RESIDENT’S VIOLATION OF CONDO BYLAWS NOT AN OCCURANCE UNDER CONDO ASSOCIATIONS LIABILITY POLICY

The Dallas Court of Appeals recently affirmed an insurer’s motion for summary judgment holding that it did not owe a duty to defend a condominium resident from the counterclaims brought forth by its condominium resident association in Denise and Greg Brown v. American Western Home Insurance Company, No. 05-11-00561-CV, (Tex.App.—Dallas, Jan. 4, 2013).  The Browns owned a condominium in Dallas, Texas. Like many  other  condominium  unit  owners,  the  Browns  were  members  of  the  “Forty-Four  Hundred Condominium Residents’ Association” and subject to its bylaws. The “Forty-Four Hundred” refers to the block numbers of the condominium units.  Under the Association’s bylaws, its elected board of directors was   responsible   for   maintaining   common   areas,   approving   budgets,   and   collecting   authorized dues.  American Western Home Insurance Company issued a commercial property insurance policy to the “4400  Residents  Association  c/o  Knobler Property Management.”  The named  insured  was  the “4400 Residents Association.”

 The Browns sued the Association for their failure to maintain the portions common areas of the condominium complex thereby causing damage to the Browns. The Association filed a counterclaim against the    Browns    for    their    alleged    violations    of    the    Association’s    declarations,    bylaws,    and regulations.  Specifically, the Browns allegedly violated restrictive covenants regarding poor upkeep and deterioration of the Browns’ condominium unit.

 The Browns subsequently joined American Western alleging causes of action against it for negligence and negligent misrepresentation, violations of the Texas Insurance Code, and Texas Deceptive Trade Practices Act,  and  breach  of  contract.   The  Browns’  actions  were  premised  on  the  Association’s  purchase  of American Western policy of insurance coverage.  American Western filed a traditional motion for summary judgment arguing that the Browns were not named insureds under the policy, and the Association’s counterclaim does not qualify as an “occurrence” under the policy.  The trial court agreed with American Western, and the Browns subsequently filed an appeal.

 Applying the Texas eight corners test, the Court determined that American Western had no duty to defend the Browns against the Association’s counterclaim because it did not qualify as an occurrence.  The Court noted, the counterclaim was premised on the Browns’ intentional violation of the Association’s bylaws, and the insurance policy only applied to property damage caused by an “occurrence.”  Under the terms of the policy,  an  “occurrence”  is  defined  as  “an  accident,  including  continuous  or  repeated  exposure  to substantially the same general harmful conditions.” The Court concluded the policy excludes intentional acts, and the Browns’ deliberate breach of the Association’s bylaws was not a covered occurrence under the terms of the policy.