Tips for Hiring a Professional

Helpful Tips to Remember When Hiring A Professional

Does your community need to hire a professional company to do maintenance, repair, or any other work to the common areas? Here are some helpful tips when looking into hiring a professional from a community association manager or board’s perspective.

  • Does This Professional Have A License?

Associations should always hire a licensed professional versus an unlicensed professional. The Department of Consumer Affairs Contractors State License Board has more on why hiring a licensed contractor is important and how to check a contractor’s license status here.

  • Get Multiple Bids.

The old saying “you get what you pay for” rings true here. Sometimes the cheapest bid is not always best for your association, even if the budget is low. While it may be tough and time consuming to get multiple bids, this effort upfront may help you on the back end if you need to fix the project or, worst case, litigate an issue. It is recommended that association’s make a reasonable effort to get at least 3 bids from different professionals in order to get an idea how much the project will cost on average.

  • Ask for References.

If your community needs professional services, hopefully the company has done similar work before. Don’t hesitate to ask for recent references from projects and/or communities similar to yours so you can talk to other managers or board members about their experience with the company in both quality of the work and experience with the personnel.

  • Obtain A Written Contract.

While oral contracts are sometimes enforceable, it is our recommendation to always obtain a written contract when contracting for services. It is very hard to prove the existence of an oral contract in a court of law and memories fade over time. Additionally, a bid or proposal, even when signed, doesn’t always contain the necessary terms and conditions a contract may require. After a written bid or proposal is obtained, make sure a signed, written contract is also obtained. The party drafting the contract typically writes the terms most favorable to them, so we highly recommend associations have their legal counsel review or draft any contracts. Attorney review may cost more money upfront, but can save you thousands if a claim is made later on. For more information on this topic, see Epsten’s Contracting Checklist here.

  • Set Expectations Up Front.

As tedious and boring as reading a contract may be, it is imperative that both parties understand what is expected of them beforehand. If, when reading the scope of the project provided by your professional, there is a discrepancy or vague term you don’t understand, make sure to ask for clarification. Both sides need to be clear on what is expected of them before any work begins or money is exchanged. Unless your legal counsel has been involved in all negotiations or discussions regarding the project, the board and management may be in a far better position to review the scope of work and ensure it includes everything discussed, agreed upon and expected.  Your legal counsel may not be in a position to make any representations regarding the proposed scope of work if they were not included in those negotiations. As noted above, legal counsel should review or draft contracts but will likely need input from other professionals on the scope of the work.

  • Does This Professional Have Insurance?

A written contract between an association and its professional should specify the necessary insurance that the professional is expected to maintain, and provide proof of upon request, while performing work on behalf of the association. Please also note that a certificate of insurance may not always be sufficient to ensure the association and management have been added as an additional insured once a contract has been executed. Make sure to ask your professional for a certificate of insurance and a blanket insured endorsement form before you accept any proposals. Consult with your association’s insurance professional about adequate insurance requirements or proof of insurance.  It is important that both parties are protected from any liability that may occur while workers are on your property and that the common areas are protected from damage, should any occur. Worker’s compensation is also important for professionals to have, should they need it. This tip includes all professionals, including, for example, architects.

  • Are Permits Needed for The Project?

Depending on the governmental jurisdiction, permits may be required for your project. Consult with your licensed professional and make sure the contract is clear on who will be requesting and paying for permits, if permits are required. Inspections are typically needed to obtain permits, so make sure to factor in the time it will take to get your local permitting officials on scene to do any inspection.

  • Keep All Documents and Communication with Your Hired Professional.

When dealing with a project, large or small, it is recommended that the association keep all documents, communications (emails, faxes, etc.) from the hired professional. While a fully executed written contract is an association’s best line of defense if a dispute arises later on, having documents to support any discussions and advice during the process of work can also be extremely beneficial. Sometimes disputes come up months or even years later. It is also recommended to take photos before, during, and after the project is completed as well.

  • Communication with Members is Key

Once a project begins, be sure to update your members periodically. Delays, changes, and other deviations from the original plans and timelines tend to happen when projects begin. Members will appreciate any updates about how the project is progressing over time.

Assessment Collections: Payment Plans Q&A

By Jillian M. Wright, Esq.

When the economy dips, delinquencies rise and boards are left scrambling for solutions. Payment plans can be a useful collections tool. Boards and managers would be wise to understand when and how payment plans can help, when they are required, and what to put in a payment plan.

Q: Are Boards Required to Meet with Owners Requesting a Payment Plan?

A: Sometimes, yes. Civil Code section 5660(d) provides that an association must offer delinquent owners the right to meet with the board to discuss payment plans in its pre-lien notice. Civil Code section 5665(b) provides that a board shall meet with a requesting owner within 45 days of receiving the request to meet to discuss a payment plan if that request is sent within 15 days of the pre-lien notice being sent. If there is no board meeting scheduled to take place within that 45-day period, the board can designate a committee of one or more board members to meet with the requesting owner.

Even if a board encounters circumstances in which it is not legally required to meet with the requesting owner, a board may still want to meet with the owner if there is any chance the meeting could result in a reasonable payment schedule. The old adage, “a bird in the hand is worth two in the bush” comes to mind. Having a steady stream of income is often the least costly and most efficient way to get paid even if the payments extend over a period of time. Boards should consider all collection options with their collections services provider as there are many variables to each delinquency, but the bottom line is this: owners who get behind in paying their assessments will usually not magically acquire one large sum of money to pay off their balance. Delinquent owners often need the time and structure a payment plan allows to become current.

Also, keep in mind that if an owner makes any request to meet with the board regarding a delinquency, it may be considered a request to meet for Internal Dispute Resolution (Civ. Code § 5915(b)(2)); such is a request that an association may not deny. This is yet another reason boards should meet with requesting owners to discuss delinquencies. Generally, the more information a board has regarding an owner’s circumstances, the better a board will be able to decide how to proceed with collection efforts.

Keep in mind that any meetings to discuss a payment plan should be held in executive session. (Civ. Code § 4935(c).)

Q: Are Boards Required to Offer or Accept Proposed Payment Plans?

A: No and no. While the benefits of payment plans are discussed above, circumstances differ for every delinquent owner. If an owner does not have the paystubs or bank statements evidencing that they are capable of making regular payments, then a payment plan could be a stalling tactic.

However, if an association has set payment plan standards – for example, all payment plans must allow for the debt to be paid back within one year – the association must include those standards in its collection policy and notify owners of those standards on an annual basis in its annual budget report and policy statement. (Civ. Code § 5730(a).) However, there is no legal requirement that an association have set payment plan standards.

Q: What Should be Included in a Payment Plan?

A: A payment plan should clearly state that the owner shall pay the regular assessments monthly as well as a set amount to be paid toward the delinquent balance. Regular assessments increase and special assessments could be levied during the term of the payment plan, so the association should account for that possibility in the plan. For example, if a payment plan simply says “Owner shall pay $200 per month,” but the regular assessments later increase from $100 to $150, this means the amount being paid towards the delinquent balance goes from $100 down to $50. Yet, if the owner continues to pay $200 a month then there is no breach of the payment plan and the association would not have the right to proceed with other collection efforts.

On that note, we strongly recommend the association clarify what constitutes a breach of the payment plan and what the association’s rights are in the event the owner breaches.

The payment plan should also clarify how payments will be applied if there is a judgment balance and a post-judgment balance. Without that clarification the association may not know when a judgment is satisfied or what amounts should be included in a lien.

It should also be made clear in the payment plan agreement that the owner shall be responsible for any collection costs incurred, even if they are incurred while the owner is in compliance with the payment plan. Collections services providers often charge to monitor delinquent accounts, so while an owner may be paying according to the plan that owner should still be liable for the collection costs incurred while delinquent. Vague language in the payment plan agreement stating all collections efforts will be on hold during the plan could limit the association’s ability to collect on these costs.

PRACTICE TIP: Have your draft payment plan or payment plan standards reviewed by a collections services provider.

Q: Will Entering into a Payment Plan Limit Other Collections Options?

A: Yes, in part. While an owner is in compliance with a payment plan, additional late fees shall not accrue during the payment plan period. (Civ. Code § 5665(c).) However, an association may still record a lien while a payment plan is in effect to secure the debt. (Civ. Code § 5665(d).) Interest may also accrue while an owner is compliant with the payment plan. This is another example of why payment plan agreements should not say that all collections efforts will be on hold while the owner is in compliance with the payment plan.

Boards and managers with questions regarding payment plans should consult with legal counsel and/or their collections services provider. Our firm is happy to review and/or draft a payment plans for boards to consider implementing. Please contact us.

“No Lifeguard on Duty” Signs: Discriminatory?

Published February 21, 2023

 

Like many Californians, you may be so used to seeing “No Lifeguard on Duty” and “Caution” signs posted around public pools and spas that you just glance at the verbiage and do not give it a second thought.   Like public pools and spas, common interest developments (CIDs) with pools and/or spas are required to post “No Lifeguard” and “Caution” signs pursuant to Sections  3120B.4 and 3120B.7 of the California Code of Regulations. The same is required for all other public pools and spas.

What CIDs may not be aware of is the sign verbiage required by Cal. Code Regs. Section 3120B.4 and 3120B.7 just a couple of years ago likely violated fair housing laws.  CIDs were therefore stuck between their obligations to post the required pool/spa sign verbiage and avoid enforcing discriminatory rules; however, a 2019 update to Cal. Code Regs. Section 3120B.4 and 3120B (effective January 1, 2020) removed the discriminatory components.

Now, CIDs must not only change the sign verbiage accordingly, but they should also review their Pool and Spa Rules to ensure the language is not discriminatory.

Change in Required Sign Verbiage

Prior to the 2019 update, Cal. Code Regs. § 3120B.4 required “No Lifeguard” signs to state “NO LIFEGUARD ON DUTY” in addition to ”Children under the age of 14 shall not use pool without a parent or adult guardian in attendance”.  However, a US Discrict Court in California found that such restrictions discriminated against families wih children (protected by federal and state  fair housing laws), in that it treated families with children differently and less favorably than adult-only households.  (See United States v. Plaza Mobile Estates (2003).)  After the 2019 update, the required verbiage changed to “NO LIFEGUARD ON DUTY” followed by “Children should not use pool without adult supervision”.  Similarly, the “Caution” sign verbiage for spas changed from “Unsupervised use by children under the age of 14 is prohibited” to “Children should not use spa without adult supervision.”  (See Cal. Code Regs. § 3120B.7 for additional required verbiage.)  The amendments to both provisions removed reference to a specific age and altered the prohibitory language to mere suggestions.

What Should Your Community Do?

  1. CIDs with pools and/or spas should update their “No Lifeguard on Duty” and “Caution” signs to reflect the current, non-discriminatory language in Code Regs. §§ 3120B.4 and 3120B.7.
  2. In addition, they should review their Pool and Spa Rules to ensure they do not treat families with children more harshly than adult-only households.

PRACTICE TIP:  Avoid any reference to specific ages or familial dynamics in your CID’s  Pool and Spa Rules.

Although restrictive Pool and Spa Rules may be well intentioned, any such discriminatory language would only be acceptable if the CID could successfully articulate a compelling business necessity and the language is “the least restrictive means to achieve that end”.   (Fair Housing Council v. Ayres, 855 F. Supp. 315, 318-19 (C.D.Cal.1994).

Do you have questions regarding your Pool or Spa  Rules? Our firm is happy to review or draft a new set of rules for your community.  Please contact us.

 

Community Association Insurance Manual

 

Community Association Insurance Manual

By Jay Hansen, Esq.

Epsten, APC

Copyright 1997-2017.  All rights reserved.

 

 

 

Community Association Insurance Manual

Table of Contents

Page # (to the right of topic)

In General 1
1. Variations on Murphy’s Law Will Apply to the Insurance You Buy 1
2. Be Sure Your Insurance Agent Asks for Your Declaration (CC&Rs), Bylaws, and Articles of Incorporation and Reviews Them for Insurance Requirements 1
3. Keep Each Year’s Policy Together in One Folder, and Keep Each Company’s Policy Together. Don’t Ever Throw Them Away 1
4. Be Sure to Carry All the Insurance Required by Law and Your Governing Documents 1
5. Inform Your Owners That They Need Their Own Insurance 2
6. When Required, Be Sure to Meet Lender Insurance Requirements – VA, FHA, FNMA (“Fannie Mae”) or GNMA (“Ginnie Mae”) 2
7. File All Claims Properly and in a Timely Manner 2
8. Find an Insurance Agent Who Knows and Deals with Association Insurance Regularly 2
9. Find the A.M. Best’s Ratings for Each Insurance Company You Use 3
10. Find Out if Each Insurance Company You Use is Admitted to Write That Insurance in California 3
Property Insurance 3
11. The Total Building Coverage Pays Just for the Cost of Rebuilding, Not the Market Value 3
12. Evaluate Whether “Special Form” or “Named Perils” (or “Fire and Extended Coverage”) is the Better Option 3
13. Buy Replacement Cost (RC), Not Actual Cash Value (ACV) 4
14. Be Sure You Know What Owner-Maintained Improvements You Want to and Need to Insure 4
15. How Large a Deductible Should You Obtain and Who Pays It? 5
16. Is Your Deductible Per Occurrence or Per Building? 5
17. Make Sure You Do Not Have Any Co-Insurance Problems 5
18. Do Not Under-Insure or Over-Insure the Replacement Cost of Your Property 6
19. Obtain a “Guaranteed Replacement Cost Endorsement” 6
20. If You Can’t Obtain a “Guaranteed Replacement Cost Endorsement,” Get an “Agreed Amount Endorsement” 7
21. Neither Forget Nor Over-Insure Personal Property 7
22. Who Pays for Relocation Costs, What Costs Are Covered, and In What Amounts? 7
23. Obtain Coverage to Pay for Building Code Changes 7
24. Optional – Coverage for Lost Rents, If Your Association Has Any Significant Rental Income 8
25. Optional – Coverage for Floods 8
26. Optional – Coverage for Glass Breakage 8
27. Optional – Coverage for Power Failure 8
28. Optional – Coverage for Earthquake 8
29. Be Careful About “Inflation Protection” Coverage 8
30. Optional – Walls, Fences, Swimming Pools, Spas, etc. 9
31. Optional – Boiler and Machinery Coverage 9
32. Optional – Valuable Papers Coverage 9
33. Check Who is Covered by the “Loss Payable Clause” 9
34. Obtain a “Waiver of Subrogation” Clause 9
35. Obtain “Primary and Non-Contributory” Coverage 9
General Liability Coverage 10
36. Obtain a “Commercial General Liability” (CGL) Policy 10
37. General Liability Coverage Typically Covers Your Association’s Liability to Others 10
38. Look for “Combined Single Limit” Coverage for General Liability 11
39. Be Sure the Policy Has a “Separation of Insureds” Clause 11
40. Avoid a Cross-Liability Endorsement 12
41. Remember that the Dollar Limits are Typically the Maximum Payout Per Year, Not Per Claim 12
42. Does Your Policy Obligate the Carrier to Defend? 12
43. Who Has the Right to Settle and to Select Defense Counsel? 12
44. Are Defense Costs Deducted from the Total Amount of Coverage? 12
45. Is There a General Liability Deductible? 12
46. Name the Management Company as an “Additional Insured” 12
47. Know the Limits of Coverage for an “Additional Insured” 12
48. Obtain Medical Payments Coverage 13
49. Obtain “Products Liability” Coverage 13
50. Obtain “Completed Operations” Coverage 13
51. Obtain Non-Owned Vehicles Coverage 13
52. Obtain Contractual Liability Coverage 13
53. Optional – Host Liquor Liability/Dram Shop Insurance 14
54. Optional – Garage Keeper’s Liability 14
55. Optional – Umbrella and Excess Liability Coverage 14
56. Optional – Security Guard Liability Coverage 14
57. Obtain Sufficient CGL Coverage to Qualify for Statutory Limitations of Liability 14
Directors and Officers (D&O) Liability Coverage 15
58. Don’t “Cheap Out” on Your Own Coverage 15
59. Know Who is a “Named Insured” 15
60. Look For “First Dollar Defense” Rather Than a “Reimbursement Policy” 15
61. Know the Amount of the Deductibles 15
62. Ask if There is Any Co-Insurance, and Avoid It 15
63. Understand the Impact of a “Claims-Made” Versus an “Occurrences” Policy 15
64. Know the Exclusions from D&O Coverage 16
65. Find Out Whether Any Prior Acts Are Covered 16
66. Look for a Policy That Covers Non-Monetary Claims 17
67. Look for a Policy That Covers the Manager as a Named Insured 17
68. Look for a Policy That Covers at Least the Defense of Discrimination Claims 17
69. Look for a Policy That Covers Failure to Obtain the Proper Types or Amounts of Insurance 17
70. Who has the Right to Select Defense Counsel? 17
71. Who has the Right to Agree to Settle the Case? 17
72. Are Defense Costs Deducted From the Total Amount of Coverage? 17
73. Do You Need to Obtain an Extended Reporting Period or Overlapping Coverage? 17
74. Obtain Sufficient D&O Coverage to Qualify for Statutory Limitations of Liability 18
Fidelity Bond/Dishonesty Coverage/Crime Coverage 18
75. Obtain a Fidelity Bond or Dishonesty or Crime Coverage 18
76. Scope of Fidelity Policy Coverage 18
77. Does the Manager’s Fidelity Coverage Provide HOA Protection? 19
78. Time of Loss or Discovery of Loss and its Effect on Fidelity Coverage? 19
79. Other Pitfalls of Fidelity Coverage 19
Special Types 19
80. Obtain “Owned Vehicles” Coverage, Where Applicable 19
81. Is Worker’s Compensation Coverage Needed? 20
82. Should You Consider Employment Practices Liability (EPL) Coverage? 20
83. Builder’s Risk Insurance or Course of Construction (“COC”) Insurance? 20
Acknowledgments 20
Glossary 21

 

 

 

Community Association Insurance Check List

 

In General

1.                  Variations on Murphy’s Law Will Apply to the Insurance You Buy

.  Below are some tongue-in-cheek comments, but there is an element of truth in all of them:

(a)……… Your policy will be written so there is no coverage for your claim.

(b)……… If your policy is written so there is coverage for your claim this year, it will be changed next year.

(c)…….. Even if the company defends you on a claim, they probably won’t pay to indemnify you if you lose, and it may require you to repay the defense costs.

(d)…….. The big print tells you the rights you have under the policy; the small print tells how the company takes them away.

 

To help minimize the impact of the above risks, observe the following rules, ask the following questions, and learn the following information about the insurance policies you examine.  However, no manual can ever include everything you may ever want or need to know.  Thus, you should check any other sources you can find for information and ask detailed questions of the insurance agents with whom you deal.

2.                  Be Sure Your Insurance Agent Asks for Your Declaration (CC&Rs), Bylaws, and Articles of Incorporation and Reviews Them for Insurance Requirements

.  If your insurance broker does not ask for your governing documents, you may have a broker who does not know Community associations or their insurance requirements.  It is far better to have the insurance you need than to look at a malpractice case against your insurance broker when you find out, too late, that your insurance is inadequate.

