HOAleader.com - Tip of the Week - April 22, 2022
Published: Fri, 04/22/22
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HOAleader.com - Tip of the Week - April 22, 2022
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In this week's tip, we report on the irony of an HOA that, in a misguided effort to get coverage for potential litigation as a result of a potential breach of contract lawsuit, incurred the cost of additional litigation.
The case took place in California, where a court allowed the HOA to be stripped of its insurance coverage in Atain Specialty Insurance Co. v. Lake Lindero HOA, Lordon Enterprises, Inc. d/b/a/ Lordon Management after the board failed to be truthful in its application about whether potential claims were bubbling up.
Lake Lindero Homeowners Association is the HOA at the center of the case, and its opponent was its insurer. In a nutshell, in response to Question 19 on its insurance application asking about "any fact, circumstance or situation which may result in a claim against the Organization or any of its Directors . . . [or] Officers," the HOA board member who filled out the application made no disclosures.
But actually, the new board president had campaigned on the platform of terminating the HOA's contract with its management company, despite the fact that the contract had decades left before it ended on its own. It appears the management company was Lordon Management—it's a defendant in the case. But the company name appears nowhere else in the case other than in the caption identifying the parties.
Before that insurance renewal came up, the new board had sent the management company "at least eight notices alleging breach and threatening termination," according to the opinion. In addition, a member of the HOA had sent a written notice to the board that he would "personally take legal action" against the board if it terminated the management contract.
The HOA apparently argued that since there was no formal litigation pending at the time of the application, it didn't make a material omission in its answer to Question 19. The court wasn't persuaded: "These circumstances clearly presented risks that claims would be filed against LLHOA or its directors. It is irrelevant that these risks had not yet materialized; the question's purpose was to enable Atain to assess the risks it was underwriting."
The risk to the insurer was a lawsuit, which did, in fact materialize. The management company sued the HOA in state court alleging a breach of contract.
Find out the outcome of the case, along with other situations our experts have seen lead to condos or HOAs losing insurance coverage, in our new article: https://www.hoaleader.com/members/4504.cfm
Best regards,
Matt Humphrey
President
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