance policy (“D&O Insurance”).

In Auburn Woods I Homeowners Assn. v. State Farm General Ins. Co., an owner brought a lawsuit against Auburn Woods I Homeowners Association (“Auburn”) and its Manager alleging various improprieties with Auburn’s collection practices. (2020 Cal.App.Unpub.LEXIS 6323, **4-5.) The owner sought declaratory and injunctive relief, as well as an accounting. (Id. at p. *4.) Auburn’s insurance carrier, State Farm General Insurance Company (“State Farm”), denied the tender of the claim concluding that the claims were not covered under both the HOA’s CGL and D&O Insurance. (Id. at p. *7.) Auburn successfully defended against the owner’s lawsuit. (Id. at p. *8.)

Undeterred by Auburn’s success, owner filed a second lawsuit against Auburn and Manager, requesting that the trial court set aside the foreclosure sale that had taken place, as well as other forms of relief. (Id.) Auburn tendered the action to State Farm who denied the claim under Auburn’s CGL Insurance but accepted the claim as to Auburn only under its D&O Insurance; State Farm refused to provide Manager with a defense thereby requiring Auburn to defend Manager at its own expense pursuant to Manager’s full-service management agreement. (Id. at p. *9.) Again, Auburn successfully defended against the owner’s lawsuit. (Id. at p. *10.)

Shortly thereafter, Auburn and Manager filed a lawsuit against State Farm for breach of contract, claiming, among other things, that State Farm had breached the terms of Auburn’s D&O Insurance policy when it refused to provide a defense for Manager. (Id.) The trial court agreed with State Farm’s position, holding that Manager was not named as additional insured therefore relieving State Farm of its obligation to defend. (Id.) The Court of Appeal affirmed the trial court’s decision. In affirming the trial court’s decision, the Court disagreed with Auburn’s argument that the “declarations page…clearly showed [Manager] was an additional insured under [the D&O Insurance],” noting that the “declarations pages did not mention [Manager]” (id. at p. *27); in other words, Manager was not clearly listed as an additional insured under the D&O Insurance. The Court further disagreed with Auburn’s argument that its insurance agent had a contractual duty to provide Manager with D&O Insurance coverage. (Id. at pp. **27-28.)

This case is important because it highlights the need for an HOA to include its Manager as additional insured not only on the HOA’s CGL Insurance, but also its D&O Insurance. HOAs should therefore inquire with their insurance agent to confirm adequate coverage in light of the Court’s holding in Auburn.

-Blog post authored by TLG Attorney, Matthew T. Plaxton, Esq.

Insurance Coverage Denied & Bad Faith Claims

Published on: September 16, 2020 | by Steven J. Tinnelly, Esq.

Medical-Necessity-Criteria-1080x675-1 Community associations buy insurance to obtain coverage in the case it becomes necessary. The reality is pre-litigation costs are expensive, ranging anywhere from a few thousand to tens of thousands of dollars. Litigation itself can be even more and this is not including any estimated fees for an appeal. No association wants to pay out of pocket for all these fees when there is a perfectly good insurance policy bought just for these types of situations. However, sometimes, an insurance company will want to cut corners to avoid paying out its policy coverage amount. If an association’s insurance carrier(s) denies coverage, your association’s legal counsel will work together with the insurance adjuster to persuade the insurance carrier to provide coverage, as a bad faith insurance claim would not be beneficial to either parties.

What is a bad faith insurance claim?

The law implies a covenant of good faith and fair dealing in every contract, including insurance policies. (Wilson v. 21st Century Ins. Co. (2007) 42 Cal. 4th 713, 720). “[T]he essence of the implied covenant of good faith and fair dealing is that [t]he insurer must refrain from doing anything that will injure the right of the insured to receive the benefits of the [insurance] agreement, the terms and conditions of which define the duties and performance to which the insured is entitled.” (Brandwein v. Butler (2013) 218 Cal.App.4th 1485, 1514- 1515.) Therefore, breach of a specific provision of the insurance contract is not a necessary prerequisite to bringing a bad faith claim. (Carson v. Mercury Ins. Co. (2012) 210 Cal.App.4th 409, 429.)

The implied covenant of good faith and fair dealing is breached where an insurer delays or denies payment of policy benefits unreasonably (i.e., without any reasonable basis for its position) or without proper cause. (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1072-1073; see Wilson, supra, 42 Cal. 4th 713, 723, —“[A]n insurer’s denial of or delay in paying benefits gives rise to tort damages only if the insured shows the denial or delay was unreasonable”; see also Chateau Chamberay Homeowners Ass’n v. Associated Int’l Ins. Co. (2001) 90 Cal.App.4th 335, 346.)

“[F]or a variety of [public] policy reasons, courts have held that breach of the implied covenant (in insurance cases) will provide the basis for an action in tort.” (Foley v. Interactive Data Corp (1988) 47 Cal. 3d 654, 684, 765 P.2d 373.) Insurance companies know that people buy insurance to obtain peace of mind and security, and that they expect to be paid promptly in the event of loss. (Egan v. Mut. of Omaha Ins. Co. (1979) 24 Cal. 3d 809, 819, 620 P.2d 141, 145.) Having sold insurance on this basis, insurers are not permitted to put their interest (in avoiding claims losses) ahead of the insureds’ interests in obtaining the protection for which they bargained. (Id. at p. 819.