3.                  Keep Each Year’s Policy Together in One Folder, and Keep Each Company’s Policy Together.  Don’t Ever Throw Them Away

.  When a renewal policy comes, it will contain a declarations page with the form numbers applicable to that policy.  They will send only new forms and endorsements.  Check all the forms listed at the bottom of the declarations page.  If any are missing, copy them from the prior year’s policy and clip or staple them together in that folder.  If you have a separate policy for directors and officers liability coverage (“D&O”), keep all those forms together with that policy, but separated from the property and general liability policy or policies.

You may not need a policy until years after it has expired, so keep the policies indefinitely in a chronological manner so that you can find them.

4.                  Be Sure to Carry All the Insurance Required by Law and Your Governing Documents

.  While a board can and should purchase directors and officers (“D&O”) liability insurance to protect it against its own negligence (essentially “malpractice” claims), all D&O policies we have seen contain an exclusion stating that the insurance does not cover claims for failure to have the right insurance in sufficient amounts.  The reason for this is that if a board could obtain insurance for failure to purchase proper and adequate insurance, there would be no need to purchase the correct types of insurance or insurance in sufficient amounts.  In other words, the D&O coverage would provide the coverage for everything else.

If a board fails to have adequate insurance and is sued, the insurance may not pay to defend them, and the board members may have personal liability, not only for the cost of their own defense, but also for the full loss sustained due to the failure to have adequate insurance.

5.                  Inform Your Owners That They Need Their Own Insurance

.  Don’t advise them of what coverage they need, but tell them they do need their own policies for their own personal property, for liability inside their units, for other housing if their unit becomes uninhabitable or for lost rent if they are a landlord, and any other coverage not provided under the association’s policy.  Be sure they know the burden is on them and their agents to find out what is and isn’t covered by the association’s insurance.  In particular, owners should consider “loss assessment coverage” to help pay for large special assessments to cover uninsured claims or under-insured claims, for example, claims due to earthquake which carry a large deductible, even if the association has an earthquake policy.  (See Paragraph 35 regarding the effect of the association’s policy being “primary.”)

6.                  When Required, Be Sure to Meet Lender Insurance Requirements – VA, FHA, FNMA (“Fannie Mae”) or GNMA (“Ginnie Mae”)

. These requirements are generally set forth in the declaration, if your association has been approved to meet that lender’s requirements.  Typically, VA and FHA projects must have greater property coverage for owner-maintained components than a non-VA or non-FHA project.  (See Paragraph 14.)  Many of the suggestions in this manual are either requirements or suggestions under the guidelines of these federally insured mortgage loan programs.  Some examples of FNMA Selling Guide requirements are noted in various paragraphs below.

7.                  File All Claims Properly and in a Timely Manner

.  Be sure you have a copy of the policy.  It will tell you when and where to file claims.  Don’t assume you can file them with your agent.  File claims in writing, use certified mail, keep copies of what you send, and keep the certified mail receipts.  If you are close to a deadline, don’t hesitate to use several methods to insure on time receipt, e.g., personal delivery, messenger service, fax, certified mail, etc.

8.                  Find an Insurance Agent Who Knows and Deals with Association Insurance Regularly

Don’t assume any agent or broker will know the needs of an association.  Also, find out if the agent with whom you are dealing has the authority to bind the insurance company.  That requires written proof on original documentation, not photocopies, from the insurance company; certainly the agent’s verbal representation is not sufficient.  If the agent does not have authority to bind the company, your association cannot assume that it is covered or protected until you have something directly from the carrier.

9.                  Find the A.M. Best’s Ratings for Each Insurance Company You Use

.  This guide is available to insurance agents.  It provides a measure of a company’s financial ratings and thus its stability and ability to pay losses.  The top Best’s rating is “A++ XV,” and the lowest is “F  I.”  The letter ratings range from “superior” (A++) to “in liquidation” (F) and represent a qualitative assessment by A.M. Best on the quality of the insurance company’s operations and its financial ability to respond to insured losses.  (A comparable analogy is the bond ratings given by Moody’s or Standard & Poors for corporations and governmental bodies on their financial strength and stability and thus their ability to repay their debts.)  The Roman numeral is a quantitative rating of financial size, specifically the capital, surplus and conditional reserve funds of the company.  A Roman numeral “I” rating is less than $1 million, while a Roman numeral “XV” rating is more than $2 billion.  FNMA looks for at least an “A VIII” rating in a condominium or planned development.  See FNMA Selling Guide §701.01.

10.              Find Out if Each Insurance Company You Use is Admitted to Write That Insurance in California

.  With the Internet, this is much simpler.  Check the home page for the California Department of Insurance (http://www.insurance.ca.gov/docs/index.html) and, at the time this was written, the admitted companies and the types of insurance they were admitted to issue were accessible from (http://www.insurance.ca.gov/docs/FS-Admitted.htm).

Insurance is often an esoteric subject that confuses many associations.  Many people have said that you never find out whether your insurance is any good until you have to make a claim on it.  Of course, by then, it is too late.  From some of the misunderstandings and errors various associations have made, we have developed the following manual of items to consider when evaluating a particular policy or when looking for a new policy.

Property Insurance

11.              The Total Building Coverage Pays Just for the Cost of Rebuilding, Not the Market Value

.  If a building could be rebuilt for $3 million, but the collective market value of the units is $7 million, the carrier will pay no more than $3 million for a covered loss.  If an association is in a high rise that the Coastal Commission or local codes would not allow rebuilding in its former configuration or height, the recovery will not exceed the reconstruction cost, even if the market value is much higher.

12.              Evaluate Whether “Special Form” or “Named Perils” (or “Fire and Extended Coverage”) is the Better Option

.  “Special Form” coverage (the term now used in place of “All Risk” coverage that is no longer available) insures against a broad spectrum of risks except those that are specifically excluded.  While no coverage is truly all risk, “special form” coverage covers more types of risk than “named perils” coverage (also known as “basic form” or “fire and extended coverage”).  Be sure you ask about and understand what risks are excluded.  Named perils policies or fire and extended coverage policies typically cover only losses due to specified perils, such as fire, lightning, wind, hail, aircraft, riot, vehicles, explosion, smoke, vandalism and malicious mischief.  If a peril isn’t specifically named in such policies, then the loss isn’t covered.  There are also “broad form” policies, which are “beefed-up” named perils policies that include some additional covered causes of loss, such as burglary, theft or collapse and possibly even water damage.  As an example of what concerns lenders, the FNMA Selling Guide §701.02 wants an association’s master policy to be either “all risk” or at least a “broad form” covered causes of loss.

NOTE:  Due to events over the last several years, there is now a caveat about whether a Special Form (formerly “All Risk”) policy is the most desirable.  Starting around 2000, many associations have seen their claims histories skyrocket, their premiums increase dramatically, and some have been told that their insurance company will not renew them because of significant increases in claims.  This has arisen, in large part, from owners’ HO6 carriers (see Paragraph 35) insisting that the association’s master policy must evaluate any claim first, because the HO6 policy is excess, or secondary, to any amounts recovered under the master policy.  This factor led to a significant increase in interior damage claims, usually caused by water, and due in many cases to such things as pipe leaks, ice-maker line leaks, water heater leaks, washing machine hose failures, sink and toilet overflows and other damage due to failures in owner-maintained components.

 

If the association obtains an all risk policy, it will cover damage claims from a larger group of causes, but it may also increase the number of non-catastrophic claims involving owners’ personal property and fixtures.  Thus, the association may wish to consider either a named perils policy, or a broad form policy, if FNMA or other lender requirements allow it.

 

There are variations on what is meant by basic form (aka “named perils” or “fire and extended coverage”), broad form (typically basic form plus items such as broken windows and other structural glass, breakage of glass that is part of a building or structure, weight of snow or ice falling objects and water damage), special form (replacing what was formerly called “all risk”) and other fire and property coverages.  A search on www.google.com will probably show some of the variations you may encounter.  The descriptions typically apply whether you are looking at a homeowners or business and commercial policy.

13.              Buy Replacement Cost (RC), Not Actual Cash Value (ACV)

.  ACV pays only for depreciated value (effectively garage-sale value).  Most documents require full replacement cost, usually subject to a reasonable deductible.  See FNMA Selling Guide §701.03.

14.              Be Sure You Know What Owner-Maintained Improvements You Want to and Need to Insure

.  VA- and FHA-approved developments and others may require your association to insure many owner-maintained components, such as cabinets and other fixtures, wall and floor coverings, built-in and maybe free-standing appliances.  If your documents do not require this, be sure you weigh (1) the generally lower cost of insuring these items through the association and (2) the size of your deductible against (3) the increased number of claims you may get if the owner’s property is insured, and (4) what your documents and rules say about who must pay the deductible for a loss.

Note that many commercial master insurance policies that cover the residential structures in condominium and Community associations automatically insure most of the attached components or “fixtures” that the owners normally maintain, such as floor and wall coverings, cabinets, plumbing and toilet fixtures, and built-in appliances, including furnaces and water heaters  Some policies may not do this automatically, but they may state that these fixtures are covered to the extent the association’s governing documents require the fixtures to be insured.  However, most governing documents do require an association to insure these owner-maintained components.  The reason for this is that lenders are issuing mortgages for the value of the unit or home at the time of initial occupancy, and those components are included in the selling price and provide part of the security for the mortgage loan.  Lenders do not want to have an owner walk away from a disaster in which the lender gets stuck paying for items that provided part of the security for the mortgage loan.  They want the insurance to cover it.  As an example, see FNMA Selling Guide §701.02 which recites this justification for insuring the fixtures.

15.              How Large a Deductible Should You Obtain and Who Pays It?

Higher deductibles generally mean fewer claims and lower premiums.  Be sure you adopt a policy that specifies under what conditions the owners must pay the deductible.  If you amend your covenants, include the policy in the amendment.  Note that there may be a maximum limit to what your deductible can be without triggering problems with lenders.  For example, the FNMA Selling Guide §701.03 states that the maximum deductible in a planned development with a master policy or in a condominium is $10,000 or 1% of the policy face amount, whichever is lower.

16.              Is Your Deductible Per Occurrence or Per Building?

This applies only in policies covering multiple buildings.  A per-occurrence loss is generally better and simpler.  With per- building deductibles, if multiple buildings incur a loss, there will be no payment on a given building until the loss for that building exceeds the deductible, even if there is a huge loss, vastly exceeding the deductible on another building.  A per-occurrence deductible simplifies adjusting the claim, as the only issue is the total damage, not the damage incurred on each building.

17.              Make Sure You Do Not Have Any Co-Insurance Problems

.  Co-insurance means that your association is sharing a percentage of each loss with the insurance company.  The insurance company will pay part of the loss, and your association will pay the rest.  There are two ways co-insurance problems can arise:  the first is by contracting for it, and the second is by under-insuring the property.

Probably no association should ever contract for co-insurance.  Most governing documents state something like the following:

 

“The Association [or the Board] shall obtain fire and extended coverage for the full insurable replacement cost of the common area and the units.”

 

If you contract for co-insurance, you will be agreeing to pay 10% or 20% or some other percentage of each loss rather than having the insurance company pay it all.  In other words, if your association incurred a $500,000 loss, and if it contracted for 10% co-insurance, you would be self-insuring for, and would have to come up with, $50,000 out of the association’s or the owners’ pockets.  Probably most owners and the board will be shocked if this occurs.  Furthermore, if the documents require full replacement coverage, the owners may sue the board for failure to carry the required insurance.  If that occurs, the board will probably have no liability coverage to protect it against suit.  (See the discussion of inadequate insurance below and in Paragraph 4 above.)

 

The second type of co-insurance problem occurs from failing to have property insurance in an amount sufficient to cover the replacement cost to cover all the association’s property.  As an example, assume an association carries $5 million in property coverage, but the replacement cost for the entire property is really $10 million.  What happens if the association has a $500,000 loss?  An initial reaction might be to assume that, as long as the loss is less than $5 million, the association is protected.  Wrong!  The insurance company will say that, since the association carried only $5 million in coverage when it needed $10 million total, the association was co-insuring 50% of all losses, not just the losses exceeding $5 million.  Thus, the insurance company will pay only 50% of the $500,000 loss (i.e., $250,000), and the association and its members will have to come up with the other 50%.  Ouch!  To avoid co-insurance problems based on under-insuring, see Paragraph 18 below.

18.              Do Not Under-Insure or Over-Insure the Replacement Cost of Your Property

.  However, if you are going to err, it is better to err on the side of over-insuring.  The only problem with over-insuring is that you are paying for more than you need, and thus that money is wasted.  It is far more serious to be under-insured, because of co-insurance problems, as discussed in Paragraph 17.

How can the Board be sure its property insurance will cover full replacement cost?  One option is to have a professional determine what the replacement cost will be.  Such computations are generally based on the type of construction you have and the cost per square foot to reconstruct that type of building.

 

Some other options involve obtaining a “guaranteed replacement cost endorsement” (see Paragraph 19) or an “agreed amount endorsement” (see Paragraph 20).

19.              Obtain a “Guaranteed Replacement Cost Endorsement”

.  Guaranteed replacement cost guarantees that the carrier will replace the property without regard to the dollar limit purchased.  In other words, if there is a total loss on a single building whose replacement cost is $6 million but it was insured for only $5 million, the guaranteed replacement cost will pay the full $6 million.  (If this isn’t available, see Paragraph 20.)  See FNMA Selling Guide §701.03.

20.              If You Can’t Obtain a “Guaranteed Replacement Cost Endorsement,” Get an “Agreed Amount Endorsement”

.  Under a typical “agreed amount endorsement,” the insurance company agrees that the total amount of property coverage purchased is sufficient to replace the property, and it will not reduce the pay-out as long as the insured loss amount turns out to be lower than the full replacement cost.  Thus, an agreed amount endorsement effectively removes the co-insurance clause.  (See Paragraph 17.)  However, if there is a total loss, an agreed amount endorsement will not make up the difference between the maximum amount payable under the policy and a higher total cost of repair.  So, if there is a total loss on a single building whose replacement cost is $6 million, but it was insured for only $5 million, the carrier will pay out only $5 million.  Thus a guaranteed replacement cost endorsement is better.  (See Paragraph 19.)

21.              Neither Forget Nor Over-Insure Personal Property

.  If your association has any significant pool furniture, office equipment, cleaning equipment, or other personal property, be sure you have sufficient coverage for it.  Although this coverage is generally inexpensive, don’t carry more than you need.  Check to see if there is a separate deductible for personal property losses; frequently there is.

22.              Who Pays for Relocation Costs, What Costs Are Covered, and In What Amounts?

If there is a major property loss, and owners’ units are condemned, they must move out.  Is any of the relocation cost, rental of temporary lodging, etc., covered under your association’s policy, and if so, for how long and how much?  If not, this is another reason owners need to have their own coverage for such losses.  It is worth notifying owners in your annual insurance disclosures that most association master policies do not cover owners for alternate housing, moving and storage expenses, or loss of their personal property from fire and other losses.  They need their own coverage for that.

23.              Obtain Coverage to Pay for Building Code Changes

.  This is sometimes called “ordinance and law” coverage.  Most property policies cover only the cost of rebuilding the property as it existed before the loss, but that is usually the way it was built 10, 20 or 30 years ago.  However, buildings have to be rebuilt to meet current building codes and that makes reconstruction more expensive.  Coverage for those increased costs can be purchased as additional coverage, but not every company offers it, so look for a company that does.  This coverage becomes increasingly more important as the community ages.  Be sure that you obtain coverage for the following:  (1) ”contingent liability,” which may require tearing down the undamaged portion of a building, if more than a certain percentage of the building was destroyed thus turning a partial loss into a total loss; (2) ”increased cost of construction” due to building code changes that have been implemented since the property was new; and (3) ”demolition costs” for removing the damaged property and portions of the building so that reconstruction can begin.  See FNMA Selling Guide §701.04.  For example, you may need to install fire sprinklers or even an elevator for second story units to provide access for persons with disabilities.

24.              Optional – Coverage for Lost Rents, If Your Association Has Any Significant Rental Income

.  This is normally excluded.  It is important if your association has any significant rental income from laundry rooms or any other property.  Absentee owners who are landlords should obtain their own coverage for their lost rents under their individual policies.

25.              Optional – Coverage for Floods

.  This is invariably excluded and generally available only through FEMA (Federal Emergency Management Agency).  Flood coverage is certainly important in flood plains and other areas subject to flooding.  It has been required for VA- and FHA-approved projects in flood hazard areas and similar projects in which other federally guaranteed mortgages are issued.  However, absent at least a customized or special endorsement on the property policy for floods, there would be no coverage for mud slides, plumbing leakage, sewer backups, excess surface water run-off, etc.

26.              Optional – Coverage for Glass Breakage

.  Glass breakage coverage is often excluded or significantly limited under most property policies.  If your association has any significant glass windows and doors, it is probably important.  If there is a limit of $1,000 per occurrence and many plate glass windows are damaged or destroyed in a storm, your association could be seriously impacted.

27.              Optional – Coverage for Power Failure

.  If your association has a restaurant including refrigerated or frozen supplies that may spoil, or other facilities that must have a continuous or nearly continuous supply of power to avoid a loss, you will probably need a special endorsement to cover these losses.

28.              Optional – Coverage for Earthquake

.  This always requires a costly endorsement or separate policy that is subject to large deductibles.  The cost is generally significant enough that owners must vote on it, because it likely will require an increase in assessments.  If all or most owners purchase “loss assessment” coverage through their individual policies, that may go a long way toward paying for large special assessments for substantial damage, but it may only cover up to about a 30% to 40% loss.  In a condominium, co-op, or community apartment project, if the association doesn’t buy the policy, the individual owners probably will be unable to obtain earthquake coverage for anything other than their personal property.  Note that most earthquake deductibles are a percentage, but it is usually a percentage of the total coverage, not a percentage of the loss.  If there is a 10% deductible, it could mean either that no coverage will kick in until 10% of the total insured value has been exceeded (e.g., until there is $2.5 million in damage on a $25 million policy) or until there is damage equal to 10% of the replacement cost per unit, if it is a per unit deductible (e.g., if it would cost $150,000 to rebuild a unit, there is no coverage until there is at least $15,000 damage per unit).

29.              Be Careful About “Inflation Protection” Coverage

.  This is helpful, especially in periods of high inflation, to make sure your property coverage limits increase as building costs skyrocket.  However, it may provide too much coverage in periods of low inflation.  If your buildings can be rebuilt for $3 million, and you have $5 million in coverage, the carrier will never pay out more than $3 million, so you are paying for $2 million more in coverage than you could ever use.  (See Paragraph 18.)  Note that an inflation guard endorsement is required by FNMA, if it can be obtained.  See FNMA Selling Guide §701.04.

30.              Optional – Walls, Fences, Swimming Pools, Spas, etc.

Coverage for walls, fences, swimming pools, spas, retaining walls, ponds, piers, golf courses, or other unique property is often excluded or has limited coverage.  Be sure to obtain sufficient coverage, if you have any significant components in these categories.  Pools and spas may not be damaged by fire, but they could be significantly damaged from earthquake, vandalism, or some other occurrence, and wooden fences and even steel fences can be damaged or destroyed by fire or even storms.  It may also require special care to develop a proper valuation of the potential losses.

