No coverage for landlord over missing smoke detectors
An LA apartment building had inoperable or missing smoke detectors, among other things, in the units, which voided the landlord's insurance policy.
An appellate court in California has ruled that the owner of an apartment building sued by tenants for missing or inoperable smoke detectors was not entitled to a defense of the lawsuit from its insurer because the owner breached the insurance policy by failing to provide working smoke detectors.
The case
Tenants at a Los Angeles apartment building owned, maintained and leased from July 1, 2012, to Dec. 26, 2013, by New Hampshire Apartment, Inc., sued the owner for multiple habitability violations. They alleged, among other things, that the property was infested by vermin and cockroaches, lacked security, had broken windows and doors that were off their hinges, and lacked adequate water supply, heat and proper sewage disposal.
The tenants also asserted that smoke detectors either were missing or inoperable.
New Hampshire was insured by American Safety Indemnity Co. (ASIC), which refused to defend New Hampshire.
The tenants and New Hampshire reached a settlement that, among other things, provided for the assignment of New Hampshire’s claims against ASIC to the tenants.
The tenants sued ASIC, alleging breach of contract and breach of the implied covenant of good faith and fair dealing.
The trial court ruled in favor of ASIC, and the tenants appealed.
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The ASIC policy
The ASIC policy provided that:
In consideration of the premium charged, it is understood and agreed by the insured that it is a condition precedent to the acceptance of this insurance and payment of any claim under the policy that the insured warrants that at all times during the currency of the policy … the insured shall maintain in complete working order … Smoke Detectors in all units/living spaces. BREACH OF ANY WARRANTY(S) SHALL RENDER COVERAGE PROVIDED BY THIS POLICY NULL AND VOID.
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The appellate court’s decision
The appellate court affirmed.
In its decision, the appellate court found that New Hampshire failed to satisfy the insurance policy’s smoke detector condition because the property had nonfunctional or missing smoke detectors. As a result, the appellate court ruled, ASIC’s obligation to provide coverage under the policy never accrued.
The appellate court rejected the tenants’ contention that the smoke detector warranty did not preclude coverage because any noncompliance with the warranty lacked a nexus with the condition insured against. The appellate court explained that, generally, an insured must be in strict compliance with a condition precedent to the right of recovery under an insurance policy. It then ruled that lack of a “nexus” to the loss did not vitiate a warranty as a precondition to coverage.
The appellate court concluded that California courts have held that the breach of even an “immaterial warranty” would void an insurance policy “where the policy expressly declares that it shall avoid it.”
The case is Gray v. American Safety Indemnity Co., No. B289323 (Cal. Ct.App. Dec. 3, 2018).
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Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc.