HOA Lawyer Blog

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 Client: Savina Condominium Owners Association

Published on: February 24, 2021 | by Steven J. Tinnelly, Esq.

Savina-300x168 It’s our privilege to welcome Savina Condominium Owners Association to Tinnelly Law Group’s growing family of HOA clients.

Savina is a brand new nigh-rise condominium community just steps away from Little Italy and the waterfront in downtown San Diego. Residents enjoy spectacular ocean and city views, indoor and outdoor lounge spaces with a beautifully landscaped pool and sun deck, generous spa, sauna and steam rooms, a theater room, pet retreat, and a state of the art fitness center.

Our HOA lawyers and staff look forward to working with Savina’s Board and management.

New Client: Pacific Hills Homeowners Association

Published on: February 17, 2021 | by Steven J. Tinnelly, Esq.

Pacific-Hills-300x168 It’s our privilege to welcome Pacific Hills Homeowners Association to Tinnelly Law Group’s growing family of HOA clients.

Pacific Hills is a community of custom single family homes in the City of Mission Viejo. This hilltop community commands views from the Pacific Coast to the west and the Saddleback Mountains to the east.

Our HOA lawyers and staff look forward to working with Pacific Hills’ Board and management.

Addressing Neighbor-to-Neighbor Disputes

Published on: February 10, 2021 | by Steven J. Tinnelly, Esq.

116390863_l-1024x683-1 Neighbor-to-neighbor disputes are on the rise. These types of homeowner conflicts are typically characterized as governing document violation complaints that are personality conflicts between neighboring homeowners rather than legitimate concerns that impact the Association and its membership more broadly. Refereeing these squabbles can quickly become burdensome and costly for an Association and its volunteer Board where the complaining homeowner is attempting to use the Association’s enforcement authority as a weapon against their neighbor. Accordingly, Associations plagued with complaints over these types of homeowner tiffs should consider setting clear limits to their involvement in such matters.

Management companies and Boards often receive homeowner complaints for alleged violations that are not easily discernable through a visual inspection of the community. A common neighbor-to-neighbor dispute is a noise complaint like a barking dog or an upstairs disturbance where no other neighbors have complained of the noise and where there are no other witnesses to the alleged ruckus. These complaints are often repetitive, adding to their burdensome nature. Initially, the Board has a duty to investigate the alleged violation, which often falls under a general nuisance provision in the CC&Rs. However, if after investigation, the Board does not find demonstrable or credible evidence that a nuisance or other governing document violation exists, such as where the only evidence is one neighbor’s word against another’s, the Board is well within its authority to deem the matter a neighbor-to-neighbor dispute and to exercise its discretion to decline further action. Failing to exercise restraint in intervening in these disputes could result in problems for the Association by increasing its operational burdens, and by having the balance of its membership subsidize (via their assessments) the resolution of isolated disputes between feuding neighbors that have no bearing on the Association or on a significant portion of its membership.

Declining to intervene in a neighbor-to-neighbor dispute does not leave homeowners without recourse. Each homeowner may enforce the governing documents in their individual capacity against other homeowners (Civ. Code 5975(a)). Depending on the situation, they may also contact local law enforcement, animal control, or request appropriate relief in the civil court. While the complaining homeowner may object to the Association’s use of its discretionary power to decline intervening, “anyone who buys a unit in a common interest development with knowledge of its owners association’s discretionary power accepts the risk that the power may be used in a way that benefits the commonality but harms the individual.” Nahrstedt v. Lakeside Village Condominium Association, Inc. (1994) 8 Cal.4th 361, 374.

Due to uncertainties in determining what constitutes a neighbor-to-neighbor dispute and when to (and when not to) intervene, Boards are encouraged to contact their legal counsel to discuss adopting a Neighbor-to-Neighbor Dispute Policy. Such a policy may be drafted in a manner to prevent the Association’s involvement in a Neighbor-to-Neighbor Dispute until such time as the complaining homeowner demonstrates their willingness to expend their own resources in trying to work out a resolution directly with their neighbor through requiring participation in Alternative Dispute Resolution (“ADR”) before the Board will consider involvement.

Boards are cautioned that legitimate complaints by residents of harassment on the basis of their membership in a protected class are not neighbor-to-neighbor disputes and must be investigated and addressed. See Code of Fed. Reg. §100.7(a)(1)(iii). California HOA’s have been deemed housing providers under the law for purposes of requiring their compliance with this statute. Boards are encouraged to discuss adopting an Anti-Harassment Policy with their legal counsel to address these types of complaints.

-Blog post authored by TLG Attorney, Carrie N. Heieck, Esq.

New Client: Pepper Lane Owners Association

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

Pepper-Lane-300x168 It’s our privilege to welcome Pepper Lane Owners Association to Tinnelly Law Group’s growing family of HOA clients.

Pepper Lane is a condominium community by Pulte Homes in the city of San Jose. Residents enjoy community gardens, a tot lot and bocce court.