31.              Optional – Boiler and Machinery Coverage

.  You may not need to have a boiler to need this coverage, and it will usually require a separate endorsement.  If you have pumps, fans, or other mechanical equipment that breaks down, damage caused to the equipment itself by the failure is excluded.  Associations with large air-conditioning systems should consider it.  Ask your agent what this coverage will and will not provide if you obtain it.  FNMA requires this, if an association has central heating or cooling.  See FNMA Selling Guide §701.04.

32.              Optional – Valuable Papers Coverage

.  You should consider this endorsement to cover the labor cost of reconstructing valuable information, such as financial data, lost in a fire or other cause of loss.

33.              Check Who is Covered by the “Loss Payable Clause”

.  When there is a loss, the policy should pay the funds just to your association or an insurance trustee based on a governing document requirement to rebuild the damaged property.  However, the owners and their lenders should also be named as insured under the policy.

34.              Obtain a “Waiver of Subrogation” Clause

.  Most governing documents require this.  Because the owners are also considered named insureds (or “also insureds”), the insurance is designed for their protection as well as the association.  Just as vehicle owners have property insurance to repair their cars, even if they are damaged by the owner’s own negligence, your association’s policy should pay to repair the property damaged by an owner’s negligence.  Under most policies, a carrier will seek to enforce its “subrogation rights” to recover the loss they had to pay from the party responsible for the loss.  However, in the association context, there should be a “waiver of subrogation.”  This should apply at least to owners and their families, but some clauses extend to the tenants and guests of owners as well.  See FNMA Selling Guide §701.04.

35.              Obtain “Primary and Non-Contributory” Coverage

.  The “primary” language treats your association’s policy as the primary policy, if owners and your association have overlapping coverage.  The “non-contributory” language means that the primary policy will pay until it exhausts itself.  Only when it is exhausted for all covered claims will the secondary and overlapping coverage be required to make any contribution toward the loss.  This simplifies adjusting a claim when there is damage both to association-insured property and to owner-insured property causing multiple carriers to become involved in the adjusting process.  The owners’ adjusters only need to deal with the portion of each owner’s claim not covered by your association’s policy, and your association’s carrier pays the maximum covered claim less any deductible.

Note that making the association’s policy primary is a requirement of most federally-guaranteed loan programs, such as the Federal National Mortgage Association (a.k.a. FNMA or “Fannie Mae”).  See e.g., FNMA Selling Guide §701.04.  The downside of the association’s policy being primary is that the association may find that owners’ insurers will have the right to require the association to file any owner’s loss with the association’s carrier and to make the association’s carrier pay whatever is covered under the master policy before the owner’s carrier has to pay anything.  However, because most federally guaranteed loan programs want this, if you try to amend out such a requirement, it is likely to activate mandatory lender approval of the amendment.  Even if there is no mandatory requirement for the master policy to be primary, it may end up being primary anyway.  This is due to the typical language found in most owners’ policies.  The owners’ policies are often called an “HO6” policy in a condominium or other association in which the association carries a master property damage policy.  A common HO6 policy states that, if the association carries insurance on the same property covered under the HO6 policy, then “this [HO6] insurance will be excess over the amount recoverable under such other insurance.”  In other words, the association policy is effectively primary, and the owner’s policy is secondary.

General Liability Coverage

36.              Obtain a “Commercial General Liability” (CGL) Policy

.  Most carriers offer a CGL policy which includes not only a “general liability” policy (see Paragraph 37) but additional types of liability coverage for protection against other claims.  The additional liability coverage may include coverage for Medical Payments (see Paragraph 48), Products Liability (see Paragraph 49), Non-Owned Vehicles (see Paragraph 51), etc.

37.              General Liability Coverage Typically Covers Your Association’s Liability to Others

.  It is typically limited to claims of bodily injury (“BI”) and property damage (“PD”) caused by the acts or omissions of your association and its agents.  Look for a policy that also covers claims for advertising injury and personal injury (“PI”) which often are sold together.  Personal injury includes non-bodily injuries such as humiliation and mental anguish.  These categories of insurance cover claims such as slander; libel; false arrest, detention or imprisonment; wrongful entry, eviction, or invasion of right of private occupancy; invasion of privacy, etc.  In a broadly worded policy it may include a civil rights or discrimination claim, where insurance against such offenses is not prohibited by law.  It is worth notifying owners in your annual insurance disclosures that most association general liability policies typically will not protect owners against claims from other people injured on or in their property.  They need their own coverage for that.

38.              Look for “Combined Single Limit” Coverage for General Liability

.  If a policy has $2 million “combined single limit,” the carrier will pay up to $2 million for any individual loss that occurs during the policy period but will pay out no more than a maximum of $2 million for losses occurring in that year, regardless of the number of losses or the total amount of those losses.  This compares with a policy that may be $1 million “per occurrence” and $2 million “in the aggregate.”  If there were a $1.3 million dollar loss and a separate $300,000 loss in the same policy period, the carrier would pay both claims under the combined single limit coverage, but if the policy is a “Per Occurrence/Aggregate” policy, the carrier will pay out just $1 million maximum on the $1.3 million occurrence and the full $300,000 on the $300,000 occurrence, even though the total loss is less than the $2 million aggregate for the year.  If there were four separate losses of $1 million, $500,000, $400,000 and $300,000 for a total of $2.2 million, each occurrence is small enough to be covered under either the combined single limit or the occurrence/aggregate policies, but neither one would pay out more than $2 million in losses for the year, so both would be $200,000 short of the total needed.

39.              Be Sure the Policy Has a “Separation of Insureds” Clause

.  The term “separation of insureds” is a newer term for what used to be called “severability of interest.”  This concept deals with the issue of what happens to the insurance coverage, if one insured party sues another insured party.  For example, automobile insurance carriers do not want a daughter who is injured by the negligent driving of her father to be able to sue the father for her auto accident injuries and also require the automobile insurance carrier to defend the claim and pay any damages for negligence.  Instead, the carriers want the parents to carry medical insurance rather than initiating lawsuits to pay for medical expenses.  The chances for fraud and collusion are high when related parties are both plaintiffs and defendants in such cases.

In an HOA general liability policy, typically both the HOA and the homeowners are insured against liability claims due to negligence involving the common area, and most primary insurance policy forms contain this provision, but you need to check.  On the other hand, excess or umbrella policies (see Paragraph 55) may not, so if you have an excess or umbrella policy, you need to check that too.  But what if a homeowner is injured due to the negligence of the association?  Will the carrier say that it has no obligation to defend and indemnify the association against the owner’s lawsuit because both are insured under the same policy?  If there is a “separation of insureds” clause in the HOA general liability policy, then the policy will cover the party against whom the claim is made as if a separate policy had been issued to each insured party.  Thus, if the “separation of insureds” clause exists, the HOA would be defended, even though the suing party is also insured under the same policy.

 

Many governing documents, and many secondary mortgage market lenders, like Fannie Mae, VA and FHA, require this in HOA policies, so be sure to obtain it, or at least obtain assurances that there is not a clause in the policy that prohibits one insured party from suing another insured party.  Note that the beneficial effects of a separation of insureds provision can be negated by a “cross-liability endorsement.”  (See Paragraph 40 below.)

40.              Avoid a Cross-Liability Endorsement

.  A Cross-Liability Endorsement effectively negates the effect of a Separation of Insureds (aka Severability of Interest) clause.  (See Paragraph 39 above.)  Most HOA general liability policies do not contain this endorsement, which would enable a carrier to deny defense and indemnity to an HOA, if the HOA is sued by a homeowner whose injuries were caused by the HOA’s negligence.  We understand that there are some carriers that provide HOA insurance that include this endorsement, so WATCH OUT for that.  An HOA could find itself paying for its own defense and have a very expensive damage claim in addition, if this provision exists in its policy.

41.              Remember that the Dollar Limits are Typically the Maximum Payout Per Year, Not Per Claim

.  If you are unfortunate enough to have several large claims or multiple persons seriously injured by one claim, you could exhaust your coverage.

42.              Does Your Policy Obligate the Carrier to Defend?

The carrier should be obligated to defend, even if the claim is fraudulent, false, or has no basis in fact.  However, this duty often goes hand in hand with the right to settle Paragraph 44) and the right to select legal counsel (see Paragraph 43).

43.              Who Has the Right to Settle and to Select Defense Counsel?

Typically, the carrier has the right to settle and to select defense counsel on general liability claims.

44.              Are Defense Costs Deducted from the Total Amount of Coverage?

If they are, each dollar spent on defense is one dollar less available for settlement or to pay claims.  This question applies both to general liability and D&O claims.  These are sometimes called “burning balance” policies.  Look for a policy where the defense costs are paid in addition to (outside of) the limits of liability or purchase higher limits of liability.

45.              Is There a General Liability Deductible?

Usually there isn’t a deductible, and look for policies without a deductible.  However, find out if there is one and whether it applies for every claim or just once per year.

46.              Name the Management Company as an “Additional Insured”

.  Most policies will do this for no additional charge, if you ask.  When the manager is an additional insured, the carrier will defend the manager, if the manager is sued for any claim covered under the general liability policy.  If the manager can be a “named insured” or “also insured,” that would be preferable.  (See Paragraph 47.)

47.              Know the Limits of Coverage for an “Additional Insured”

.  A “named insured” (also called an “also insured”) is preferable to an “additional insured.”  A “named insured” will be covered for a claim (falling within the policy coverage), even for the named insured’s own wrongful act or omission.  However, an additional insured endorsement will defend only the innocent additional insured.  It will not pay a claim, and may require repayment of defense costs, if the additional insured is found to be independently liable.  In other words, an additional insured still must have its own coverage for its own wrongful acts or omissions.  A typical additional insured endorsement says:  “This extension of coverage does not apply to liability arising out of the negligence of the additional insured, its agents or employees, unless the agent or employee is the named insured.”  Also, these endorsements may not be renewed automatically when the named insured renews the policy.  Thus, it is important for the additional insured to request a new additional insured certificate, when the original policy expires.

48.              Obtain Medical Payments Coverage

.  This is frequently included in a package policy.  It enables an association to pay the medical expenses of someone injured on the property, whether due to association negligence or not, and it may help to avoid litigation.

49.              Obtain “Products Liability” Coverage

.  Although most associations are not in the business of providing products, they can be liable for products liability if people were to become ill from eating contaminated food at an association function, whether the association made the food or bought the food.  This coverage is frequently included, but be sure that it is.  It may be part of a CGL policy or package endorsement that includes “Completed Operations” coverage.  (See Paragraph 50.)

50.              Obtain “Completed Operations” Coverage

.  Completed operations coverage provides protection for your association for any injuries or property damage arising out of any operations, products or materials resulting from activities conducted by the association, whether inside or outside the association’s development.  This coverage may be part of a CGL policy or package endorsement that includes “Products Liability” coverage.  (See Paragraph 49.)

51.              Obtain Non-Owned Vehicles Coverage

.  This coverage protects your association if a director, committee member, or other volunteer drives a vehicle not owned by your association on association business, such as an errand to a hardware store, and is at fault for causing an accident.  An association can have liability for the wrongful act of its agent and a deeper pocket, if the owner’s automobile insurance is minimal and the injuries are significant.  This is often included, but it is important to make sure it exists.

52.              Obtain Contractual Liability Coverage

.  If your association enters into any indemnification or hold harmless agreements with contractors or other parties with whom it deals, you should obtain this coverage.  This should cover you if a party you have agreed to indemnify is sued and then demands that you indemnify that party.  However, this will probably be a coverage under or endorsement under the general liability policy only.  Thus, it may be limited solely to bodily injury and property damage claims, so it will not apply to non-monetary claims or breach of contract claims.  Check the language for what is and is not insured, and ask for examples of what is and is not insured.

53.              Optional – Host Liquor Liability/Dram Shop Insurance

.  If your association serves alcohol on site or alcohol is served at private functions on site, be sure there is coverage for this in the policy.

54.              Optional – Garage Keeper’s Liability

.  If your association provides any type of valet parking and takes “care, custody or control” of owner’s or guest’s vehicles such that they take the keys, drive the cars or park the cars, or if you charge owners or guests a fee for parking, talk to your insurance professional about the need for a garage keeper’s liability policy or endorsement.  If you have an outside firm hired to act as the valets, you might be able to be covered through that firm’s insurance, but you should bring this aspect of your insurance needs to your insurance professional’s attention.

55.              Optional – Umbrella and Excess Liability Coverage

.  These are two types of coverage that provides additional coverage above primary liability coverage.  Excess coverage applies only to increase the maximum limit of the general liability policy.  An umbrella policy typically adds a higher limit of liability to all liability policies (i.e., general liability, D&O, automobile, etc.).  An umbrella policy sometimes is provided through a different carrier, and it may have its own separate coverage language, or it may state that it will track the coverage (or “follows the form”) of the underlying policy.  You should know which one applies.  Be sure there is no gap between where the underlying policy limit ends and the umbrella takes over.  There are relatively inexpensive umbrella policies available that can provide up to $15 million in total liability coverage.

56.              Optional – Security Guard Liability Coverage

.  If your association has any security service, this coverage can remove the exclusion for assault and battery, i.e., intentional acts that normally wouldn’t be covered under a general liability policy.

57.              Obtain Sufficient CGL Coverage to Qualify for Statutory Limitations of Liability

.  Where the owners own the common area as tenants-in-common, e.g., in a condominium development or community apartment project, they are eligible for a limitation of liability to protect all owners against liability for injuries arising out of their shared ownership of common area property.  However, the association must carry enough general liability (or CGL) insurance.  To qualify, Civil Code section 5805 requires an association with 100 or fewer separate interests to carry at least $2 million in general liability coverage, and an association with more than 100 separate interests to carry at least $3 million in general liability coverage.  Civil Code section 5800 also provides a limitation of liability to protect the association’s officers and directors against liability for damages arising out of the acts or omissions of unpaid (volunteer) directors in exclusively residential developments.  While insurance is just one of the requirements for obtaining the protection, an association with 100 or fewer separate interests must carry at least at least $500,000 in general liability coverage, and an association with more than 100 separate interests to carry at least $1 million in general liability coverage.  To protect the directors and officers, an association must also carry at least the same minimum dollar limits of directors and officers liability coverage.  (See Paragraph 74.)

Directors and Officers (D&O) Liability Coverage

58.              Don’t “Cheap Out” on Your Own Coverage

.  Look for and purchase the best D&O policy you can find.  If you are going to be an officer or director and volunteer your time and effort for the good of the association, the least you can do for yourself, your fellow board members, and for the association as well, is to get the best D&O policy you can find.  You won’t feel so good about the money you saved on the association’s insurance, if you end up as a defendant in a lawsuit and the carrier you selected denies the claim.  Will your neighbors complain about paying more for a good D&O policy?  Maybe, but they will complain even louder, if their assessments must be increased to defend you, because the insurance you bought failed to do so.

59.              Know Who is a “Named Insured”

.  Try to obtain coverage for the broadest group possible:  current directors, former directors, committee members, etc.  The best policies also will add your association’s manager as a “named insured” or “also insured.”  (See Paragraph 47.)  While adding the manager may cost an additional premium, it will more than pay for itself if you have even one lawsuit that names the manager.  If the manager is not a named insured, your management contract may require your association to obtain and pay for an attorney to defend the manager.  That cost could easily exceed decades of premiums.  Good D&O insurance is cheaper.

60.              Look For “First Dollar Defense” Rather Than a “Reimbursement Policy”

.  Under a first dollar defense policy, the carrier pays the attorneys’ fees and defense costs during the case (except for any deductible).  A reimbursement policy may not be obvious to the casual reader, and most carriers won’t tell you it is a reimbursement policy.  Under a reimbursement policy, your association must hire and pay the attorneys’ fees and costs of the defense, your association will probably need the insurance company’s written approval to settle, and the carrier will determine whether and how much to pay when the case is over.

61.              Know the Amount of the Deductibles

.  Most are $1,000 or so per claim, but some are higher.

62.              Ask if There is Any Co-Insurance, and Avoid It

.  If there is any co-insurance, it will operate like a health insurance policy in which the carrier pays a percentage of the judgment or settlement, and possibly defense costs as they go, except there is no cap after which the carrier pays 100%.  This can become very expensive for associations whose budgets aren’t designed to pay such costs.

63.              Understand the Impact of a “Claims-Made” Versus an “Occurrences” Policy

.  Almost all D&O coverage is “claims-made,” though some may be “occurrences.”  Understanding the differences can be confusing, but they are very important.  An automobile liability policy is typical of an occurrences policy.  If you have the policy today, and you’re in an accident, you’re covered.  If your policy expires today, and you’re in an accident tomorrow with no policy in effect, you’re not covered.  If you’re driving today without a policy, but you buy one tomorrow and then you get in an accident, you’re covered.  An occurrences policy protects you if it is in effect when the accident (i.e., “the occurrence”) happens.

Claims-made policies are more complicated.  If you ever once have a claims-made policy, never switch to an occurrences policy.  Claims-made policies can vary, but invariably the policy must be in effect when the claim is made.  Some policies may require that the policy is in effect when suit is filed.  Others may require that suit be filed within some time period after the policy expires even if the claim is made during the policy period.  Some policies describe a claim as being a verbal threat or demand, while others require a written threat or demand.  Sometimes the policy must also have been in effect when the incident (or “occurrence”) took place.  However, some policies will cover an occurrence that took place before the policy was in effect, so long as your association had no knowledge of the facts or circumstances giving rise to the claim prior to the policy period.

 

First, you must ask if it is a claims-made policy.  If so, find out what it will cover if a claim is made after the effective date of the policy but the occurrence took place before the effective date of the policy.  Also, find out if the policy will cover any suits that are filed after the policy period, if the claim is made during the policy period.

 

Probably the best suggestion is to get a very good D&O policy and stick with it year after year, even if you change property and general liability carriers.  The differences in policies and the risk of not being covered, even though you always had a D&O policy in effect, are not worth the dollars you might save by switching carriers.

64.              Know the Exclusions from D&O Coverage

.  D&O insurance is essentially malpractice insurance for directors and officers.  However, there are many things that it will not cover if your association or its directors are sued.  Examples include coverage for non-monetary claims like suits for declaratory or injunctive relief which are very common.  Other exclusions include improper payments, profits or advantages to directors; violations of ERISA (Employee Retirement Income Security Act – federal retirement statute), failure to obtain proper types and amounts of insurance (although some of the best D&O policies will limit this exclusion only to failure to obtain earthquake and/or flood insurance), violations of environmental laws, and claims by one director against another director.  Know what exclusions apply, and look for policies that have fewer exclusions.

65.              Find Out Whether Any Prior Acts Are Covered

.  Some D&O policies require not only that the claim must be made during the policy period (or some extended reporting period after the policy expires), but also that the allegedly wrongful act or “occurrence” took place during the policy period as well.  Others will cover prior acts as long as the association was not aware of any of the “facts or circumstances” giving rise to the claim.  However, look for the best option, namely a policy that will cover all prior acts, as long as they did not result in a claim being made before the policy period began.

