If a condominium owner suffers damage caused by a leak from another unit, may it sue the insurer for the Association of Apartment Owner (AOAO) for coverage? The federal district court for Hawaii said "no" in a decision by Judge Mollway. See Peters v. Lexington Ins. Co., 2011 U.S. Dist. LEXIS 148734 (D. Haw. December 27, 2011).
Two cases were consolidated. In each case, Plaintiffs owned condominium units at the Watercrest Resort on Molokai. Water leaking from another unit damaged Plaintiffs' units.
Watercrest Resort was insured by Lexington pursuant to a policy maintained by the AOAO. Plaintiffs filed claims with Lexington. Lexington hired an adjustor.
Unhappy with the adjustment of their claims, Plaintiffs sued Lexington and the adjustor. The AOAO was not named as a party. The first count of Plaintiffs' complaint was entitled, "Breach of the Insurance Agreement by Lexington." Count two sought punitive damages against Lexington and the third count sought punitive damages against the adjustor. Lexington moved for a judgment on the pleadings with respect to counts one and two.
The court construed count one as a claim for breach of the policy between Lexington and the AOAO. Plaintiffs had no privity with Lexington, however, as they were not insureds under the policy. Therefore, Plaintiffs lacked standing to assert a breach of the policy.
Plaintiffs also argued provisions in the Hawaii condominium statutes gave them standing. Section 514B-143 (b) of the Haw. Rev. Stat. required a homeowner's association to insure individual units. The statute was silent, however, on whether the owner of an individual unit could bring an action directly against the insurer to enforce an association's policy.
Nor was there an implied private remedy granted by the statute to Plaintiffs. First, it was not clear that the statute was enacted to provide a special benefit to, or a right in favor of, the unit owners. Second, there was no indication that the Hawaii legislature intended to create a right of action for unit owners to enforce their AOAO's policy.
In closing, the court noted that Plaintiffs had a remedy against the AOAO if they believed it was not vigorous enough in its dealings with Lexington for coverage on the damage.
Special thanks to public adjustor, Robert Joslin of Hawaii Public Adjustors, for sharing this case during his recent address to the Hawaii State Bar Association's Insurance Coverage Litigation section.