If the association timely notifies the insurance carrier upon learning of a potential claim that may be covered by their insurance policy, insurance companies must cooperate in the investigation or settlement of the claim or defense against the lawsuit among other things.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

Association Hazard Insurance Policies Benefit not only the Association but also all Condo Owners (their tenants) and Mortgagees

Published on: May 28, 2019 | by Steven J. Tinnelly, Esq.

34897866_1544762584740987_r Both Commercial and Residential Condominium CC&Rs frequently contain insurance language requiring the Association to obtain hazard (fire) insurance and prohibiting Owners from obtaining such coverage. Condominium Owners on the other hand are limited to obtaining liability insurance. Similar language was found in the CC&Rs of the condominium association in Western Heritage Insurance Company v. Frances Todd, Inc. No. A152428 (Cal. Ct. App. Mar. 4, 2019). The insurance language for The East Shore Commercial Condominiums located in Berkeley, California included the following:

Article 13.1 requires the Association to “obtain and maintain a master or blanket policy of all risk property insurance coverage for all Improvements within the Project, insuring against loss or damage by fire or other casualty. … The policy shall name as insured the Association, the Owners and all Mortgagees of record, as their respective interests may appear.” Article 13.3 provides in part, “Any insurance maintained by the Association shall contain [a] ‘waiver of subrogation’ as to the Association, its officers, Owners and the occupants of the Units and Mortgagees. …” Article 13.4 prohibits an individual owner from obtaining fire insurance while allowing an owner to obtain individual liability insurance. Article 3.1 requires that all “occupants and tenants” comply with the CC&Rs.

This language requires the Association’s hazard insurance policy to “name as insured the Association, the Owners and all Mortgagees”, thereby, protecting not only the Association, but also all Owners and Mortgagees as insureds. Although tenants are not included as an “insured” by these CC&Rs, “occupants” are protected by these CC&Rs from subrogation.

FACTS OF CASE

Defendant, Frances Todd, Inc. was a furniture manufacturer; and a tenant leasing a condominium unit in a commercial condominium complex. The Defendant (tenant) was negligent in causing the fire which destroyed the unit and surrounding units. Western Heritage Insurance sued the tenant for indemnity to recover all amounts it paid the Association on the Association’s fire damage claim on a theory of the tenant’s underlying negligence. The court looked at both the CC&Rs and the lease between the Owner and tenant and concluded the Association’s fire insurance policy also benefited the tenant:

The CC&R’s, applicable to both the Owner and defendants (tenants) as occupants, required the Association to obtain a policy of fire insurance and to name the Owner as an insured on that policy, and precluded any party other than the Association from maintaining fire insurance on the premises. The fire insurance purchased by the Association was intended to be the only fire policy on the property and was for the benefit of the property’s lessees absent language to the contrary in the lease.

The court also noted that:

“In California, courts have held a lessee is not responsible for negligently caused fire damages where the lessor and lessee intended the lessor’s fire policy to be for their mutual benefit.”

Even though the CC&Rs did not specifically state that tenants were to be named as insureds, the Court reasoned that such a conclusion was implied based upon its review of the CC&Rs and the lease between the Owner and the tenant. The court also noted that the Owner pays for insurance through his or her dues and the tenant contributes to those dues by his/her rent and there is no requirement that a specific amount of dues or rent be allocated for the fire insurance policy. Therefore, the tenant like an Owner was a beneficiary under the Association’s insurance policy and could not be sued for negligently causing the fire by the Association’s insurance.

Hazard (Fire) Insurance Policies are “no fault” Policies. They cover Hazards (fires) whether or not they are caused by the Insured’s own negligence.

The fact that the furniture manufacturer tenant was negligent was not an issue in this case. The only issue was whether they were a beneficiary under the Association’s insurance policy. The court noted that if negligent fires were not covered by fire insurance policies, then insurance companies would be incentivized to litigate the insured’s possible negligence in all fires; and litigation would be never ending:

A fire insurance policy which does not cover fires caused or contributed to by the insured would be an oddity indeed. Otherwise, few insured fire claims would be paid without controversy and most would require litigation. For that reason we do not deem that a policy ‘for the benefit’ of a lessee excludes coverage for fires caused by his negligence.

How does this case affect the Association’s right to recover Common Area Damages from Owners under Civil Code §6858(b)?

Civil Code §6858 (b) allows the Association to recover damages to Common Areas:

An association has standing to institute, defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings in its own name as the real party in interest and without joining with it, the members, in matters pertaining to the following:

(a) Enforcement of the governing documents.

(b) Damage to the common area.

(d) Damage to a separate interest that arises out of, or is integrally related to, damage to the common area or a separate interest that the association is obligated to maintain or repair.

In cases of fires covered by an Association’s hazard insurance policy the Association is responsible to pay the deductible required under the policy. This case does not affect the Association’s right under Civil Code §6858(b) to sue the tenant or the Owner for that matter for the amounts (including the deductible) not covered by the fire insurance policy.

-Blog post authored by TLG Attorney, Bruce R. Kermott, Esq.