Procedural Posture

Procedural Posture

Appellant, a homeowners’ association, sought review of a summary judgment from the Superior Court of Los Angeles County (California), which ruled that an exclusionary clause in a liability policy issued by respondent insurer precluded coverage of a lawsuit brought by a member against the association asserting claims of fraud and breach of duty.

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Overview

The clause at issue excluded coverage of claims for wrongful acts arising out of the construction of any structure. The underlying lawsuit alleged that the association acted wrongfully when it attempted to resolve a dispute among its members, which involved a neighbor’s objection to a remodeling project by the homeowners who filed the suit. The court held that the exclusion did not apply to the association’s claim because there was no connection between the excluded risk and the association. The homeowners constructed the improvement, not the association. The homeowners’ allegations that the association acted fraudulently and in breach of its fiduciary duty did not arise out of, result from, or involve the association’s construction or renovation of any structure. The lawsuit arose from the association’s allegedly improper conduct in resolving a dispute between its members, and the policy covered such acts. The language of the construction exclusion did not apprise the association that its activities in resolving disputes among members could be excluded from coverage. No matter how broadly the term “arising out of” might be interpreted, some connection to the insured was necessary.

Outcome

The court reversed with directions to enter an order denying the insurer’s motion for summary judgment.