Our HOA lawyers and staff look forward to working with Pepper Lane’s Board and management.

New Client: Olivecrest Neighborhood Association

Published on: January 27, 2021 | by Steven J. Tinnelly, Esq.

Olivecrest-300x168 It’s our privilege to welcome Olivecrest Neighborhood Association to Tinnelly Law Group’s growing family of HOA clients.

Nestled within the gated Willow Heights masterplanned community in Diamond Bar, Olivecrest offers a limited number of brand new luxury townhomes by Lennar. Just steps away from their new home at Olivecrest, residents will love the convenient access to the 4.7-acre park at Willow Heights. The park features lush natural habitat with exceptional views, walking trails and a rain garden. Other amenities featured at Willow Heights include a picnic area, pond, tot lot and more.

Our HOA lawyers and staff look forward to working with Olivecrest’s Board and management.

Re-Opening HOA Facilities on an Honor System

Published on: January 20, 2021 | by Steven J. Tinnelly, Esq.

ResearchingThePost-COVIDGymExperience We have previously blogged about successfully re-opening the common area amenities during the COVID-19 pandemic. Homeowner Associations (HOAs) are tasked with various responsibilities, including the health and safety of their memberships. California has made it clear that all businesses and facilities must follow the industry guidance to reduce the risk of COVID-19 before reopening. Willfully disregarding the state government directives and subjecting the membership to COVID-19 exposure is antithetical to this purpose. As such, it is possible for HOAs to expose themselves to substantial liability if they re-opened the common area facilities using only a member honor system to enforce the industry guidance to reduce risk of COVID-19.

California has a new blueprint (“Blueprint“) for reducing COVID-19 transmission in the state with revised criteria for loosening and tightening restrictions on activities. Every county in California is assigned to a tier based on its test positivity and adjusted case rate for tier assignment including metrics from the last three (3) weeks. HOAs’ management should routinely check the restriction criteria that is respective to each HOA’s county. For example, as of December 30, 2020, Orange County and San Diego are under a Regional Stay Home Order meaning many non-essential indoor business operations are closed. Pursuant to government directives, gyms and fitness centers can open outdoors only with modifications. Indoor pools, hot tubs, saunas, and steam rooms must close. Also note that each county may impose further requirements that are stricter than the state government directive.

Understandably, HOAs have probably not accounted for a pandemic in their prior operating budget, so retaining extra personnel to enforce health guidelines would no doubt put a strain on already allocated financial resources. However, in the interest of being safe, HOAs should follow the Blueprint and industry guidance policies, particularly when it comes to re-opening common area facilities. It is quite difficult to rely solely on HOA members and their guests to conform with both California State and County guidelines regarding the re-opening of HOA common area facilities. There are always a few outlying members unwilling to cooperate and keep clean the common areas/equipment after usage, thus leaving HOAs in a situation where HOAs may become liable.

As a reminder, HOAs and the Board of Directors have an obligation to keep common areas safely maintained to ensure the health and safety of their memberships. As such, re-opening HOA common area facilities without a proper plan, protocols, and monitoring system puts the safety of an HOA’s membership in question and is antithetical to an HOA’s overall purpose, which may subject an HOA to liability. HOA Boards should discuss the matter amongst themselves and reach out to their general counsel should the need arise.

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

Annual HOA Legislative & Case Law Update (2021) Now Available!

Published on: January 19, 2021 | by Steven J. Tinnelly, Esq.

New-Newsletter-Template-300x167 In case you missed it, Issue # 48 of our ‘Community Association Update’ newsletter is available now!

Topics covered in this issue include:

SB 908 – Debt Collection Licensing Act
AB 3182 – Rental or Leasing of Separate Interests
AB 1885 – Homestead Exemption
Insurance Company Denies Defense to Managing Agent Who Was Not an Additional Insured on the Policy
The Business Judgment Rules: Inapplicable as to Decisions Made Under a Material Conflict of Interest
Lawsuits are Generally Protected Activity
Branches Decision Overturned as it Violates Public Policy

A link to the newsletter is here.

Need to be added to our mailing list? Click here to sign up. Links to previous editions of our newsletter can be found here.

New Client: Jasmine Creek Community Association

Published on: January 13, 2021 | by Steven J. Tinnelly, Esq.

Jasmine-Creek-300x168 It’s our privilege to welcome Jasmine Creek Community Association to Tinnelly Law Group’s growing family of HOA clients.

Situated on the hillsides of Corona Del Mar, CA, Jasmine Creek is a gated community consisting of 324 homes. At a time when most builders “go vertical” to maximize available space, the community of Jasmine Creek stands apart with its lush greenbelts and open spaces. From its inception, Jasmine Creek has provided an oasis of calm while located close to Newport Center and the Pacific Ocean.

Our HOA lawyers and staff look forward to working with Jasmine Creek’s Board and management.

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.

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