The District Court determined there was a duty to defend directors under a Not for Profit Organizations insurance policy in one of three lawsuits filed against the insureds. Landing Council of Co-Owners v. Fed. Ins. Co., 2013 U.S. Dist. LEXIS 127989 (S.D. Tex. Sept. 9, 2013).
The Council was a homeowners' association for "The Landing." Federal issued its Not for Profit Organizations insurance policy to the Council. The policy included directors and officers liability and entity liability coverage.
The Landing was damaged during Hurricane Ike on September 9, 2008. The Council's Board scheduled a special meeting and vote for October 10, 2009, to determine the extent of the damage from the hurricane. On October 5, 2009, a group of "Concerned Owners" sent the Council a demand letter, which objected to the special meeting. The Concerned Owners contended that the Landing's declarations required that this type of special meeting be called within 40 days after the damage to the condominiums, and that deadline was long since passed.
When the Council refused to cancel the meeting, three different lawsuits were filed against the Council. The first suit alleged the Council was negligent in failing to prepare for Hurricane Ike and in cleaning up and repairing the property after the hurricane. The second suit asserted claims for negligence in failing to prepare for the hurricane, failing to repair structures, and wasting assets after the hurricane rather than spending them to repair structures. In amended pleadings, gross negligence, breach of fiduciary duty and breach of contract were alleged. Finally, the third suit sought damages for the diminution in value of property and loss of rental income.
The Council requested coverage for the three lawsuits. Federal denied coverage based on the Property Damage Exclusion which excluded coverage for any claims "based upon, arise from or are in consequence of any . . . damage to or destruction of any tangible property."
The Council sued and Federal moved for summary judgment, arguing that coverage for each of the underlying suits was barred under the Property Damage Exclusion. The Council argued that the exclusion did not apply to some of the underlying claims because the causation between the property damage and the underlying claims was too attenuated.
The District Court analyzed the cases claim by claim to determine if the Property Damage Exclusion precluded coverage. While most of the allegations regarding breach of fiduciary duty arose because of the hurricane, if the Board failed to collect assessments after the hurricane due to an undisclosed interest in selling the Landing, this claim could have arisen independent of the hurricane. Therefore, a duty to defend this claim existed.
The breach of contract claims in the second suit for failure to collect assessments was not alleged to have arisen as a result of the property damage. Accordingly, there was a duty to defend this claim.
Regarding negligence, these claims related specifically to property damage occurring because of the hurricane and failure to clean up and repair the property. Consequently, these claims were subject to the Property Damage Exclusion.
The third suit's claim that the Council did not exercise reasonable care to preserve the value of the property arose from property damage related to the hurricane and was excluded. Therefore, there was no duty to defend this claim.