Missouri Ct Says Surplus Insurance For Loss Of 9 Out Of 58 Units Gets Distributed To All 58 Owners

Missouri Appellate Court decision (March 23, 2015).

This case involved an action filed by a homeowners association (“ Association”) against the owners of nine units within the Association in order to obtain declaratory relief concerning the proper distribution of surplus insurance proceeds that remained after the reconstruction of the building that housed the nine units which had been totally destroyed by fire. Also included in the case was a counterclaim filed against the Association by seven of the nine unit owners in which they sought declaratory relief and damages for breach of trust, breach of fiduciary duty and breach of contract.

The Association purchased and maintained property insurance to cover the replacement of all the structures on the property. After the fire destroyed all nine units in a building, the Association received $1,154,300 as insurance proceeds for the loss. After reconstruction was completed, approximately $550,000 of the insurance proceeds remained. During the nearly year-long rebuilding process, the Association assessed quarterly dues to be paid by all 58 unit owners, including the nine unit owners of the destroyed units. The nine unit owners wanted the surplus insurance proceeds distributed to them but the Association took the position that the surplus insurance funds should be distributed to all 58 unit owners that were in the Association. The trial court judgment distributed the surplus insurance proceeds to all 58 unit owners and denied relief on all counts of the counterclaim.

The seven unit owners who had filed the counterclaim appealed the trial court judgment contending the trial court erred by: (i) distributing the surplus insurance proceeds to all 58 unit owners because that ruling is contrary to the Declaration and Missouri’s Uniform Condominium Act; (ii) denying relief on their breach of trust and fiduciary duty theories because the Association breached both of those duties when it failed to distribute the surplus funds solely to the nine owners whose units had been destroyed; and (iii) denying relief on their breach of contract claim because the Association improperly assessed quarterly dues against the nine unit owners after their building had been destroyed.

The appellate court affirmed the trial court’s judgment after finding that the Association’s Declaration: (i) required the Association to purchase and maintain property insurance on all structures on the property; and (ii) makes insurance premiums common expenses that are borne by all unit owners; (ii) makes the cost of repair or replacement in excess of insurance proceeds and reserves a common expenses that is shared by all owners.

See case decision: Willows_Condo._Owners_Ass’n_