66.              Look for a Policy That Covers Non-Monetary Claims

.  If an owner sues seeking a court’s interpretation of who is required to repair or maintain a particular component, or seeking to order the board or association to stay off the owner’s property when an association is trying to make repairs, these are non-monetary claims.  Many policies do not cover non-monetary claims, yet these may be the most common types of claim against an association.

67.              Look for a Policy That Covers the Manager as a Named Insured

.  (See Paragraph 59.)  If the manager is a named insured, this should provide the indemnification required by law and/or the management contract even if the manager has legal liability, at least to the extent the claim is one that is covered under the terms of the policy.

68.              Look for a Policy That Covers at Least the Defense of Discrimination Claims

.  Because unlawful discrimination violates public policy, some states prohibit insurance that would pay for a proven discrimination loss.  However, you should at least look for a policy that will provide a defense against such claims.  There is a possibility that some general liability policies may cover discrimination claims.  (See Paragraph 37.)

69.              Look for a Policy That Covers Failure to Obtain the Proper Types or Amounts of Insurance

.  Most D&O policies exclude this coverage.  However, the better policies will provide coverage, though some may exclude coverage, if the allegation is a failure to obtain earthquake and/or flood insurance. (See Paragraph 64.)

70.              Who has the Right to Select Defense Counsel?

It is nice if your association is authorized to choose, but it rarely occurs, except in a reimbursement policy, and reimbursement policies are not desirable.  (See Paragraph 60.)

71.              Who has the Right to Agree to Settle the Case?

Is this entirely in the hands of the carrier, or does it need the Board’s permission.

72.              Are Defense Costs Deducted From the Total Amount of Coverage?

This question applies to both D&O claims and general liability claims.  (See Paragraph 44.)  If they are deducted, each dollar spent on defense is one dollar less available for settlement or to pay claims.  These are sometimes called “burning balance” policies.  Look for a policy where the defense costs are paid in addition to (outside of) the limits of liability or purchase higher limits of liability.

73.              Do You Need to Obtain an Extended Reporting Period or Overlapping Coverage?

If you switch policies, you need to know how much the new and the old policy will cover of claims that do not arise or do not become lawsuits until the new policy period.  You should strive to obtain written confirmation of this information.  If there are circumstances that occurred under the prior policy that haven’t given rise to a claim, or if there is a claim that hasn’t resulted in litigation, you must know if the new policy will cover it.  If it will not, you need to try to obtain or purchase an extended reporting period (aka “tail coverage”).  This doesn’t provide new coverage, but allows you to have the old policy cover claims or lawsuits in which the occurrence took place in the prior policy, but the claim or lawsuit does not arise until the new policy period.  Some carriers will not offer it, even for a fee.  If so, you may need to consider not switching, or carrying duplicate policies for some period of time during the transition.

74.              Obtain Sufficient D&O Coverage to Qualify for Statutory Limitations of Liability

.  Civil Code section 5800 provides a limitation of liability to protect an association’s officers and directors against liability for damages arising out of the acts or omissions of unpaid (volunteer) directors in exclusively residential developments.  While insurance is just one of the requirements for obtaining the protection, an association with 100 or fewer separate interests must carry at least $500,000 in directors and officers liability coverage, and an association with more than 100 separate interests must carry at least $1 million in directors and officers coverage.  An association must also carry at least the same minimum dollar limits of general liability (or CGL) coverage.  (See Paragraph 57.)

Fidelity Bond/Dishonesty Coverage/Crime Coverage

75.              Obtain a Fidelity Bond or Dishonesty or Crime Coverage

.  Most governing documents require fidelity coverage in a specified amount.  While the documents may call for a “fidelity bond,” it is almost always provided by an insurance policy, not a bond in the normal sense.  Often it is included in a package policy with property and general liability coverage, though it can be a stand-alone policy, but be sure to obtain it and in the required amounts.  Since the amount required by the governing documents is often based on your association’s reserves and annual assessments, be sure to increase the coverage periodically as needed.  The typical governing document requirement is three times the amount of monthly assessments (or an estimate of the maximum amount of operating cash on hand) plus the amount of your reserve fund, but some documents may vary.

76.              Scope of Fidelity Policy Coverage

.  The typical fidelity policy protects the HOA (1) against the loss of cash and other items of value, (2) due to criminal or dishonest acts, (3) by an employee, where “employee,” is typically defined as someone compensated by wages, salary or commissions.  Board members are typically uncompensated volunteers, and off-site management companies are usually independent contractors, so if the policy covers only “employees” as defined above, there is no coverage for losses due to the acts of board members or non-employee managers.  The HOA should have a policy that defines officers, directors and managers as “employees” for purposes of fidelity coverage or have an endorsement to that effect, or losses due to their dishonest acts are not covered.  Sometimes to get the coverage for the people who should be covered, the HOA and the management company may need to show that it has adequate financial controls in place to reduce the risk of loss.

77.              Does the Manager’s Fidelity Coverage Provide HOA Protection?

Probably not for several reasons.  The manager’s fidelity coverage protects the management company from theft of the manager’s own funds.  It does not even protect the management company against loss of the HOA’s funds, unless the manager’s policy directly covers or has an endorsement protecting against the loss of third party funds.  Even where there is coverage for the loss of the HOA’s funds, the protection runs to the management company itself; it does not directly protect the HOA.  If the manager’s policy covers loss of HOA funds, but the coverage amount is small in relation to the funds that someone embezzles, the fidelity policy may not cover all the losses.  Also, unless the owners of the management company are compensated by wages, salary or commissions, such as payment from profits or a partnership draw, the owners are not employees, and their own dishonesty losses would not be covered under the company’s policy.  For all these reasons, it is a good idea to have the management company added as an additional insured on the Association’s policy.  It is better to have coverage under the HOA’s policy, even if someone in the management company is responsible for the loss, than to rely on the management company’s fidelity coverage and find that it is too small or does not cover the person responsible for the loss.

78.              Time of Loss or Discovery of Loss and its Effect on Fidelity Coverage?

Fidelity policies may be “Loss Sustained,” “Loss Discovered,” or a “Loss Sustained / Loss Discovered” Combination.”  A Loss Sustained policy covers only if a policy was in effect at the time of the loss.  The problem is proving when that loss actually occurred, especially if there is no paper trail to show the time of loss.  A Loss Discovered policy covers only if a policy was in effect at the time the loss was discovered or within some period of time after the policy period, such as one year prior to the date of the policy.  A Loss Sustained/Loss Discovered policy includes both types, usually with a caveat that there must have been some form of fidelity coverage in effect from the time of the loss to the time of its discovery.

79.              Other Pitfalls of Fidelity Coverage

.  (1) Once an HOA (or management company) discovers a theft by an employee (or any other person whose dishonest acts are covered by the policy), that person is no longer considered “covered” by the policy from any later theft by the same person.  Only the thefts up to the time of discovery are covered.  If you suspect theft, immediately contact your insurance agent or broker and your legal counsel for advice on what to do.  (2) If the fidelity policy is contained within a standard property loss policy, there is probably a smaller specified maximum coverage that the fidelity policy will provide compared to the total coverage under the policy.  There may be $10 million in coverage if there were a fire and significantly less than that for the fidelity portion of the policy.  Be sure to check the declarations page for the amount of fidelity protection.

Special Types

80.              Obtain “Owned Vehicles” Coverage, Where Applicable

.  If your association owns any vehicles (cars, trucks, motorized carts, motorcycles, boats, etc.), you will need a separate vehicle owner’s policy, just like any other motor vehicle owner.

81.              Is Worker’s Compensation Coverage Needed?

If an association has any employees, it is mandatory to have such coverage.  Also, if your association hires contractors who have employees, and a contractor fails to carry worker’s compensation insurance, the association may need such coverage in case there is a claim that determines that your association is the employer.  Finally, even if your association doesn’t need such coverage for employees, it may wish to consider carrying it to cover volunteers who are injured while providing services, even running errands, on behalf of your association.  To do this, they need to inform the worker’s compensation carrier that they have adopted a resolution similar to the following:

“Resolved, that each member of the Board of Directors, and each person performing voluntary service at the express request of the Board, shall be deemed an employee under Section 3363.6 of the Labor Code.”

 

You should discuss these options with a worker’s compensation carrier.  Only certain carriers offer worker’s compensation insurance.

82.              Should You Consider Employment Practices Liability (EPL) Coverage?

Most general liability (CGL) insurance and directors and officers (D&O) liability insurance exclude coverage for claims by employees that arise out of the employment relationship.  Such claims may include claims for wrongful termination, age or sex discrimination, sexual harassment, etc.  If your association has employees and wants coverage for employee claims (other than for bodily injuries on the job that must be covered under worker’s compensation), you can consider purchasing EPL insurance.  The primary drawbacks are that, like many other types of coverage, the employer may have no right to pick its own attorney, and the defense counsel appointed by the insurance company, may have little knowledge or experience in employment law.  Note that some of the better D&O policies include EPL coverage as part of the D&O policy.

83.              Builder’s Risk Insurance or Course of Construction (“COC”) Insurance?

These terms are synonymous.  This is a not a policy that an association typically would buy for itself, but rather would be a policy that an association would require a contractor to obtain that is building new improvements or reconstructing buildings.  These are property policies intended to insure that portion of the contractor’s work that has been completed at any given point in time.  The policies are intended to cover 0% of the construction or reconstruction cost at the beginning and 100% at the conclusion.

Acknowledgments

The author appreciates the assistance of Dick Parrent of Driver Alliant Insurance Services, an independent insurance broker in San Diego, for providing information and input on this manual.

 

 

Glossary

 

For other definitions of insurance terminology, see internet-based insurance glossaries such as: www.ambest.com/resource/glossary.html or www.coverageglossary.com or do a web search for “Insurance Glossary.”

 

A.M. Best:  A company which rates insurance companies based on financial strength, i.e., its ability to pay claims, and its financial size.  See www.ambest.com.

 

Actual Cash Value (ACV) Coverage:  ACV pays the insured only for depreciated value (effectively the garage-sale value of personal property or the value of real property improvements after depreciation for age).

 

Additional Insured:  An endorsement to one party’s insurance policy that provides coverage to a party who is not the primary or “named insured” on the policy.  Often the additional insured endorsement will not protect the additional insured, if the additional insured has any actual negligence or liability to the party asserting the claim.  There is often confusion about this term, and there does not seem to be a consensus about what it really provides.  Be sure to read the actual additional insured endorsement carefully.

 

Admitted Carrier:  A carrier who is authorized to issue insurance in the State of California and whose clients will be covered by the California Insurance Guarantee Fund, if the carrier becomes insolvent.

 

Advertising Injury:  Advertising injury is a statement that causes another person or business to incur a loss due to defamation (i.e., libel or slander), some violation of privacy rights, and the like.  It is often provided as part of a general liability form.

 

Agreed Amount Endorsement:  An endorsement in which the carrier agrees that it will not exercise the “co-insurance” clause.  In other words, the carrier will not penalize the insured party, if the insured party does not insure in an amount equal to 100% of the value (actual cash value or replacement cost) of the insured property.

 

All Risk Coverage:  A policy insuring against property damage caused by every type of loss imaginable, unless the type of loss is excluded.  Typical exclusions include construction defects, earthquakes and floods.

 

Bodily Injury (BI):  Coverage typically provided under a general liability policy for physical injuries to the body of someone other than the insured party caused by the acts or omissions of the insured party and its agents.

 

Boiler and Machinery Coverage:  Coverage for the repairs of boilers, HVAC systems, pumps, fans, or other mechanical equipment that is damaged due to a failure in the equipment itself.  This usually is a special endorsement that must be purchased separately in additional to a standard property policy.

Builder’s Risk Insurance:  They are policies that an association might require a contractor to obtain who is building new improvements or reconstructing buildings.  It is a special type of property coverage intended to insure that portion of the contractor’s work that has been completed at any given point in time.

 

Building Code Upgrade Coverage:  See “Ordinance and Law Coverage.”

Burning Balance Policy:  A policy in which the legal fees and costs incurred to defend the insured party are deducted from the total amount of coverage.  Thus, the amount available to pay claims is reduced for every dollar expended in defense costs.

 

Claims-Made Policy:  A policy which defends the insured party only if the claim is made and tendered to the carrier during the policy period (or an extended reporting period), sometimes even if the occurrence giving rise to the claim occurred before the policy period began.  This is in contrast to an “occurrences” policy.

 

Co-Insurance:  A sharing of the risk between the carrier and the insured party (often unintentionally), so that each bears some percentage of each loss.

 

Combined Single Limit Coverage:  A liability policy in which bodily injury to one person, bodily injury to multiple persons and property damage all have the same dollar limits of coverage.

 

Commercial General Liability:  A liability policy for a commercial entity, including a community association.  It is often abbreviated as “CGL.”

 

Completed Operations Coverage:  Coverage for claims that arise out of work performed on behalf of the insured party by subcontractors.

 

Contractual Liability Coverage:  Coverage to protect the insured party against “hold harmless” agreements that the insured party has entered.  A standard commercial general liability policy usually covers such risks, but it is usually subject to certain exclusions.  Also called “contractually assumed liability” coverage.

 

Course of Construction Insurance:  See Builder’s Risk Insurance.

 

Cross-Liability Endorsement or the Equivalent:  Most HOA policies normally do not contain this endorsement which would have the effect of denying coverage to one insured party (like an association) if it is sued by another insured party (like a homeowner) for injuries allegedly due to the acts or omissions of the association.

 

D&O Policy:  See “Directors and Officers Liability Policy.”

 

Defense Policy:  A policy that will not only indemnify the insured party, but will provide a defense as well.  This is in contrast to a “reimbursement” policy.  Also see “First Dollar Defense.”

 

Directors and Officers Liability Policy:  Essentially a “malpractice” policy for the directors and officers as well as the association.  It is needed to cover claims other than bodily injury or property damage.

 

Employment Practices Liability (EPL) Coverage:  Coverage for a community association or other employer for claims alleging wrongful acts by the employer, such as sexual harassment, wrongful discharge, discrimination, etc.

 

Extended Reporting Period:  A time period, usually no more than a month or two, after the expiration of a claims-made policy period during time when a claim can still be made and accepted as if it had been made while the policy was still in effect.  When the policy is not renewed, it is sometime possible to purchase an even longer extended reporting period, referred to as “Tail Coverage.”  In either case, the right to report a claim applies only if the facts and circumstances that gave rise to the claim occurred before the claims-made policy expired, not during the extended reporting period.

 

Fire and Extended Coverage:  See “Named Perils Coverage.”

 

First Dollar Defense:  A policy in which the carrier hires an attorney to defend the insured party and which pays all defense costs from the date the claim is tendered to the carrier.  This is in contrast to a reimbursement policy.

 

Fixture:  An item of moveable property that becomes attached to a building, such as cabinets, carpeting, floor coverings, plumbing fixtures, built-in appliances, attached lighting, etc.

 

Guaranteed Replacement Cost Endorsement:  An endorsement in which the carrier guarantees that it will replace the property damaged, even if it exceeds the limit of coverage purchased.  Compare with “agreed amount endorsement.”

 

Host Liquor Liability:  Coverage protecting the insured party against claims for bodily injury or property damage arising out of a social host who serves alcoholic beverages to social guests, as opposed to a vendor who sells alcoholic beverages as part of the vendor’s business.

 

Indemnity Policy:  A liability policy that will pay out damages on behalf of an insured party up to the maximum limits of the policy per person or per occurrence.

 

Inflation Protection Coverage:  Coverage in a property policy that automatically boosts the coverage limits annually to adjust for the effects of inflation and increased cost of construction.

 

Loss Assessment Coverage:  Coverage in an owner’s policy that will pay an owner’s proportionate share of an association assessment that is levied to pay for a loss for which there is insufficient insurance to pay the entire claim.  Some policies include $1,000 of coverage automatically for a peril that is insured under the owner’s policy, such as fire, but may not cover for an uninsured peril like earthquake or flood.  Loss assessment coverage for earthquake or flood may require a special endorsement.  Some owner’s carriers allow loss assessment coverage to be increased to as much as $50,000 for that owner at an extra cost, although the extra cost is generally not expensive.

 

Loss Payable Clause:  When there is a loss, the policy should pay the funds just to your association or an insurance trustee based on a governing document requirement to rebuild the damaged property.  However, the owners and their lenders should also be named as insured parties under the property portion of the policy.

 

Medical Payments Coverage:  Coverage in a commercial general liability policy that will reimburse a party who is injured on the insured party’s property for the injured party’s medical expenses without regard to whether the insured party had any fault or liability for the injury.  The belief is that by paying such claims, a lawsuit and larger claims might be avoided.

 

Named Perils Coverage:  A policy insuring against property damage caused only by the perils that are specifically named, such as fire, lightning, wind, hail, aircraft, riot, vehicles, explosion, smoke, vandalism and malicious mischief.  If the cause of loss isn’t specifically named, the loss isn’t covered.

 

Named Insured:  Each person or entity that is identified as the insured party on any policy.  For example, on a good directors and officers liability policy, the “named insured” may include the association, current officers and directors, former officers and directors, the community manager, committee members, and other volunteers.

 

Non-Monetary Claims:  Claims that seek relief other than money.  Typically these are either an injunction to order another party to take or refrain from taking certain actions, or for declaratory relief in which the court interprets the rights of the parties under a contract, covenant or other written document.

 

Non-Owned Vehicles Coverage:  Coverage that insures a party for injuries that are caused by the driver of a vehicle that the insured party does not own, but which was being used to conduct business on behalf of an insured party.  For example, if an association president drives his or her own car to the hardware store to pick up something for the association and causes injury to another person or property, the non-owned vehicle coverage will protect the association if it is sued.

 

Occurrences Policy:  An insurance policy that provides coverage only if the event (“occurrence”) triggering a liability occurs during the policy period.  This is in contrast to a “claim-made” policy.

 

Ordinance and Law Coverage.  Also called “Building Ordinance coverage,” this coverage is in addition to the coverage provided by a standard property policy.  A standard property policy will usually not cover certain types of losses that were not due to the original cause of loss.  These additional losses may occur if there is an ordinance or law that requires tearing down the undamaged portion of a building, if the loss exceeds a certain percentage of the cost of rebuilding the entire building (often 50%).  The typical property policy will not pay for either (1) the loss due to demolishing the undamaged portion of the building or (2) the cost incurred to demolish the undamaged portion.  The standard policy also will not pay for the cost of rebuilding either the undamaged or the damaged portion of the building in a manner that will meet current building codes that were not required when the building was originally constructed or any subsequent modifications.  Ordinance and Law coverage is needed to pay those additional costs.

 

Per Building Deductible:  The deductible is applied to each building that is damaged, so if five buildings are damaged by fire, the association will effectively have to pay five times the deductible amount.

 

Per Occurrence Deductible:  Just one deductible is subtracted from the total insured loss regardless of how many buildings are damaged.  However, there may be a separate deductible for the real property and any personal (moveable property not attached to a building).

