Facts: The facts in the case of Forrest v. The Ville St. John Owners’ Association, Inc., No. 2018-CA-0175 (La. Ct. App. Nov. 7, 2018) are straightforward. In March of 2016 there was a fire. It damaged common element and the Forrest unit. The Association had two insurance policies: one for Property and one for Community Association Management Liability Coverage. The Property policy was issued by Lloyd’s of London. Lloyd’s paid on its policy, for both the common element and unit damages, but the funds were insufficient to repair the common elements and the unit. So the Association repaired the common elements.
Trial Court: The unit owner, Forrest, filed suit against the Association alleging breach of fiduciary duty and various other claims under state law. The Association brought a third party complaint against Travelers when it refused to defend the Association on Forrest’s claims. Traveler’s claimed that the policy included an “unambiguous exclusion precluding coverage for any claim … arising out of … or in any way involving property damage.” The Trial Court agreed and granted Traveler’s motion for summary judgment.
Appeal: Despite a number of arguments by the Association that the policy did not exclude coverage, including that the quoted language only applied to “construction defects,” that coverage was illusory if Traveler’s position was believed, and that the exclusion was ambiguous, the Appellate Court affirmed the Trial Court’s Decision.
Lesson: Despite the Association having both property coverage and management liability coverage, they ended up in two lawsuits and insufficient funds to repair the unit. What was needed was an insurance committee that understood what it was actually buying and what would and would not be covered. Because they either didn’t understand what they bought or thought that they had enough insurance, they not only had less insurance than needed, they got to spend lots of money defending both the lawsuit by the unit owner and being involved in the suit and appeal against its insurer. Unfortunately, the phrase penny wise and pound foolish comes to mind.