Commercial General Liability ("CGL") insurance covers (i) damages sustained in the common areas (such as slips and falls), (ii) property damage caused by fire or other covered risks to other common area improvements, and (iii) libel, slander, and copyright. This is a different kind of coverage from D&O insurance.
Owner Liability. Minimum insurance requirements were added to the Davis-Stirling Act after the Ruoff v. Harbor Creek decision. Ms. Ruoff suffered catastrophic injuries falling down defective common area stairs. Her husband sued every homeowner in the association, arguing that each was liable because they jointly owned the stairs. The court of appeal agreed and held that every member was jointly and severally liable for her injuries, the cost of which significantly exceeded the $1 million limit in the association's insurance policy.
Legislation. The case sent a chill through the industry, and the Legislature added Civil Code § 5805. The statute protects owners from individual liability, provided the association maintains at least minimum levels of insurance as follows:
- $2 million for associations with 100 or fewer separate interests
- $3 million for associations with more than 100 separate interests
Minimum Levels of Insurance. Meeting minimum levels of insurance may, however, not be enough. Even though owners are not directly liable for a loss exceeding insurance limits, they are indirectly liable. Assuming a $4 million judgment against an association, owners would be responsible for a special assessment to make up the difference between the $2 million policy and the $4 million judgment. Accordingly, boards should talk to their insurance brokers to determine appropriate levels of insurance for their associations. A $5, $10, or $15 million umbrella policy is inexpensive and common for associations to purchase. In addition, homeowners should individually purchase loss assessment coverage if the association levies a special assessment to cover uninsured losses.
Occurrence Form. CGL policies are "Occurrence Form" rather than "Claims Made." This means the event leading to the claim must occur during the policy period. Accordingly, associations must keep an accurate record of their insurance policies until all statutes of limitations expire on potential claims. To be safe, expired insurance policies should be kept for at least seven years.
Occurrence vs. Aggregate. Boards of directors must consider an important difference between occurrence requirements and aggregate amounts. See "Occurrence vs. Aggregate" for more information.
Reporting Requirements. Actual and potential claims must be reported to the association's carrier in a timely manner, or the association risks losing coverage.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with community association issues, subscribe to the Davis-Stirling Newsletter.