 

Personal Injury (PI) Coverage:  Coverage that is typically provided under many, but not all, most general liability policies.  These indemnify the insured party against claims that the insured party caused a personal injury to someone.  Personal injury coverage is not the same as bodily injury coverage.  Personal injuries may include wrongful acts such as slander, libel, false imprisonment, advertising injury, wrongful eviction, trespass, and invasion of the right of privacy.

 

Personal Property:  Property that is individually owned and usually moveable.  It ceases to be personal property when it is attached to a building or to land.

 

Products and Completed Operations Coverage:  This coverage insures a commercial policyholder against liability for property damage or bodily injury due to negligence caused by a business entity that occurs somewhere other than on the business’s own property and that arises from its own activities or the products it makes or sells.  HOAs often request this coverage from building contractors who construct or reconstruct portions of the HOA property to provide protection against property damage or bodily injury that occurs after the construction has been completed due to the construction itself or a defect or failure in the construction.

 

Property Damage (PD) Coverage:  Coverage typically provided under a general liability policy for physical damage to the real or personal property of someone other than the insured party caused by the acts or omissions of the insured party and its agents.

Primary and Non-Contributory Coverage:  This is language that is often found in the “other insurance” clause of an insurance contract.  The “other insurance” clause specifies how another policy with overlapping coverage will be treated in terms of a duty to pay all or part of a claim.  The “primary” language treats an association’s policy as the primary policy, and it must pay first, if owners and the association have overlapping coverage.  The “non-contributory” language means that the primary policy will not look to an owner’s overlapping policy to contribute anything toward payment on the loss, and that the primary must pay in full to the maximum covered under the policy before any overlapping coverage will be required to pay.

 

Prior Acts Coverage:  Coverage that may be included under a “claims made” policy that will protect the insured party, not only against claims that are made during the policy period, but also against claims in which the wrongful conduct giving rise to the injury occurred prior to the policy period.  However, such coverage is generally available only where the insured party was not aware of any “facts or circumstances that might give rise to the claim.”

 

Products Liability Coverage:  Coverage that protects an insured party against injuries to third parties that arise out of the use or consumption of a product.  In the community association context, perhaps the most likely use for products liability coverage would be to illness, incapacity or death arising out of serving tainted food at an association function.

 

Real Property:  Land and any improvements to land such as buildings, and any fixtures attached to the building.

 

Reimbursement Policy:  A policy in which the insured party, rather than the carrier, hires and pays for its own attorney to defend itself.  The policy will reimburse the insured party for all defense costs determined to be covered only when the case is over.  This is in contrast to a first dollar defense policy.

 

Replacement Cost (RC) Coverage:  Coverage that pays full replacement cost, even if the property was worth less due to age or depreciation.

 

Severability of Interest Clause:  When there are multiple parties who are named insureds on a policy, this is a provision that each one will be treated as if each were the only insured party and as if each were separately insured.  It prevents the insurance company from denying a claim, for example, if the association were sued for the negligence by an owner who is also insured against liability on the policy, but is injured or damaged due to the alleged negligence of the Association.  Contrast this with “Cross-liability Endorsement” which has the opposite effect.

 

Subrogation Clause:  An insurance contract provision that entitles the insurance company to step into the shoes of the party it insures after it has paid out on a property damage or bodily injury claim.  It allows the insurance company to sue the party who was responsible for causing the property damage or bodily injury.

 

Surplus Lines:  A carrier that is not an “Admitted Carrier” in the state.  They are generally used on higher risks that an Admitted Carrier is unwilling to write.  Also, if the Surplus Lines carrier becomes bankrupt, the California Insurance Guarantee fund will not pay any claims.

 

Umbrella and Excess Liability Coverage:  These are two types of coverage that provides additional coverage above primary liability coverage.  Excess coverage applies only to increase the maximum limit of the general liability policy.  An umbrella policy typically adds a higher limit of liability to all liability policies (i.e., general liability, D&O, automobile, etc.).

 

Worker’s Compensation Coverage:  Coverage that California and other states require any employer to carry to cover the medical expenses of employees and compensation payments to employees who are temporarily or permanently disabled due to an illness or injury that occurs on the job.

 

 

DISCLAIMER: The contents provided herein are the suggestions and opinions of Epsten, APC on general legal issues involving California community associations and common interest developments. This content is for educational purposes only, is not intended for commercial use and may not be relied upon in addressing any specific legal issues. Specific policies and procedures that your association, management company and/or law firm have developed may differ and may fully satisfy all applicable laws. Copyright 2023 by EPSTEN, APC, unless otherwise indicated. These materials may not be reproduced or distributed without express permission of Epsten, APC.

New Year, New Documents: When Associations Should Consider Restating their Governing Documents

 

By Rhonda R. Adato, Esq.

Published December 12, 2022

 

Boards of directors of community associations frequently wonder at what point they should restate their association’s Bylaws and CC&Rs. Many associations have older, outdated governing documents that could use a complete overhaul.  At the same time, restating these documents typically requires membership approval. Restated documents should also be prepared by a qualified attorney, and must be approved in a secret, double envelope vote, so the project can be relatively costly.  Below are some recommendations for when to pursue a restatement:

When portions of the governing documents are unenforceable. Older documents may have been superseded since their adoption by subsequent case law and statutes, rendering certain provisions unenforceable. Boards may want to restate their governing documents to bring them current with existing law (and thereby making them enforceable once again).

When the documents no longer fit the community’s needs. Communities change over time.  A set of CC&Rs recorded in the 1970s may no longer reflect the owners’ preferences with respect to parking arrangements, architectural styles and more. Older documents also may not address innovations like solar panels and electric vehicle charging stations.  Further, the board may wish to amend the governing documents to empower the board to address a specific problem in the community.

When the documents include discriminatory provisions. Civil Code section 4225 requires boards to amend out any provisions in a governing document which discriminate on the basis of a protected status. Such an amendment does not require membership approval.  However, once this has been accomplished, boards may want to consider pursuing a complete document overhaul (a restatement), which does require membership approval. Documents old enough to include discriminatory provisions are likely due for an update in many other respects as well.

When the documents are just confusing. Not all Bylaws and CC&Rs are made equal.  Some are better written than others. If your documents create more confusion than clarity, because of inconsistent or vague language, it may be time for a refresh. This need may be especially pressing given that vague or inconsistent language can give rise to lawsuits, as homeowners insist on interpreting the documents in one manner, and the board another!

To better protect the association’s interests. Original governing documents are typically written by the community’s developer. As one might expect, these documents frequently protect the developer’s interests rather than the association’s. The board may want to consider restating the documents to provide the board with more expansive authority, and/or insert provisions designed to minimize the association’s and individual directors’ potential liability.

No matter your association’s goals, boards should consult their community association counsel regarding the timing and procedure of restating their governing documents. Everyone deserves a makeover sometimes!

 

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Rhonda R. Adato is an Associate Attorney in the Transactional Department of Epsten, APC, and can be reached at [email protected].

*This article was originally published in San Diego Community Insider in the Winter 2022 edition and was adapted from the original article, New Year, New Documents: When Associations Should Consider Restating their Governing Documents.

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What Duties Does an Association Have to Maintain Video Recordings?

Victor Valley Union High School District v. Superior Court (2022) 86 Cal. App. 5th 940.

What Duties Does an Association Have to Maintain Video Recordings?

By Joseph A. Sammartino, Esq.

 

Technology is advancing at an ever-increasing pace.  The cellphones in our pockets are not just phones, — they­­  take pictures, send email and text messages, provide GPS navigation, play music, run hundreds of apps that do almost everything, and they have better higher resolution video capability than movie studios had in the 1990s.  As technology improved and shrunk (and became much less expensive), video cameras for security surveillance have become so commonplace that most people do not notice them and go about their daily lives as if the cameras were not there.  But what happens when one of those cameras – in one of our communities – records activity that leads to an inquiry that does not get resolved which turns into a dispute and ultimately becomes a lawsuit?  What duties does an association have to maintain those video recordings or face possible sanctions under the Code of Civil Procedure for spoliation of evidence?

On December 22, 2022, the Fourth District Court of Appeal issued its opinion in the case of Victor Valley Union High School District v. Superior Court (Doe).  The court, in a different context, set forth the most current guidance on maintaining video recordings and other potential evidence.  The facts of the Victor Valley case are tragic and hopefully extraordinarily rare: two male high school students took a third male student, who was unsupervised, but who typically had full-time adult supervision both in and out of the classroom, from the cafeteria into a bathroom where they sexually assaulted him.  The school had video cameras in the cafeteria, and the assistant principal and a security officer reviewed the footage from the cafeteria cameras from a three-day period.  The third day of video included the recording of the two students taking the third student from the lunch table toward the locked bathroom.  Fourteen days later, because no one took any steps to preserve the video because each thought the other was saving it, the video was recorded over and lost forever.

Importantly, the court set forth the rules clearly and concisely: the safe-harbor provision of the California Code of Civil Procedure section 2023.030, subdivision (f), “shields a party from sanctions for the spoliation [meaning the loss or destruction] of electronic evidence only if the evidence was altered or destroyed when the party was not under a duty to preserve the evidence, and the duty to preserve relevant evidence is triggered when the party is objectively on notice that litigation is reasonably foreseeable, meaning litigation is probable and likely to arise from an incident or dispute and not a mere possibility.”

While the court’s words are clear, they leave an important practical question unanswered: when is litigation likely to arise from an incident or dispute and instead of being a mere possibility?  That is a question that could be argued and debated before courts for decades without a clear, simple answer.  From a lawyer to a client, the simplest and best answer to that question is the age-old advice: better safe than sorry.  If there is video footage (or other evidence) that relates to any incident, issue, or dispute, it would be much better to take the steps necessary to preserve that evidence until final resolution is reached rather than to take the chance that an appellate court might decide years later that litigation was likely to arise and, therefore, to impose monetary sanctions against an association for destroying evidence that should have been preserved.

 

VICTOR VALLEY UNION HIGH SCHOOL DISTRICT v. THE SUPERIOR COURT OF SAN BERNARDINO COUNTY

VICTOR VALLEY UNION HIGH SCHOOL DISTRICT, Petitioner,
v.
THE SUPERIOR COURT OF SAN BERNARDINO COUNTY, Respondent;
JOHN DOE, Real Party in Interest.

No. E078673.
(2022) 86 Cal. App. 5th 940.

 

Filed December 22, 2022.
Appeal from the Super.Ct.No. CIVDS1908673.

 

ORIGINAL PROCEEDINGS; petition for extraordinary writ. Wilfred J. Schneider, Jr., Judge. Granted.

Cummings, McClorey, Davis, Acho & Associates and Ryan D. Miller for Petitioner.

No appearance for Respondent.

Carrillo Law Firm, Luis A. Carrillo, Michael S. Carrillo, J. Miguel Flores; The Senators (Ret.) Firm, Ronald T. Labriola; Esner, Chang & Boyer, Holly N. Boyer, Shea S. Murphy and Kathleen J. Becket for Real Party in Interest.

CERTIFIED FOR PUBLICATION

OPINION

McKINSTER, J.

John MM. Doe, by and through his guardian ad litem, C.M. (Doe’s mother), and B.S. (Doe’s father) (collectively real parties in interest), sued petitioner Victor Valley Union High School District (the district) for negligence and other causes of action arising from an alleged sexual assault on Doe while he was a high school student. During discovery, real parties in interest learned video that captured some of the events surrounding the alleged sexual assault had been erased.

Real parties in interest moved the superior court for terminating sanctions or, in the alternative, evidentiary and issue sanctions against the district under Code of Civil Procedure section 2023.030.[1] The trial court concluded the erasure of the video was the result of negligence, and not intentional wrongdoing, and denied the request for terminating sanctions. However, the court granted the request for evidentiary, issue, and monetary sanctions because it concluded that, even before the lawsuit was filed, the district should have reasonably anticipated the alleged sexual assault would result in litigation and, therefore, the district was under a duty to preserve all relevant evidence including the video.

In this original proceeding, the district argues the trial court applied the wrong legal standard when it ruled the district had the duty to preserve the video before it was erased and, therefore, that the district was not shielded from sanctions by the safe-harbor provision of section 2023.030, subdivision (f) (hereafter § 2023.030(f)). We stayed the proceedings in the trial court and subsequently issued an order to show cause. After considering real parties in interest’s opposition to the petition and the district’s reply, we now grant the petition and direct the trial court to vacate its sanctions order and reconsider its ruling.

As explained post, we hold the safe-harbor provision of section 2023.030(f) shields a party from sanctions for the spoliation of electronic evidence only if the evidence was altered or destroyed when the party was not under a duty to preserve the evidence, and the duty to preserve relevant evidence is triggered when the party is objectively on notice that litigation is reasonably foreseeable, meaning litigation is probable and likely to arise from an incident or dispute and not a mere possibility. Although the trial court used some language in its order that seems to indicate the court believed the duty to preserve evidence arises when litigation is a mere possibility, the court nonetheless appears to have applied the reasonably foreseeable standard advanced by the district in its opposition to the sanctions motion. However, we conclude the extant record does not support the trial court’s ruling that, at the time the video was erased, the district was on notice that litigation about Doe’s alleged sexual assault was reasonably foreseeable.

I.
FACTS AND PROCEDURAL BACKGROUND

In their complaint, real parties in interest alleged Doe was a minor and a student enrolled in classes at one of the district’s high schools. Doe required constant adult supervision in or outside the classroom. School personnel had reassured Doe’s father that Doe would not be allowed to move freely around the campus unsupervised “because of his susceptibility to suggestion and [because he] might wander anywhere with anyone.”

Real parties in interest alleged that, on or about March 8, 2019, two male students took Doe, who was not supervised by an adult at the time, to a bathroom where they sexually assaulted him. Real parties in interest alleged the same two students had sexually assaulted Doe on five or six prior occasions, and they threatened Doe that if he told anyone what had happened or if he resisted inappropriate sexual advances “something bad would happen to him.” They also alleged, “the incident of the boys entering into the bathroom to abuse [Doe] was video-recorded.” Real parties in interest alleged the sexual assault was the result of the district’s breach of its duty to protect and supervise Doe while on school grounds. The complaint stated causes of action for negligence and sexual harassment by Doe and a cause of action for negligent infliction of emotional distress by Doe’s mother and father.[2]

When the high school’s assistant principal was informed of the alleged incident, he and a security officer reviewed video footage for March 5, 6, and 7, 2018, from cameras positioned in the lunchroom. According to the assistant principal, the video footage for March 7 showed Doe seated next to another student in the lunchroom. The other student made a gesture with his hand, Doe nodded, and the two got up from the lunch table and walked toward the locked bathroom. When a third student walked out of the bathroom, Doe and the other student entered the bathroom. They were inside the bathroom for about four minutes. A classroom aid, who did not know the boys were inside the bathroom, escorted another student to the bathroom. Doe and the other student then exited the bathroom and lined up with the rest of the class for physical education.

On March 21, 2018, the assistant principal wrote a half-page narrative report about the incident and forwarded it to the district’s risk manager. The assistant principal did not save the March 7 video footage from the lunchroom because he assumed the school security officer had done so or would do so. The video was automatically erased 14 days after the alleged assault.

On September 5, 2018, real parties in interest submitted a government claim for damages to the district.

In their sanctions motion, real parties in interest argued that, because witnesses no longer remembered details of the incident or precisely what the video depicted, real parties in interest were “left with only a limited account” of what had taken place and they were “severely prejudiced” in their ability to develop their case. They argued the trial court should impose a terminating sanction under section 2023.030 by striking the district’s answer and entering a default judgment because: (1) the district knew the importance of preserving the video; (2) the district’s failure to preserve the video proved they had intentionally destroyed evidence; and (3) real parties in interest were prejudiced by the loss of crucial evidence. In the alternative, real parties in interest requested the trial court impose issue and evidence sanctions that essentially precluded the district from proving it did not act negligently and/or that Doe was contributorily negligent. In addition, they requested monetary sanctions in the amount of $7,060.

In its opposition, the district argued the trial court should deny the motion in its entirety. According to the district, it was shielded from any sanctions for the routine and good faith erasure of the video, under the safe-harbor provision of section 2023.030(f), because it was not under a duty to preserve evidence at the time of the erasure. Relying primarily on federal caselaw on the spoliation of evidence, the district argued a duty to preserve evidence that might be relevant in future litigation does not arise until litigation is reasonably foreseeable, meaning it is probable and not merely a possibility. The district argued that, when the video was erased, a lawsuit from Doe was a mere possibility.

In reply, real parties in interest argued the district did reasonably anticipate that litigation would arise from the incident, that the safe-harbor provision of section 2023.303(f) did not apply, and that the district’s intentional destruction of crucial evidence warranted imposition of discovery sanctions.

At the hearing on the motion, counsel for the district argued the motion should be denied because Doe’s lawsuit was not probable when the video was erased. Counsel argued there was no evidence the district had “any notice there was going to be litigation,” and the record did not show the district “had actual knowledge that it was probable litigation would be pending.” Counsel for real parties in interest argued that, based on its practice of saving video footage for law enforcement investigations, the district was on notice of potential litigation. In addition, they argued the district was under a statutory duty to preserve the video.

In its written order dated February 23, 2022, the trial court ruled that the assistant principal (and, therefore, the district) knew the video would be important evidence “if any further investigation, or eventual investigation, arose from the incident.” Based solely on the district’s special relationship with Doe and its attendant duty of care toward him, the court ruled the district “had a duty to preserve the video footage.” The court found that, as early as March 9, 2018, the day Doe’s father was informed of the alleged sexual assault, “it was reasonably foreseeable the incident might result in litigation because of School’s special duty to Doe.” Therefore, the court implicitly rejected the district’s assertion that it was shielded from sanctions by the safe-harbor provision of section 2023.030(f).

However, the court ruled the erasure of the video was “a negligent act due to a lack of due diligence” and not an “intentional act,” so the court denied real parties in interest’s request for terminating sanctions. Instead, the trial court imposed on the district issue and evidence sanctions (set forth in toto in the margin) that essentially precluded the district from defending against the remaining cause of action for negligence.[3] Finally, the court imposed monetary sanctions in the amount of $4,260.

On March 14, 2022, the district filed, in this court, a petition for writ of mandate and/or prohibition and requested an immediate stay of the proceedings in the trial court. On March 25, we issued a stay of the proceedings and invited real parties in interest to file a response. Real parties in interest filed their response on April 21, and on May 2 we issued an order to show cause why the petition should not be granted. The district filed its traverse on May 12, 2022.

II.
DISCUSSION

A. Standard of Review.

Orders imposing discovery sanctions are reviewed for abuse of discretion. (Cornerstone Realty Advisors, LLC v. Summit Healthcare REIT, Inc. (2020) 56 Cal.App.5th 771, 789.) “`We view the entire record in the light most favorable to the court’s ruling, and draw all reasonable inferences in support of it. [Citation.] . . . . The trial court’s decision will be reversed only “for manifest abuse exceeding the bounds of reason.”‘” (Sabetian v. Exxon Mobile Corp. (2020) 57 Cal.App.5th 1054, 1084.) A sanctions order exceeds the bounds of reason when the trial court acted in an “arbitrary, capricious, or whimsical” fashion. (Van v. LanguageLine Solutions (2017) 8 Cal.App.5th 73, 80.)

