Alicia Palacin owns a condominium where she purchased a condo owner’s insurance policy from Allstate Insurance Co. Her condo was severely damaged by water leaking from an adjoining condo.

When she filed a claim for water damage to her condo with Allstate, the insurer refused to pay repair damages.

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The insurer pointed to its condo policy, which says, “Property we cover under Coverage A: We will cover items of real property pertaining directly to your residence premises, which are your insurance responsibility as expressed or implied under the governing rules of the condominium. This includes fixtures, construction materials and supplies, installations or additions comprising a part of the residence premises, only when situated within that portion of the premises used exclusively by you and made or acquired at your expense.”

Palacin then sued Allstate, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and fraud.

Allstate replied the condo association CC&RS (covenants, conditions, and restrictions) do not place the responsibility on the owners, such as Palacin, to carry insurance for her condo interior.

But she argued that because her condo association won’t pay for this sudden and accidental water damage from an adjoining condo, Allstate shouldn’t be able to evade coverage under her policy.

If you were the judge would you rule Allstate should be able to evade coverage for this water damage loss?

The judge said no!

“An insurance policy should not be interpreted to make policy terms meaningless,” the judge began. Although Allstate’s condo policy says it only applies to improvements acquired or added by the insured, this should be liberally interpreted to include inner wall surfaces, ceilings, and floors, which were damaged by the water from the adjoining condo, he continued.

“At least one reasonable interpretation of this permissive authority is that this authorization to obtain insurance not covered by the homeowner’s association insurance policy is equivalent to an implied responsibility to obtain this insurance if the condominium owner so desires,” he emphasized.

Because condominium owners are not required to carry insurance, when they voluntarily purchase condo owner’s insurance, they have a reasonable expectation of coverage for customary losses, such as water damage to their condos, the judge explained. Therefore, Palacin is entitled to amend her complaint to allege coverage for her water damage loss to be paid by her Allstate condo owner’s insurance policy, the judge concluded.

Based on the 2004 California Court of Appeal decision in Palacin v. Allstate Insurance Co., 14 Cal.Rptr.3d 731.

(For more information on Bob Bruss publications, visit his
Real Estate Center


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