Insurer Not Obligated to Defend HOA in Action Seeking Only Injunctive Relief

California Appellate Court decision (October 1, 2013).

A California Fourth Appellate District Appellate Court has ruled that an HOA’s liability insurance carrier did not have a duty to defend the HOA against a claim for injunctive relief when the plaintiffs were not also seeking compensatory damages.The HOA purchased a liability insurance policy that indemnified the HOA against third party claims for damages covered under the policy and which required the insurance to defend against such claims. An action was filed against the association in which the plaintiff only initially sought injunctive relief to enforce parking restrictions within the community, plus an award of punitive damages. The HOA’s insurance carrier refused to defend the action because no compensatory damages were being sought by the plaintiff (the plaintiff later amended the pleading to state additional claims for compensatory damages and at that point the
insurance carrier assumed the defense but refused to reimburse the HOA for the defense costs it had incurred prior to the amendment). The HOA contended that the insurance company had an obligation to provide a defense even in the absence of an express claim for compensatory damages.

The appellate court ruled that the determining factor was whether the third party has sought to recover damages from the insured because even potential coverage under a liability policy is not triggered until a third party makes a claim for damages. Because the plaintiffs did not seek compensatory damages until they filed a second amended complaint, there was no potential for coverage under the liability policy that the HOA had until the second amended complaint was filed, and thus the carrier had no duty to defend the HOA until that time.

See case decision: San Miguel Community Assn. v. State Farm Ins..