The trial court’s findings of fact that underlie a discovery sanction are reviewed for substantial evidence. (Los Defensores, Inc. v. Gomez (2014) 223 Cal.App.4th 377, 390-391.) “In this regard, `the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination [of the trier of fact].'” (Ibid.) And, “[t]o the extent that reviewing the sanction order requires us to construe the applicable discovery statutes, we do so de novo, without regard to the trial court’s ruling or reasoning.” (Sinaiko Healthcare Consulting, Inc. v. Pacific Healthcare Consultants (2007) 148 Cal.App.4th 390, 401.)

B. A Trial Court May Impose Sanctions for the Spoliation of Electronically Stored Information If It Was Lost or Destroyed After the Party To Be Sanctioned Was Under a Duty To Preserve the Evidence Because It Was Relevant To Reasonably Foreseeable Future Litigation, Meaning Litigation That Was Probable or Likely To Arise.
Determining whether the trial court abused its discretion when it imposed the discovery sanctions in this case requires us to interpret the safe-harbor provision of section 2023.030(f). “`”The fundamental purpose of statutory construction is to ascertain the intent of the lawmakers so as to effectuate the purpose of the law. [Citation.] `We begin by examining the statutory language, giving the words their usual and ordinary meaning. [Citation.] If there is no ambiguity, then we presume the lawmakers meant what they said, and the plain meaning of the language governs. [Citation.] If, however, the statutory terms are ambiguous, then we may resort to extrinsic sources, including the ostensible objects to be achieved and the legislative history. [Citation.] In such circumstances, we “`select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences.'”‘”‘” (Carrasco v. State Personnel Board (2021) 70 Cal.App.5th 117, 139.)

For the following reasons, we hold the safe-harbor provision of section 2023.030(f) insulates a party from discovery sanctions for the material alteration or destruction of electronically stored information if the evidence was lost before the party had a duty to preserve it. The duty to preserve evidence arises when the party in possession and/or control of the electronically stored information was objectively aware the evidence was relevant to reasonably foreseeable future litigation, meaning the future litigation was probable or likely to arise from an event, and not merely when litigation was a remote possibility.

1. The plain language of section 2023.030(f) tethers the application of the safe-harbor provision to the loss of evidence before the party to be sanctioned had a duty to preserve it.

Section 2023.030 provides that a trial court may impose monetary and/or nonmonetary sanctions on a party or the party’s attorney for “misuse of the discovery process.”[4] “Among other forms of sanctions, the court may `impose an issue sanction by an order prohibiting any party engaging in the misuse of the discovery process from supporting or opposing designated claims or defenses.’ ([§ 2023.030], subd. (b).) The court may also prohibit the party from introducing designated matters in evidence. (Id., subd. (c).)” (Aghaian v. Minassian (2021) 64 Cal.App.5th 603, 618; see New Albertson’s, Inc. v. Superior Court (2008) 168 Cal.App.4th 1403, 1422.) And, in extreme cases, the trial court may issue terminating or contempt sanctions. (§ 2023.030, subds. (d), (e).)

One serious form of discovery abuse is the spoliation of evidence, which is defined as the destruction or alteration of relevant evidence or the failure to preserve evidence for another party’s use in pending or future litigation. (Strong v. State of California (2011) 201 Cal.App.4th 1439, 1458; Reeves v. MV Transportation, Inc. (2010) 186 Cal.App.4th 666, 681; Williams v. Russ (2008) 167 Cal.App.4th 1215, 1223.) “No one doubts that the intentional destruction of evidence should be condemned. Destroying evidence can destroy fairness and justice, for it increases the risk of an erroneous decision on the merits of the underlying cause of action. Destroying evidence can also increase the costs of litigation as parties attempt to reconstruct the destroyed evidence or to develop other evidence, which may be less accessible, less persuasive, or both.” (Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1, 8 [holding Cal. does not recognize a common law cause of action for the spoliation of evidence].)

“Chief among” the nontort remedies for the spoliation of evidence “is the evidentiary inference that evidence which one party has destroyed or rendered unavailable was unfavorable to that party.” (Cedars-Sinai Medical Center v. Superior Court, supra, 18 Cal.4th at p. 11.) In addition, “[d]estroying evidence in response to a discovery request after litigation has commenced would surely be a misuse of discovery within the meaning of [former] section 2023, as would such destruction in anticipation of a discovery request,” and the available sanctions to remedy that abuse include such “potent” measures as “monetary sanctions, contempt sanctions, issue sanctions ordering that designated facts be taken as established or precluding the offending party from supporting or opposing designated claims or defenses, evidence sanctions prohibiting the offending party from introducing designated matters into evidence, and terminating sanctions that include striking part or all of the pleadings, dismissing part or all of the action, or granting a default judgment against the offending party.” (Cedars-Sinai, at p. 12.)

The safe-harbor provision of section 2023.030(f) specifically addresses when a trial court is authorized to impose sanctions for the spoliation of “electronically stored information”[5] (ESI). “Notwithstanding subdivision (a), or any other section of this title, absent exceptional circumstances, the court shall not impose sanctions on a party or any attorney of a party for failure to provide electronically stored information that has been lost, damaged, altered, or overwritten as the result of the routine, good faith operation of an electronic information system.” (§ 2023.030(f)(1).) Finally, section 2023.030(f)(2) provides: “This subdivision shall not be construed to alter any obligation to preserve discoverable information.”

What constitutes alteration or destruction of ESI during the “routine, good faith” operation of an electronic storage system is clearly tethered to whether the party in possession of and/or control of the information was under an “obligation to preserve discoverable information” at the time the information was altered or destroyed. (§ 2023.030(f)(1), (2).) However, the statute does not define when a party is under such an obligation to preserve information and, instead, expresses an intent not to “alter” such an obligation that may independently exist. (Ibid.)

2. The relevant legislative history demonstrates the safe-harbor provision of section 2023.030(f) was not intended to relieve a party of its duty to preserve evidence when future litigation is reasonably anticipated.

Although section 2023.030(f) is silent about when a duty to preserve ESI arises, its legislative history provides some guidance.[6] Section 2023.030 was enacted in 2004 as part of the Civil Discovery Act. (§ 2016.010 et seq., as added by Stats. 2004, ch. 182, § 23.) The Civil Discovery Act did not, however, “expressly address issues relating to the discovery of electronically stored information.” (Jud. Council of Cal., Rep. on Electronic Discovery: Proposed Legislation (Apr. 16, 2008) p. 1.)[7] In a report submitted to the Legislature, the Judicial Council of California proposed legislation to “modernize the Code of Civil Procedure to reflect the growing importance of discovery of electronically stored information.” (Id. at p. 3.)

Relevant here, the Judicial Council’s report addressed the “important issue . . . of whether sanctions should be imposed on a party that fails to produce electronically stored information that has been lost, damaged, altered, or overwritten because of the routine, good faith operation of an electronic information system.” (Jud. Council of Cal., Rep. on Electronic Discovery: Proposed Legislation, supra, at p. 8.) It recommended the Legislature “add new `safe harbor’ provisions to several sanctions statutes, stating: `absent exceptional circumstances, the court shall not impose sanctions on a party or its attorneys for failure to provide electronically stored information lost, damaged, altered, or overwritten as a result of the routine, good-faith operation of an electronic information system.'” (Ibid.) In addition, the report recommended that, “after each of the new `safe harbor” provisions described above, the following sentence would be added: `This subdivision shall not be construed to alter any obligation to preserve discoverable information.'” (Ibid.)

In 2009, the Legislature enacted the Electronic Discovery Act, which “largely implement[ed]” the Judicial Council’s recommendations. (Sen. Com. on Judiciary, Analysis of Assem. Bill No. 5 (2009-2010 Reg. Sess.) June 9, 2009, p. 1.)[8] The act was designed to “`eliminate uncertainty and confusion regarding the discovery of electronically stored information, and thereby minimize unnecessary and costly litigation that adversely impacts access to the courts.’ (Stats 2009, ch. 5, § 23.) The act added several provisions to the Code of Civil Procedure to integrate . . . (ESI) into the discovery law . . . .” (Park v. Law Offices of Tracey Buck-Walsh (2021) 73 Cal.App.5th 179, 188.) Like the Judicial Council, the Legislature was concerned with a “distinctive feature of electronic information systems,” to wit, “the routine modification, overwriting, and deletion of information which accompanies normal use.” (Sen. Com. on Judiciary, Analysis of Assem. Bill No. 5, supra, June 9, 2009, p. 10.) To address that specific concern, the Electronic Discovery Act enacted the recommended safe-harbor provision. (Ibid.)

The legislative history of the Electronic Discovery Act demonstrates the safe-harbor provisions were not intended to “relieve parties of their obligations to preserve discoverable information. When a party is under a duty to preserve information because of pending or reasonably anticipated litigation, a party would still be required to modify or suspend features of the routine operation of a computer system to prevent loss of information.” (Sen. Com. on Judiciary, Analysis of Assem. Bill No. 5, supra, June 9, 2009, p. 10, italics added.)

The Electronic Discovery Act did not amend section 2023.030, but the Legislature addressed that and other apparent oversights in 2012 when it enacted Senate Bill No. 1574 (2011-2012 Reg. Sess.). (See Vasquez v. California School of Culinary Arts, Inc. (2014) 230 Cal.App.4th 35, 41 [the Electronic Discovery Act “was amended in 2012 to expand the provisions regarding electronic discovery”].) Inter alia, Senate Bill No. 1574 amended section 2023.030 to add the safe-harbor provision for ESI and the accompanying language that the section “shall not be construed to alter any obligation to preserve discoverable information.” (§ 2023.030(f)(2), as amend. by Stats 2012, ch. 72, § 19.) As with the Electronic Discovery Act, the legislative history of Senate Bill No. 1574 demonstrates the Legislature expressly intended that the safe-harbor provision of section 2023.030(f) “would not otherwise relieve parties of their obligations to preserve discoverable information,” and that, “[w]hen a party is under a duty to preserve information because of pending or reasonably anticipated litigation, a party would still be required to modify or suspend features of the routine operation of a computer system to prevent loss of information.” (Sen. Com. on Judiciary, Analysis of Sen. Bill. No. 1574 (2011-2012 Reg. Sess.) as amend. Apr. 19, 2012, p. 10, italics added.)[9]

In short, the legislative history demonstrates the safe-harbor provision of section 2023.030(f) is intended to shield a party or a party’s attorney from sanctions for the alteration or destruction of ESI only if the evidence was lost before the party was under a duty to preserve that evidence “because of pending or reasonably anticipated litigation.” (Sen. Com. on Judiciary, Analysis of Sen. Bill. No. 1574, supra, as amend. Apr. 19, 2012, p. 10, italics added.) However, the legislative history does not answer the question: what constitutes reasonably anticipated litigation? Nor does the extant California caselaw provide an answer.[10] (See Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2022) ¶ 8:19.16, pp. 8A-12 to 8A-13 [noting “there is no known California authority in point” regarding a party’s duty to preserve ESI].)

3. Under persuasive federal caselaw about the spoliation of evidence, a duty to preserve evidence arises when the party to be sanctioned was objectively aware that future litigation was reasonably foreseeable, meaning the litigation was probable or likely to arise from an incident.

“There is little California case law regarding discovery of electronically stored information . . . . We look, therefore, to federal case law on the discovery of electronically stored information under the Federal Rules of Civil Procedure for guidance on the subject.” (Vasquez v. California School of Culinary Arts, Inc., supra, 230 Cal.App.4th at pp. 42-43; see Reeves v. MV Transportation, Inc., supra, 186 Cal.App.4th at pp. 681-682 [discussing federal case law on the spoliation of evidence].) “`Because of the similarity of California and federal discovery law, federal decisions have historically been considered persuasive absent contrary California decisions.'” (Ellis v. Toshiba America Information Systems, Inc. (2013) 218 Cal.App.4th 853, 861, fn. 6, quoting Liberty Mutual Ins. Co. v. Superior Court (1992) 10 Cal.App.4th 1282, 1288; accord, Nagle v. Superior Court (1994) 28 Cal.App.4th 1465, 1468.)

The federal courts have held that “`a party can only be sanctioned for destroying evidence if it had a duty to preserve it.'” (Micron Technology, Inc. v. Rambus Inc. (Fed. Cir. 2011) 645 F.3d 1311, 1320 (Micron).) “Spoliation refers to the destruction or material alteration of evidence or to the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” (Silvestri v. General Motors Corp. (4th Cir. 2001) 271 F.3d 583, 590, citing West v. Goodyear Tire & Rubber Co. (2d Cir. 1999) 167 F.3d 776, 779, italics added.) “The duty to preserve material evidence arises not only during litigation but also extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.” (Silvestri, at p. 591; see Gerlich v. U.S. Department of Justice (D.C. Cir. 2013) 711 F.3d 161, 170-171 [“Other circuit courts of appeals have held that a duty of preservation exists where litigation is reasonably foreseeable. . . . We now do likewise.”].)

Whether litigation is “`reasonably foreseeable'” “is an objective standard, asking not whether the party in fact reasonably foresaw litigation, but whether a reasonable party in the same factual circumstances would have reasonably foreseen litigation. [¶] When litigation is `reasonably foreseeable’ is a flexible fact-specific standard that allows a district court to exercise the discretion necessary to confront the myriad factual situations inherent in the spoliation inquiry. [Citation.] This standard does not trigger the duty to preserve documents from the mere existence of a potential claim or the distant possibility of litigation. [Citation.] However, it is not so inflexible as to require that litigation be `imminent, or probable without significant contingencies . . . .'” (Micron, supra, 645 F.3d at p. 1320.)

The parties agree that the reasonably foreseeable standard is the correct test for determining when a party is under a duty to preserve evidence for purposes of the safe-harbor provision of section 2023.030(f), but they disagree about the meaning of the standard. The district argues future litigation is reasonably foreseeable if it is probable or likely to arise from an incident, but litigation is not foreseeable if it is a mere possibility. Real parties in interest reject the suggestion that future litigation must be probable or likely for it to be reasonably foreseeable. We agree with the district.

Many federal district courts have ruled that the duty to preserve evidence arises when future litigation is “probable” or “likely.” (E.g., Freidig v. Target Corp. (W.D. Wisc. 2018) 329 F.R.D. 199, 207 [“When a party is aware of an accident that it knows is likely to cause litigation, it triggers the party’s duty to preserve evidence.”]; In re Napster Inc. Copyright Litigation (N.D. Cal. 2006) 462 F.Supp.2d 1060, 1068 [“The future litigation must be `probable,’ which has been held to mean `more than a possibility.'”]; Realnetworks, Inc. v. DVD Copy Control Ass’n (N.D. Cal. 2009) 264 F.R.D. 517, 524 [same].)[11] Relying on Hynix Semiconductor Inc. v. Rambus Inc. (Fed. Cir. 2011) 645 F.3d 1336 (Hynix II), real parties in interest argue those decisions are not good law. We are not persuaded.

In Hynix Semiconductor Inc. v. Rambus, Inc. (N.D. Cal. 2006) 591 F.Supp.2d 1038 (Hynix I), vacated in part by Hynix II, supra, 645 F.3d 1336, the district court addressed a motion to dismiss the defendant’s patent counterclaims based on unclean hands because it “adopted a document retention plan in order to destroy documents in advance of a planned litigation campaign . . . .” (Hynix I, at pp. 1041-1042.) The court noted that “the primary question” was whether the defendant adopted its document retention policy “in advance of reasonably foreseeable litigation.” (Id. at p. 1060.) “[T]he obligation to preserve evidence arises when `the party has notice that the evidence is relevant to litigation—most commonly when suit has already been filed, providing the party responsible for the destruction with express notice, but also on occasion in other circumstances, as for example when a party should have known that the evidence may be relevant to future litigation.'” (Hynix I, supra, 591 F.Supp.2d at p. 1061, quoting Kronisch v. U.S. (2d Cir. 1998) 150 F.3d 112, 126.) “`When a lawyer who has been retained to handle a matter learns that litigation is probable or has been commenced, the lawyer should inform the client of its duty to preserve potentially relevant documents . . . .'” (Hynix I, at p. 1061, quoting American Bar Association Section of Litigation, Civil Discovery Standards (Aug. 1999) Standard 10.) “`[P]robable’ . . . means that litigation must be more than a possibility [citations]. Litigation `is an ever-present possibility in American life.'” (Hynix I, at p. 1061.)

The court in Hynix I agreed with the plaintiff that whether litigation is “`probable’ must be viewed from the perspective of a plaintiff, who is in control of when the litigation is to be commenced,” and “that litigation is probable when litigation is contemplated.” (Hynix I, supra, 591 F.Supp.2d at p. 1061.) The court ruled, however, that the litigation in that case was not “`probable'” when the defendant adopted its document retention policy because “the path to litigation was neither clear nor immediate” and “several contingencies had to occur before [the defendant] would engage in litigation . . . .” (Id. at p. 1062.) Therefore, the court ruled the defendant had not engaged in the spoliation of evidence. (Id. at p. 1065.)

On appeal, the U.S. Court of Appeals for the Federal Circuit vacated that portion of the decision in Hynix I. (Hynix II, supra, 645 F.3d at p. 1341.) “`[S]poliation refers to the destruction or material alteration of evidence or to the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.’ [Citation.] Most relevant in this case is the point when the duty to preserve evidence begins. This determination is informed by a number of policy considerations, including `the need to preserve the integrity of the judicial process in order to retain confidence that the process works to uncover the truth,’ [citation], and must balance the reality that `litigation is an ever-present possibility in American life,’ [citation], with the legitimate business interest of eliminating unnecessary documents and data.” (Hynix II, at pp. 1344-1345.)

As in our case, the parties to Hynix II agreed that the “reasonably foreseeable” test was the correct standard but disagreed on what it meant. (Id. at pp. 1345-1347.) The plaintiff argued “that reasonable foreseeability incorporates no requirement of imminence of litigation, while [the defendant] argue[d] that `to be reasonably foreseeable, litigation must be “imminent,” at least in the sense that it is probable and free of significant contingencies.'” (Hynix II, supra, 645 F.3d at p. 1345.) The federal circuit disagreed with the district court (and with the defendant) that the “reasonably foreseeable” standard is only met when the litigation is “`”imminent.”‘” (Ibid.) “In Micron, supra, 645 F.3d 1311], this court held that that standard does not carry a gloss requiring that litigation be `imminent, or probable without significant contingencies.'” [Citation]. The district court here applied just such a standard.” (Hynix II, at p. 1345.)

