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The California Court of Appeal recently came down with a decision in the case of Ritter & Ritter Inc. v. The Churchill Condominium Association dealing with (among other things) the responsibilities and duty of care of a condominium association and its directors. We will address other issues relating to this case in a future article.

In this case, the homeowner requested that the association seal a hole in the slab which had been made as part of the original construction for pipes to pass-through from one unit to the other. There was no question that the hole should be filled in, as it constituted a fire danger. Somehow, the board incorrectly concluded that this hole was the homeowner’s responsibility to deal with, and the homeowner disagreed and sued the Association. The work would have cost the association approximately $2,500 (for that unit); instead, the case cost the Association hundreds of thousands of dollars for attorneys’ fees and costs. The Court of Appeals decision (click here) provides an excellent discussion on a homeowner’s versus the condominium association’s repair responsibilities and the director’s duty of care as well. The Court’s discussion on this issue follows:
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On December 16th, we posted a blog entry regarding the new the Virginia Graeme Baker Pool and Spa Safety Act (“Act”). The Act is a federal law that took effect December 20, 2008. It requires owners of “public” pools (the Act refers to spas as well) with submerged suction drains to retrofit the drains in order to limit and prevent drowning deaths caused by people becoming ensnared in a pool’s drain.

The Act defines “public” to include multi-family residential dwelling common areas and their (community) associations.

This new law has created a lot of controversy as many California community associations debate whether compliance is required or not, as this is a federal and not state law. Perhaps the real issues here are the potential risk of injury to children and others that use the pool or spa and potential exposure to the Association. As this new law impacts community associations, it is a big issue. It was the subject of a January 20, 2009 article in the Wall Street Journal. It has been reported that some boards of directors at community associations are delaying the appropriate retrofits because they believe that no one is really going to penalize their association for not taking the appropriate action. While it is true that no governmental authorities are (at least as of going to cite or penalize an association for not complying with the new law, and while it is likely that most associations’ insurance carriers will defend and indemnify associations from injury claims, those insurance carriers will not indemnify the association or the individual board members if they are sued for intentional wrongdoing (knowing of the danger and the new law and intentionally deciding not to take action). As the Wall Street Journal article points out (quoting an official with State Farm insurance): (community associations that keep their pools open and do not retrofit) “will probably have a more difficult time proving they are not liable.”

July’s 5.4-magnitude Chino Hills Earthquake was a jolting reminder that we all need to prepare for the “big one”. It is no secret that California is riddled with earthquake faults. Click here for a map which shows seven of the faults with the probability of a magnitude 6.7 earthquake. Scientists have been reporting to us for some time now that we are due for a significant (big) earthquake. The southernmost section of the San Andreas Fault, which is just east of downtown Los Angeles, undergoes a major shift every hundred and fifty years or so. The last serious earthquake was about 100 years before Los Angeles was founded. So, Los Angeles is approximately 178 years overdue for the “big one”.

There is no doubt that when a serious earthquake strikes, and it is only a matter of time, millions of California citizens will be left without tap water, freeways and bridges will crumble and fall and hundreds of fires will likely break out. The 1994 Northridge earthquake registered a magnitude of 6.7, killed 57 people and caused over 20 billion dollars in damage.

To get our attention, geologists and others have developed the Great Southern California Shakeout, which is taking place this week.

As part of an association’s preparation for an earthquake, inevitably there is the “issue” of earthquake insurance. In 1994, at the time of the Northridge quake, less than half of all associations had earthquake insurance. I do not believe the statistics have changed much since 1994.

Earthquake insurance is not required or mandated by any associations’ governing documents or California Law. After the 1994 earthquake, it was not available and/or was too expensive. Many associations say they are relying on their homeowners to obtain their own earthquake insurance. However, homeowners cannot buy insurance to cover the damage to the common area. While they can obtain earthquake loss assessment coverage and other earthquake coverage that will cover their personal property, the reality is that community associations need to seriously consider whether earthquake insurance makes sense for their association.
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EMAIL POLICY

(a) If a dispute exists between the owner of a separate interest and the association, including, but not limited to, an assessment, fine, penalty, late fee, collection cost, or monetary penalty imposed as a disciplinary measure, and the amount in dispute does not exceed the jurisdictional limits stated in Sections 116.220 and 116.221 of the Code of Civil Procedure, the owner of a separate interest may, in addition to pursuing dispute resolution pursuant to Article 5 (commencing with Section 1363.810) of Chapter 4, pay under protest the disputed amount and all other amounts levied, including any fees and reasonable costs of collection, reasonable attorney’s fees, late charges, and interest, if any, pursuant to subdivision (e) of Section 1366, and commence an action in small claims court pursuant to Chapter 5.5 (commencing with Section 116.110) of Title 1 of the Code of Civil Procedure.

(b) Nothing in this section shall impede an association’s ability to collect delinquent assessments as provided in Sections 1367.1 and 1367.4.

(a) This section applies in an association that does not otherwise provide a fair, reasonable, and expeditious dispute resolution procedure. The procedure provided in this section is fair, reasonable, and expeditious, within the meaning of this article.

(b) Either party to a dispute within the scope of this article may invoke the following procedure:

(1) The party may request the other party to meet and confer in an effort to resolve the dispute. The request shall be in writing.

(a) A prospective managing agent of a common interest development shall provide a written statement to the board of directors of the association of a common interest development as soon as practicable, but in no event more than 90 days, before entering into a management agreement which shall contain all of the following information concerning the managing agent:

(1) The names and business addresses of the owners or general partners of the managing agent. If the managing agent is a corporation, the written statement shall include the names and business addresses of the directors and officers and shareholders holding greater than 10 percent of the shares of the corporation.

(2) Whether or not any relevant licenses such as architectural design, construction, engineering, real estate, or accounting have been issued by this state and are currently held by the persons specified in paragraph (1). If a license is currently held by any of those persons, the statement shall contain the following information:

(a) Before an association files a complaint for damages against a builder, developer, or general contractor (“respondent”) of a common interest development based upon a claim for defects in the design or construction of the common interest development, all of the requirements of this section shall be satisfied with respect to the builder, developer, or general contractor.

(b) The association shall serve upon the respondent a “Notice of Commencement of Legal Proceedings.” The notice shall be served by certified mail to the registered agent of the respondent, or if there is no registered agent, then to any officer of the respondent. If there are no current officers of the respondent, service shall be upon the person or entity otherwise authorized by law to receive service of process. Service upon the general contractor shall be sufficient to initiate the process set forth in this section with regard to any builder or developer, if the builder or developer is not amenable to service of process by the foregoing methods. This notice shall toll all applicable statutes of limitation and repose, whether contractual or statutory, by and against all potentially responsible parties, regardless of whether they were named in the notice, including claims for indemnity applicable to the claim for the period set forth in subdivision (c). The notice shall include all of the following:

(1) The name and location of the project.

(a) In an action maintained by an association pursuant to subdivision (b), (c), or (d) of Section 1368.3, the amount of damages recovered by the association shall be reduced by the amount of damages allocated to the association or its managing agents in direct proportion to their percentage of fault based upon principles of comparative fault. The comparative fault of the association or its managing agents may be raised by way of defense, but shall not be the basis for a cross-action or separate action against the association or its managing agents for contribution or implied indemnity, where the only damage was sustained by the association or its members. It is the intent of the Legislature in enacting this subdivision to require that comparative fault be pleaded as an affirmative defense, rather than a separate cause of action, where the only damage was sustained by the association or its members.

(b) In an action involving damages described in subdivision (b), (c), or (d) of Section 1368.3, the defendant or cross-defendant may allege and prove the comparative fault of the association or its managing agents as a setoff to the liability of the defendant or cross-defendant even if the association is not a party to the litigation or is no longer a party whether by reason of settlement, dismissal, or otherwise.

(c) Subdivisions (a) and (b) apply to actions commenced on or after January 1, 1993.