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Insurer wins ruling in rescission of homeowners association’s policy

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A federal appeals court Monday ruled in favor of an insurer that sought to rescind its policy for a homeowner’s association, holding the association had failed to disclose a situation likely to give rise to a claim in its coverage application.

Farmington Hills, Michigan-based Atain Specialty Insurance Co. had filed suit against the Agoura Hills, California-based Lake Lindero homeowners association in U.S. District Court in Los Angeles, contending the association had concealed facts in response to questions on the application for its insurance policy, according to the ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Atain Specialty Insurance Co. v. Lake Lindero HOA, Lordon Enterprises, Inc. d/b/a/ Lordon Management.

In addition to its policy’s rescission, the insurer sought a release from its duty to defend or indemnify the association in state court litigation stemming from a breach of contract action filed by its former property management company, which had been terminated, the ruling said.

In affirming the lower court and ruling in the insurer’s favor, the three-judge appeals court panel said the association had not disclosed anything in response to a question on the insurer’s application as to whether it knew of any situation that might give rise to a claim.

“But there is no genuine dispute” that the newly elected association board president had run on a platform of terminating the association’s contract with its existing management company, and that before the application was submitted it had sent the management company at least eight notices alleging breach and threatening termination, the ruling said.

“These circumstances clearly presented risks that claims would be filed against (the association) or its directors,” the ruling said. “It is irrelevant that these risks had not yet materialized; the question’s purpose was to enable Atain to assess the risks it was underwriting, the decision said, in ruling the insurer was entitled to rescind its policy, and has no further duty to defend or indemnify the association in the underlying state court litigation.

Attorneys in the case did not respond to a request for comment or could not be reached.

 

 

 

 

 

 

 

 

 

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