“The narrow standard applied by the district court in this case vitiates the reasonable foreseeability test, and gives free reign to destroy documents to the party with the most control over, and potentially the most to gain from, their destruction. This fails to protect opposing parties’ and the courts’ interests in uncovering potentially damaging documents, and undermines the level evidentiary playing field created by discovery that lies at the heart of our adversarial system. [Citation.] [¶] Applying the correct standard of reasonable foreseeability, without the immediacy gloss, these considerations compel a finding that litigation was reasonably foreseeable prior to [the defendant’s] Second Shred Day.” (Hynix II, supra, 645 F.3d at pp. 1346-1347.) Therefore, the federal circuit held “the district court erred in applying too narrow a standard of reasonable foreseeability as requiring that litigation be immediate or certain, which was legal error,” vacated the ruling on the plaintiff’s motion to dismiss, and remanded for the district court to apply the correct standard of reasonable foreseeability set forth in Micron, supra, 645 F.3d 1311. (Hynix II, at p. 1347.)

Real parties in interest read Hynix II as expressly disapproving of Hynix I (and, implicitly, the other decisions cited, ante) to the extent it read the reasonably foreseeable standard as requiring that litigation be probable before a party has a duty to preserve evidence. But, this reflects too broad a reading of Hynix II. The federal circuit patently did not hold that the district court had erred by concluding litigation must be probable for it to be reasonably foreseeable. The same appellate court had already ruled in an earlier appeal involving the same defendant that the “`reasonably foreseeable'” test “does not trigger the duty to preserve documents from the mere existence of a potential claim or the distant possibility of litigation” (Micron, supra, 645 F.3d at p. 1320, italics added), which is consistent with saying the litigation must be “probable.” Instead, Hynix II held the district court had erred when it ruled the future litigation must be “`imminent, or probable without significant contingencies.'” (Hynix II, supra, 645 F.3d at p. 1345, italics added; see PacifiCorp v. Northwest Pipeline GP (D. Or. 2012) 879 F.Supp.2d 1171, 1190 [noting Hynix II rejected a “hyper-technical reliance on terms like `probable,'” italics added].) It was the “immediacy” and “certain[ty]” glosses on the reasonable foreseeability standard that the federal circuit disapproved.[12] (Hynix II, at p. 1347.)

Moreover, the requirement that future litigation be probable or likely for it to have been reasonably foreseeable is consistent with the federal analog to Code of Civil Procedure section 2023.030(f). Rule 37(e) of the Federal Rules of Civil Procedure (28 U.S.C.) provides for sanctions “[i]f electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery . . . .”[13] “The . . . rule applies only if the lost information should have been preserved in the anticipation or conduct of litigation and the party failed to take reasonable steps to preserve it. Many court decisions hold that potential litigants have a duty to preserve relevant information when litigation is reasonably foreseeable. Rule 37(e) is based on this common-law duty; it does not attempt to create a new duty to preserve. The rule does not apply when information is lost before a duty to preserve arises.” (Fed. Rules Civ.Proc., rule 37(e), Advisory Com. notes on 2015 amendments.) “In applying the rule, a court may need to decide whether and when a duty to preserve arose. Courts should consider the extent to which a party was on notice that litigation was likely and that the information would be relevant.” (Ibid., italics added.)

Finally, we note that a probable or likely gloss on the reasonably foreseeable standard is consistent with other tests for foreseeability. For example, in the context of a claim of negligence, one of the major considerations in determining whether the defendant owed the plaintiff a duty of care is “the foreseeability of harm to the plaintiff.” (Roland v. Christian (1968) 69 Cal.2d 108, 113.) “`”[F]oreseeability is not to be measured by what is more probable than not, but includes whatever is likely enough in the setting of modern life that a reasonably thoughtful [person] would take account of it in guiding practical conduct.”‘” (Kesner v. Superior Court (2016) 1 Cal.5th 1132, 1145, quoting Bigbee v. Pac. Tel. & Tel. Co. (1983) 34 Cal.3d 49, 57.) “Foreseeability lies on a `continuum from a mere possibility to a reasonable probability.'” (Tan v. Arnel Management Co. (2009) 170 Cal.App.4th 1087, 1101, quoting Castaneda v. Olsher (2007) 41 Cal.4th 1205, 1214.)

We find federal law on the spoliation of evidence to be persuasive and conclude the safe-harbor provision of section 2023.030(f) applies when ESI was altered or destroyed before the party in possession and/or control of the information was objectively aware that the ESI would be relevant to anticipated future litigation, meaning the litigation was “reasonably foreseeable.” (Silvestri v. General Motors Corp., supra, 271 F.3d at p. 590.) Litigation is reasonably foreseeable when it is “probable” or “likely” to arise from a dispute or incident (e.g., Macneil Automotive Products, Ltd. v. Cannon Automotive, Ltd., supra, 715 F.Supp.2d at p. 801), but not when there is no more than the “mere existence of a potential claim or the distant possibility of litigation.” (Micron, supra, 645 F.3d at p. 1320.) However, the “reasonable foreseeability” standard does not require that the future litigation be “`imminent [or] probable without significant contingencies,'” or even “certain.” (Hynix II, supra, 645 F.3d at pp. 1345, 1347, italics added.)

4. A breach of the district’s statutory duty to preserve evidence, assuming such a breach occurred, does not support the trial court’s sanctions order.

Notwithstanding the foregoing, real parties in interest argue Government Code section 53160 required the district to preserve the video and that its failure to comply with that statutory duty gives rise to an inference of the spoliation of evidence. They argue, at least implicitly, that even if this litigation was not “`reasonably foreseeable'” when the video was erased, because it was not “`probable'” or “`likely,'” the sanctions order was still correct because the district breached that statutory duty.[14]

In principle, we agree that a party may be under a statutory or regulatory duty to preserve evidence, and that, in an appropriate case, breach of that duty may result in some form of sanction. (Cf. Temple Community Hospital v. Superior Court (1999) 20 Cal.4th 464, 477 [“[T]o the extent a duty to preserve evidence is imposed by statute or regulation upon the third party, the Legislature or the regulatory body that has imposed this duty generally will possess the authority to devise an effective sanction for violations of that duty.”]; see Nelson v. Superior Court (2001) 89 Cal.App.4th 565, 572-576 [holding government claim placed a county and its sheriff’s department on notice to preserve audio recordings pursuant to Gov. Code, § 26202.6—the city and county analog to § 53160—and remanding for the trial court to decide whether destruction of the recordings was in bad faith and what, if any, sanctions were appropriate].) However, we are not persuaded that a breach of the district’s statutory duty to preserve evidence, assuming there was such a breach, is controlling here or independently supports the trial court’s sanctions order.

Government Code section 53160, subdivision (a), provides: “The head of a special district, after one year, may destroy recordings of routine video monitoring, and after 100 days may destroy recordings of telephone and radio communications maintained by the special district. This destruction shall be approved by the legislative body and the written consent of the agency attorney shall be obtained. In the event that the recordings are evidence in any claim filed or any pending litigation, they shall be preserved until pending litigation is resolved.”[15]

As real parties in interest contend, “several [federal] courts have held that destruction of evidence in violation of a regulation that requires its retention can give rise to an inference of spoliation.” (Byrnie v. Town of Cromwell Bd. of Educ. (2d Cir. 2001) 243 F.3d 93, 108-109, superseded in part by Fed. Rules Civ.Proc., rule 37(e), as stated in Mazzei v. Money Store (2d Cir. 2016) 656 Fed.Appx. 558, 560.) But those courts have only approved the application of an adverse evidentiary presumption about the content of the destroyed evidence, and they do not support the imposition of more drastic sanctions. For example, the U.S. Court of Appeals for the District of Columbia has held that entry of a default judgment as a sanction for the destruction of evidence that should have been maintained under a regulatory duty “is a `drastic’ sanction [that] is merited only when `less onerous methods . . . will be ineffective or obviously futile,'” and an “evidentiary presumption that the destroyed documents contained favorable evidence for the party prejudiced by their destruction [is] a lesser, more common sanction.” (Talavera v. Shah (D.C. Cir. 2011) 638 F.3d 303, 311.)

In addition, the main decision cited by real parties in interest held that a breach of a regulatory duty to preserve evidence will support an adverse evidentiary presumption only when “the party seeking the inference [is] a member of the general class of persons” that the duty was designed to protect. (Byrnie v. Town of Cromwell Bd. of Educ., supra, 243 F.3d at p. 109.) And the committee notes to the 2015 amendments to rule 37(e) of the Federal Rules of Civil Procedure caution against knee-jerk reliance on a statutory or regulatory duty to preserve evidence when determining whether sanctions for the spoliation of evidence are warranted. “Although the rule focuses on the common-law obligation to preserve in the anticipation or conduct of litigation, courts may sometimes consider whether there was an independent requirement that the lost information be preserved. Such requirements arise from many sources—statutes, administrative regulations, an order in another case, or a party’s own information-retention protocols. The court should be sensitive, however, to the fact that such independent preservation requirements may be addressed to a wide variety of concerns unrelated to the current litigation. The fact that a party had an independent obligation to preserve information does not necessarily mean that it had such a duty with respect to the litigation, and the fact that the party failed to observe some other preservation obligation does not itself prove that its efforts to preserve were not reasonable with respect to a particular case.” (Fed. Rules Civ.Proc., rule 37(e), Advisory Com. notes on 2015 amendments, italics added.)

Finally, under both federal and California law an adverse evidentiary presumption, as a sanction for failure to comply with a statutory or regulatory duty to preserve evidence, is only appropriate if the trier of fact concludes the evidence was intentionally destroyed. (Fed. Rules of Civ.Proc., rule 37(e)(2)(A), (B) [inference permissible if court finds “the party acted with the intent to deprive another party of the information’s use in the litigation.”]; Evid. Code, § 413 [trier of fact may draw adverse evidentiary presumption from a party’s “willful suppression of evidence”]; CACI No. 204 [“You may consider whether one party intentionally concealed or destroyed evidence. If you decide that a party did so, you may decide that the evidence would have been unfavorable to that party.”]; see New Albertson’s, Inc. v. Superior Court, supra, 168 Cal.App.4th at p. 1434.)

Real parties in interest cite no authority for the proposition that they are members of the general class of persons the Legislature intended to protect when it enacted Government Code section 53160, and we have found none. And, even assuming they are members of that general class, they would not be entitled to an adverse evidentiary presumption because the trial court expressly ruled the erasure of the video was negligent and not intentional.

Therefore, we decline to find that a breach of the district’s statutory duty to preserve evidence, assuming there was such a breach, gives rise to a presumption of the spoilation of evidence and independently supports the sanctions order.

C. The Trial Court Appears To Have Applied the Correct Legal Standard of Reasonable Foreseeability, but the Record Does Not Support its Ruling That the District Was Under a Duty To Preserve Evidence When the Video Was Erased.

The district argues the trial court applied the wrong legal standard when it ruled the district had a duty to preserve evidence before the video was erased. Although we conclude the trial court appears to have applied the correct legal standard, we conclude the record does not support its ruling.

“Normally, we must presume the trial court was aware of and understood the scope of its authority and discretion under the applicable law. [Citations.] `This rule derives in part from the presumption of Evidence Code section 664 “that official duty has been regularly performed.”‘ [Citation.] The rebuttable presumption under section 664 `”`affect[s] the burden of proof’ (Evid. Code, § 660), meaning that the party against whom it operates . . . has `the burden of proof’ as to the nonexistence of the presumed fact. (Evid. Code, § 606 . . . .)”‘” (Barriga, supra, 51 Cal.App.5th at pp. 333-334.)

“If the record demonstrates the trial court was unaware of its discretion or that it misunderstood the scope of its discretion under the applicable law, the presumption has been rebutted, and the order must be reversed. [Citation.] `”[A]ll exercises of legal discretion must be grounded in reasoned judgment and guided by legal principles and policies appropriate to the particular matter at issue.” [Citations.] Therefore, a discretionary decision may be reversed if improper criteria were applied or incorrect legal assumptions were made. [Citation.] Alternatively stated, if a trial court’s decision is influenced by an erroneous understanding of applicable law or reflects an unawareness of the full scope of its discretion, it cannot be said the court has properly exercised its discretion under the law. [Citations.] Therefore, a discretionary order based on the application of improper criteria or incorrect legal assumptions is not an exercise of informed discretion and is subject to reversal even though there may be substantial evidence to support that order. [Citations.] If the record affirmatively shows the trial court misunderstood the proper scope of its discretion, remand to the trial court is required to permit that court to exercise informed discretion with awareness of the full scope of its discretion and applicable law.'” (Barriga, supra, 51 Cal.App.5th at p. 334.)

The district contends the trial court did not apply the correct “reasonably foreseeable” standard as we have articulated, post. According to the district, the court applied too speculative a standard when it ruled the district already had a duty to preserve evidence when the video was erased because “`it was reasonably foreseeable the incident might result in litigation.'” We decline to place too much weight on the trial court’s use of the word “might.” As the trial court noted, the district itself had argued in its written opposition to the sanctions motion that it “had no reason to even suspect, let alone reasonably expect, that any litigation might arise from the alleged incident.” (Italics added.) Moreover, the trial court appears to have adopted the reasonably foreseeable standard articulated by the district in its written opposition to the motion, and the court cited federal decisions applying that standard, including Hynix II, supra, 645 F.3d 1336.

In any event, we conclude the trial court’s ruling is not supported by the extant record. The trial court noted the district had a special relationship to Doe and other students. Because of that special duty of care, the trial court ruled the district would have been on notice that litigation would arise from an injury to Doe that was allegedly caused by the district’s breach of its heightened duty of care, and such notice triggered the district’s duty to preserve the video. But the mere fact that the district owed a duty of care toward Doe, and Doe was allegedly injured, does not ineluctably lead to the conclusion that, at the time the video was erased, the district was on notice that litigation was probable or likely. At most, the trial court ruled the assistant principal “knew the significance of the video and that it would be important if any further investigation, or eventual litigation, arose from the incident.” (Italics added.)

“`The mere existence of a dispute does not necessarily mean that parties should reasonably anticipate litigation.’ [Citations.] Instead, the duty seems to begin `somewhere between knowledge of the dispute and direct, specific threats of litigation.'” (Steves and Sons, Inc. v. Jeld-Wen, Inc. (E.D. Va. 2018) 327 F.R.D. 96, 106.) “There is no single bright line that definitively marks when litigation reasonably should be anticipated. Instead, courts consider a variety of factors, including the type and seriousness of the injury; how often similar kinds of incidents lead to litigation; the `course of conduct between the parties, including past litigation or threatened litigation’; and what steps both parties took after the incident and before the loss of the evidence, including whether the defendant initiated an investigation into the incident.” (Bistrian v. Levi (E.D. Penn. 2020) 448 F.Supp.3d 454, 468.) “[A] party’s duty to preserve arises when it has notice that the documents might be relevant to a reasonably-defined future litigation. Ultimately, the court’s decision as to when a party was on notice must be guided by the particular facts of each case.” (Zbylski v. Douglas County School District (D. Colo. 2015) 154 F.Supp.3d 1146, 1164 (Zbylski); see id. at p. 1163 [factors include “notification received from a potential adversary.”].)

Real parties in interest point to nothing in the record that would necessarily have put the district on notice that the specific incident involving Doe would probably or likely have resulted in litigation. Doe’s father learned of the alleged incident a day later. But, the record before us reflects that, until Doe’s parents filed their government claim some six months later, they did not communicate with the district or with school officials in such a manner that would have reasonably caused the district to foresee litigation.[16] (See, e.g., Hollis v. CEVA Logistics U.S., Inc. (N.D. Ill., May 19, 2022, No. 19 CV 50135) ___ F.Supp.3d ___ [2022 U.S.Dist. Lexis 90234, *12] [plaintiff’s “letter that he referred to as a `formal letter of complaint against CEVA Logistics for workplace race discrimination,’ alerted CEVA both to the nature of his allegations and the relevance of any video recording of the incident” and “triggered a duty to preserve video of the incident.”]; Federal Trade Commission v. F&G International Group Holdings, LLC (S.D. Ga. 2021) 339 F.R.D. 325, 330 [defendant’s duty to preserve evidence arose when it was “put on notice” of an investigation by the Federal Trade Commission and when it was instructed to suspend normal document destruction practices].)

Nor would the mere fact of the alleged sexual assault have necessarily caused the district to immediately foresee litigation. (See Archer v. York City School District (M.D. Penn. 2016) 227 F.Supp.3d 361, 380 [rejecting argument that school district’s decision not to renew charter school, which resulted in “`the disruption of 700-800 children” and the loss of “tens of millions of dollars,” would undoubtedly have put the district on notice of probable litigation and triggered its duty to preserve an e-mail outlining the reasons to not renew the charter school].) Certain types of incidents, such as slip and fall accidents or prison assaults, predictably result in litigation. “That is not to say that the mere fact of a slip-and-fall or a prison assault is always enough to put defendants on notice of potential litigation and trigger a duty to preserve. But such an event combined with other circumstances may often be enough that defendants should reasonably anticipate litigation beginning soon after the incident itself.” (Bistrian v. Levi, supra, 448 F.Supp.3d at p. 469, italics added.) For example, a store is placed on notice that litigation is reasonably foreseeable when a customer submits a “guest incident report” stating he or she slipped and fell on a puddle. (Freidig v. Target Corp., supra, 329 F.R.D. at p. 207.) In addition, a party will be on notice that litigation arising from an injury is reasonably foreseeable when, among other things, it learns the injured persons have retained counsel. (See In re New Canyonlands by Night, LLC (D. Utah 2019) 415 F.Supp.3d 1020, 1024-1025.) Nothing similar occurred in this case.

Moreover, the mere fact that a party has conducted an internal investigation of an incident and produced a report about it does not necessarily mean the party was on notice of potential litigation. The assistant principal’s half-page narrative report merely set forth what he observed on the video, the statements he had received from school personnel, and some of the changes that had been made to “restroom protocols to enhance bathroom supervision.” Although the assistant principal prepared his report at the request of the district’s human resources department, nothing in the record indicates the district anticipated the report would be used to defend against reasonably foreseeable litigation. At most, the record demonstrates that preparation of such a report is a routine practice of the district’s risk management department for use to defend against a claim, if one is made. Without more, the report did not place the district “on ample notice of future litigation.” (Black v. Costco Wholesale Corporation (M.D. Tenn. 2021) 542 F.Supp.3d 750, 753, italics added [noting that some courts have ruled a party has a duty to preserve evidence when an internal report puts the party on notice of litigation].)

Finally, we disagree with real parties in interest’s belated assertion that the district’s invocation of the attorney-client privilege and attorney work product protection—when it opposed real parties in interest’s request for production of an unredacted copy of the assistant principal’s report—necessarily demonstrates the district was objectively aware that litigation was reasonably foreseeable before the video was erased.[17] For instance, the assistant principal’s narrative report and his e-mail transmitting the report to the district did not state the contents of the report were protected by the attorney-client privilege. (See, e.g., Zubulake v. UBS Warburg LLC (S.D. N.Y. 2003) 220 F.R.D. 212, 216-217 [ruling defendant reasonably anticipated litigation because internal company e-mails about the plaintiff were labeled attorney-client privilege and most people in the company who were associated with the plaintiff recognized the possibility she might sue].)

