HOA Concealment of Threatened Lawsuit Results in Loss of Insurance Coverage

This case involved a dispute between a California homeowners association (“Association”) and its management company on one hand, and Association’s liability insurance carrier (“Insurance Carrier”) on the other. The suit was over the Insurance Carrier’s right to rescind the liability insurance policy purchased by Association after Association had submitted a claim seeking the defense and indemnification of Association on a lawsuit filed by Association’s former management company.

Insurance Carrier contended that Association had concealed facts in response to two questions in the application it submitted to Insurance Carrier for the subject policy, and that the concealed facts were material to its decision to issue the policy. Thus, Insurance Carrier filed the lawsuit seeking an order from the court that it was released from any duty to defend or indemnify Association in the breach of contract action that had been filed against Association by the former property management company

In its lawsuit, Insurance Carrier contended that, in response to questions contained in its application for the insurance policy, Association failed to disclose known facts, circumstances or a situation which could result in a claim against Association, or any of its officers or directors. Insurance Carrier further contended that when a newly elected board member completed the application for the insurance policy a situation existed that was likely to give rise to a claim against Association. The situation involved threats that had been made by: