Coverage Arose Despite Misleading Pleading

In denying National Union Fire Insurance Co. of Pittsburgh, PA’s Motion to Dismiss, the court in Market Lofts Community Association v. National Union Fire Insurance Company Of Pittsburgh, PA, No. CV 15-03093-RGK(MANx), 2015 U.S. Dist. LEXIS 100691 (C.D. Cal. July 30, 2015) granted Plaintiff, Market Lofts Community Association (“the Association”) Motion for Partial Summary Judgment, finding it was entitled to defense in the cross-complaint asserted against it by a developer. 

At issue was whether the Association was entitled to free parking for its co-op at a parking structure in a separate building based on its understanding of its rights at the time that the Association members obtained their units.  The cross-complaint asserted that the covenants, conditions and restrictions (“CC&R’s”) referenced an obligation to pay parking costs outlined in the sublicense agreement.

The court determined that all the elements for coverage under the Association’s non-profit D&O policy were implicated as the underlying cross-complaint, despite solely naming the individual association members alleged was a suit against the Association.  The Association, although not directly sued, has the statutory right to defend a suit names the Association members as defendants in an improper attempt to circumvent the Association’s interest or nonetheless claims made against the Association.

Cal. Civ. Code § 5980 granted the Association’s rights to defend the cross-complaint relating to the enforcement of the Association’s CC&R’s.  The policy was ambiguous as to the meaning of the term “made against” in this context because it was capable of two reasonable constructions, one of which implicated a duty to defend.  Critically, the policy did not include language limiting coverage in actions where the Association exercised its statutory right to defend, citing Fireman’s Fund Ins. Co. v. Atlantic Richfield Co., 94 Cal. App. 4th 842, 852 (2001) (“[A]n insurance company’s failure to use available language to exclude certain kinds of liability gives arise to the inference of the parties intent to not so limit coverage.”).  Market Lofts, 2015 U.S. Dist. LEXIS 100691, at *14-15.