Insurer Has Duty to Defend Cross-Claims Against Members of Homeowners’ Association

A federal court in California has held that an insurer is obligated to defend claims against members of an insured homeowners’ association, even though the association was not a named defendant. Market Lofts Cmty. Ass’n v. Nat’l Union Fire Ins. Co. of Pittsburgh, 2015 WL 4594553 (C.D. Cal. July 30, 2015).

The insured, an association formed for the benefit of condominium owners at a development in Los Angeles, filed the underlying action against several defendants for allegedly charging a monthly parking fee in violation of a development agreement. After losing a dispute over the insured association’s standing to sue, the underlying defendants filed cross-complaints against 300 of the insured’s members but did not directly name the insured association as a defendant. The insurer denied coverage for the cross-complaints on the grounds that a “claim” had not been “made against the Insured.”

In the coverage litigation that followed, the court held that the insurer had a duty to defend. The court concluded that the cross-complaints in the underlying action presented a “Claim” that was “made against” the insured. Although the insured was not a named defendant in the cross-complaints, the court ruled that the policy language was ambiguous and could reasonably be interpreted to include coverage for complaints that: (1) name the insured association’s members as defendants “in an improper attempt to circumvent the [insured’s] interest” in defending the claim, and (2) which the insured had a statutory right to defend. According to the court, “an insurer cannot avoid coverage simply because the complainant seeks a tactical advantage in the lawsuit.”

Wiley Executive Summary

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