When a party asserts the attorney-client privilege and/or attorney work product protection over a document that had been previously entered in a privilege log, courts may consider the act of entry as evidence the party had already identified a potential claim and had reasonably anticipated it would result in litigation. (See Oracle America, Inc. v. Hewlett Packard Enterprise Company (N.D. Cal. 2018) 328 F.R.D. 543, 550-551.) In contrast, the district’s claim of attorney-client privilege made during this lawsuit, without more, “can hardly be read as an admission” that it had reasonably anticipated litigation would commence before the evidence was destroyed. (Edifecs, Inc. v. Welltok, Inc. (W.D. Wash., Nov. 8, 2019, No. C18-1086JLR) [2019 U.S.Dist. Lexis 194858, *12]; see Moore v. Lowe’s Home Centers, LLC (W.D. Wash., June 24, 2016, No. 2:14-cv-01459-RJB) [2016 U.S.Dist. Lexis 82652, *9-*10] [rejecting the plaintiff’s claim that defendant reasonably anticipated litigation and had the duty to preserve e-mails because, among other things, the defendant asserted the attorney-client privilege and attorney work product protection during the litigation].)

In short, we conclude the extant record does not support the trial court’s ruling that the district had a duty to preserve the video because litigation was reasonably foreseeable at the time the video was erased. Therefore, we grant the petition and direct the trial court to vacate its sanctions order and reconsider its ruling. The court may, in its discretion, permit the parties to introduce additional evidence that is relevant to determining whether the district was under a duty to preserve evidence at the time the video was erased.

D. If the Trial Court Once More Concludes the District Should Be Sanctioned for the Spoliation of Evidence, the Court Must Consider Whether Lesser Sanctions Are Appropriate.

Because we now direct the trial court to vacate its sanctions order and reconsider its ruling, we need not decide whether the issue and evidentiary sanctions it imposed were excessive.[18] However, if on remand the trial court once more concludes the district was under a duty to preserve the video before its erasure, the court must consider whether some lesser form of sanction is warranted.

“`The trial court has broad discretion in selecting discovery sanctions, subject to reversal only for abuse. [Citations.] The trial court should consider both the conduct being sanctioned and its effect on the party seeking discovery and, in choosing a sanction, should “`attempt[] to tailor the sanction to the harm caused by the withheld discovery.'” [Citation.] The trial court cannot impose sanctions for misuse of the discovery process as a punishment. [Citation.] [¶] The discovery statutes evince an incremental approach to discovery sanctions, starting with monetary sanctions and ending with the ultimate sanction of termination. “Discovery sanctions `should be appropriate to the dereliction, and should not exceed that which is required to protect the interests of the party entitled to but denied discovery.'” [Citation.] If a lesser sanction fails to curb misuse, a greater sanction is warranted: continuing misuses of the discovery process warrant incrementally harsher sanctions until the sanction is reached that will curb the abuse.'” (Padron v. Watchtower Bible & Tract Society of New York, Inc. (2017) 16 Cal.App.5th 1246, 1259-1260, quoting Doppes v. Bentley Motors, Inc. (2009) 174 Cal.App.4th 967, 992.)

“A discovery order, though not in the form of a default or dismissal, is justifiably treated as such where the effect of the order is to preclude proof of essential elements of each cause of action.” (Puritan Ins. Co. v. Superior Court (1985) 171 Cal.App.3d 877, 884, citing Karz v Karl (1982) 137 Cal.App.3d 637, 648.) “The sanction of dismissal or the rendition of a default judgment against the disobedient party is ordinarily a drastic measure which should be employed with caution. [Citation.] The sanction of dismissal, where properly employed, is justified on the theory the party’s refusal to reveal material evidence tacitly admits his claim or defense is without merit.” (Puritan Ins. Co., at p. 885.) Except for in cases of extreme misconduct and when other viable options are unavailable, a trial court abuses its discretion when a sanctions order deprives a party “of any right to defend the action upon its merits” and was “designed not to accomplish the purposes of discovery but designed to punish” the party for not fully complying with its discovery obligations. (Caryl Richards, Inc. v. Superior Court (1961) 188 Cal.App.2d 300, 305; accord, Newland v. Superior Court (1995) 40 Cal.App.4th 608, 613-616 [party’s failure to timely pay monetary sanctions did not warrant terminating sanctions].)

Although the trial court ruled the erasure of the video was not intentional and denied real parties in interest’s request for terminating sanctions, the sanctions it imposed were tantamount to terminating sanctions. The district was precluded from introducing evidence—on the sole remaining cause of action for negligence—to prove that it did not breach a duty of care to Doe or that Doe was contributorily negligent. If, on reconsideration, the court once more concludes the district should be sanctioned for the spoliation of evidence, the court must consider whether some lesser form of sanction will remedy the discovery violation before it imposes the same or similar issue and evidence sanctions that it did before. We express no opinion here about what sanctions would be appropriate.

III.
DISPOSITION

The petition for writ of mandate is granted. Let a writ of mandate issue, directing the superior court to vacate its February 23, 2022 sanction order and to reconsider its ruling. The stay of proceedings issued by this court on March 25, 2022, is hereby lifted.

Petitioner shall recover its costs. (Cal. Rules of Court, rule 8.493(a)(1)(A).)

Petitioner is directed to prepare and have a writ of mandate issued, copies served, and the original filed with the clerk of this court, together with proofs of service on all parties.

RAMIREZ, P. J., Concur.

RAPHAEL, J., Dissenting.

A 14-year-old special-needs student alleges in this lawsuit that he was sexually assaulted by other students in a school bathroom. Investigating before the lawsuit, school officials viewed a monitoring camera video, taken from outside the bathroom that day, that showed employees had violated a school policy of permitting only one student at a time in the bathroom by letting two boys in with the plaintiff. The district allowed the video to be overwritten a couple of weeks after the incident, so it no longer exists. Unlike the majority, I conclude that the trial court correctly found that school officials had a duty to preserve the video because litigation about the sexual assault crime was reasonably foreseeable when the district neglected to preserve it. I therefore respectfully dissent from today’s holding.

I

On March 8, 2018, a special education teacher reported to an assistant principal employed by Victor Valley Union High School District (the defendant and petitioner) that students were discussing John Doe (the plaintiff and real party in interest) and another student engaging in a sex act in the cafeteria restroom the previous day. At that time, the school had a policy where a student needing to use the locked lunch restroom would “notify the instructional assistant” who would “open the door for the student and let them in one at a time.”

By the next school day, the assistant principal, Rafael Navarro, reviewed videos from school monitoring cameras with a security official and wrote a report about one from March 7. That video showed that Doe and another boy entered the restroom together as another boy exited, and then an instructional aide let a third boy into the bathroom. Navarro reviewed the video again when he discussed it with the principal.

Navarro testified that he assumed that the security official had saved the video, as they typically recorded such incidents. Navarro discovered, however, that the video was overwritten by new footage after about two weeks.

Doe filed a motion for terminating, issue, and evidentiary sanctions due to the loss of the video, claiming various ways his case was harmed, including identifying the students involved; “the location of individuals charged with supervising the special education students”; “which student or students instigated the activity”; and whether “coercion or force” was used to lure Doe into the bathroom.

The trial court found that the District knew “as early as March 9, 2018—the day Doe’s parents were notified of the incident—that it was reasonably foreseeable the incident might result in litigation because of the School’s special duty to Doe.” At that time, the district “should have known the video would be relevant to that potential future litigation.” Because of the statute of limitations, the district “would have known within six months” if Doe or his parents would sue, and preserving the video “would not have been burdensome.” To address the district’s “negligent failure to preserve important evidence,” the court applied significant issue and evidentiary sanctions against it.

II

Our Code of Civil Procedure has no section addressing a duty to preserve evidence where a lawsuit has not yet been filed, and our Supreme Court has never articulated a standard for judicial consideration of such a duty as the basis for civil sanctions.

Under federal law, however, the duty to preserve evidence applies “when a party reasonably should know that the evidence may be relevant to anticipated litigation.” (Silvestri v. General Motors Corp. (4th Cir. 2001) 271 F.3d 583, 591.) The majority adopts the federal test as California law and holds that the trial court applied “the correct legal standard of reasonable foreseeability.” (Maj. opn., ante, at p. 33.)

The majority also identifies case law that usefully explains what it means for litigation to be reasonably foreseeable. In particular, the majority cites a test for foreseeability our Supreme Court applied in another context: “`foreseeability is not to be measured by what is more probable than not, but includes whatever is likely enough in the setting of modern life that a reasonably thoughtful person would take account of it in guiding practical conduct.'” (Maj. opn., ante, at p. 27 [cleaned up] [quoting Kesner v. Superior Ct. (2016) 1 Cal.5th 1132, 1145 (Kesner)].)

The majority also applies a case stating that “no single bright line . . . definitively marks when litigation reasonably should be anticipated” and courts consider “a variety of factors” to determine the matter. (Maj. opn., ante, at p. 35 [quoting Bistrian v. Levi (E.D. Pa. 2020) 448 F. Supp. 3d 454, 468].) The question is when the evidence “might be relevant to a reasonably-defined future litigation” and a court “`must be guided by the particular facts of each case.'” (Maj. opn., ante, at p. 35 [quoting Zbylski v. Douglas County School District (D. Colo. 2015) 154 F. Supp. 3d 1146, 1164].)[1]

I agree with the majority on this much and join its conclusion that the trial court applied the correct legal standard when it determined that the school district had a duty to preserve the video containing evidence bearing on the alleged bathroom assault.

III

As the trial court applied the correct standard, the majority recognizes that its duty “`begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination'” of the trial court. (Maj. opn., ante, at p. 9 [quoting Los Defensores, Inc. v. Gomez (2014) 223 Cal.App.4th 377, 390-391].) Despite that highly deferential test, the majority holds that no substantial evidence supports the trial court’s finding that litigation was reasonably foreseeable. (Maj. opn., ante, at pp. 33-40.)

Contrary to the majority, I would conclude that ample evidence supports the trial court. In general, a “reasonably thoughtful” school official “`”in the setting of modern life”‘” would consider the possibility of litigation when aware of evidence bearing on whether and how a child’s sexual assault in a school bathroom occurred. (Kesner, supra, 1 Cal.5th at pp. 1144-1145.) School officials cannot not be expected to know detailed legal requirements. But they are professionals trained for their positions, receive communications within their industry, and are accountable to a school board for protecting public interests. Upon learning of a child’s sexual assault at school, reasonable administrators would consider that the matter might end up in court.

Our Supreme Court recognized in 1970 that school districts can be liable for student-on-student assaults through a tort action for negligently supervising the children. (Dailey v. Los Angeles School District (1970) 2 Cal.3d 741, 749-751.) The court later recognized that “a school district and its employees have a special relationship with the district’s pupils” imposing duties “beyond what each person generally owes others.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 869-870 .) That “duty of care owed by school personnel” includes an obligation to take “reasonable measures to protect students from foreseeable injury at the hands of third parties acting negligently or intentionally.” (Id. at p. 870.) The failure to take such measures thus leads to “cases of employees’ alleged negligence resulting in injury to a student by another student.” (Ibid.) School districts thus can face lawsuits that allege student sexual assaults resulted from school personnel’s failure to adequately supervise student perpetrators. (See J.H. v. Los Angeles Unified School Dist. (2010) 183 Cal.App.4th 123 [liability for negligent supervision in student-on-student sexual assault and battery]; Jennifer C. v. Los Angeles Unified School District (2008) 168 Cal.App.4th 1320 [liability for negligent supervision in sexual assault on special needs student in an alcove].) Some federal courts in other states have found litigation reasonably foreseeable to school officials simply because a student has been sexually assaulted.[2]

In California, this matter has been spotlighted for school leaders, as teachers and administrators are “mandated reporters” of child sexual assault (among other types of abuse), subject to misdemeanor prosecution if they do not within 36 hours report the assault to the police, sheriff, or county welfare department. (Pen. Code §§ 11165.1, 11165.7, 11165.9, 11166.) The Department of Justice has developed a form (Form SS 8572) for the mandated reports, and local law enforcement is required to investigate a mandated report. (Pen. Code §§ 11165.14, 11166, subd. (d)(3)(C), 11169.)[3] School districts must provide annual training to mandated reporters, through an online training module developed by the state Department of Social Services or a substitute for it. (Ed. Code § 44691.)[4] District officials would thus know that sexual battery means mandatory expulsion for a student perpetrator, giving the accused student a right to an administrative hearing and a court challenge to it. (See M.N. v. Morgan Hill Unified School Dist. (2018) 20 Cal.App.5th 607, 611, 621, fn. 9; Ed. Code §§ 48900, 48918.)

From these laws and this training, school officials would know that the video could be relevant to civil litigation; to a criminal or juvenile court proceeding; or to expulsion litigation against the alleged perpetrator. This cumulation makes it obvious that evidence about whether a sexual assault occurred and who is responsible should be preserved for litigation, such that a reasonable administrator would not need to parse out the precise likelihood of a particular claim in determining whether to preserve the video. The majority recognizes that some types of incidents “predictably result in litigation,” such as “slip and fall accidents.” (Maj. opn., ante, at p. 37.) A sexual assault of a student at school is such an incident. Reasonably thoughtful people whose profession is to govern schools, charged with a special duty of care, would consider the possibility of litigation when they possess evidence about a sexual assault of a student in their keeping.

Beyond the general and obvious need to preserve evidence of student sexual assaults, however, evidence in our record about this sexual assault provides two compelling justifications for the trial court’s determination that litigation was reasonably foreseeable once the school district reviewed the video.

First, school officials would have realized that the video may contain evidence of the district’s own negligence. The vice principal, Navarro, reviewed the video at least twice and observed evidence that supervisors failed to enforce the rule that they were to unlock the bathroom for only one student at a time, as two boys ended up inside with Doe. The school district was thereby aware that the incident may have resulted in part from a violation of a student-safety procedure by its employees. (See, e.g., Jimenez v. Roseville City School Dist. (2016) 247 Cal.App.4th 594, 602 [reversing grant of summary judgment in a negligent supervision case, in part because the “[d]istrict did not take adequate steps to disseminate and enforce” a policy increased the risk to students].) Such a rule violation would be glaring to a reasonable school administrator, even without legal training, and it distinguishes this case from some other event that the district would have no reason to think might serve as the basis for a negligent supervision lawsuit.

Second, the district recognized that it should act to obtain and preserve information about this sexual assault for future litigation, and it did so. According to a declaration from the district’s risk manager, who received Navarro’s report of the video shortly after it was drafted, and who works with school administrators and attorneys, the district “instructed me and other employees of the District to obtain confidential statements and reports immediately after an incident” such as the sexual assault “and forward them to my department.” This was done so that, when a claim is later filed against the district, “I then forward those statements and reports to any adjuster administering a potential claim and/or to attorneys assigned to assist the District in defending litigation.” Indeed, at the district’s urging, the trial court found that Navarro’s unredacted report of the incident was subject to attorney-client privilege because “the dominant purpose of the report is to communicate to attorneys the nature of the incident,” where the district asserted that the “report was, in fact, prepared in order to communicate with defense counsel effectively.” The trial court’s determination that litigation about the sexual assault was reasonably foreseeable when Navarro reviewed the video is supported by the district’s having acted at that time to prepare and preserve for litigation Navarro’s report about the video.[5] That is, the conclusion that litigation was foreseeable to the district is supported because the district actually prepared for it.[6]

Today’s opinion finds no duty to preserve evidence for litigation where all indications are that the district acted in accordance with a belief that there was a reasonable probability of litigation. The district had an established policy of preserving documentary evidence for litigation through its risk manager, and it preserved that evidence here when Navarro created and shared a written report about the video. Reflecting that intention to maintain evidence, Navarro assumed that video had been preserved by the security official who reviewed it with him, but it was not saved due to a “misunderstanding.” This simple mistake should simply burden the district with sanctions meant to compensate the plaintiff at trial for the loss of the video. Instead, it saddles the state with today’s unfortunate holding that a school district has no duty to preserve evidence that may bear on whether a sexual assault of a student was committed, how, and by whom — even when the evidence appeared to indicate the district bore some responsibility for the assault, and even when the district actually preserved some evidence about it for possible future litigation.

IV

The “safe harbor” provision found in Code of Civil Procedure section 2031.060 would sometimes prohibit sanctions for the failure to produce electronically stored information (ESI). But it has no bearing on the issue before us.

The provision prohibits sanctions for ESI “that has been lost, damaged, altered, or overwritten as the result of the routine, good faith operation of an electronic information system.” (§ 2031.060, subd. (i)(1).) The safe harbor provision, however, “shall not be construed to alter any obligation to preserve discoverable information.” (§ 2031.060, subd. (i)(2).) Here, before the video was overwritten, the school identified it, reviewed it, and determined that it contained content relevant to the district’s civil liability for negligently supervising students. At that time, there was a duty to preserve it for reasonably foreseeable litigation, just as there might be to preserve (for example) a piece of physical evidence that might indicate an assault occurred, such as an item of clothing. Nothing about the nature of ESI made preserving the video onerous. A person just had to “save” the video. The video was lost because of that failure to save it, not as the result of the district’s electronic system. Had the video been downloaded into an electronic file, it would have been preserved even if routine video overwriting continued regularly at the school.

Cases have held even more broadly that a party must suspend the routine destruction of electronic evidence when litigation is foreseeable. “Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and . . . ensure the preservation of relevant documents.” (Zubulake v. UBS Warburg LLC (S.D.N.Y. 2003) 220 F.R.D. 212, 218; see Apple Inc. v. Samsung Elecs. Co., Ltd. (N.D. Cal. 2012) 881 F.Supp.2d 1132, 1146-1147 [adverse inference jury instruction was appropriate when the defendant kept an auto-delete email policy in place even though litigation was reasonably foreseeable]; Zubulake v. UBS Warburg LLC, supra, 220 F.R.D. at p. 218 [“Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a `litigation hold’ to ensure the preservation of relevant documents”]). As the legislative history of the safe harbor provision recognized, “this provision would not otherwise relieve parties of their obligations to preserve discoverable information. When a party is under a duty to preserve information because of pending or reasonably anticipated litigation, a party would still be required to modify or suspend features of the routine operation of a computer system to prevent loss of information.” (Sen. Judiciary Comm., Bill Analysis dated 4/30/12, SB 1574 (2011-2012) Leg. Session.) This case presents an even stronger case for preserving evidence. The district’s routine overwriting of video did not have to be suspended; the district simply had to save a particular video it had identified.

The safe harbor provision might protect the school district where, acting in good faith, it did not identify ESI before it was overwritten. The situation we have, though, is a piece of identified evidence in the hands of school officials that should have been copied or downloaded, as the vice principal in fact intended.

V

The vexing question here, in my view, is identified in the last section of the majority opinion. (Maj. opn., ante, at pp. 40-42.) What sanctions are appropriate where a school has negligently failed to preserve, rather than intentionally destroyed, evidence like the video here?

As discussed above, I would hold that the trial court properly found that sanctions applied. Having decided that issue differently than the majority, I would grant the petition to order the trial court to reconsider the heavy-handed sanctions to craft them as primarily curative rather than punitive. (See Fed. R. Evid., rule 37(e)(1) [failure to take reasonable steps to preserve information requires “measures no greater than necessary to cure the prejudice”]; Fed. R. Evid., rule 37 advisory committee’s note [“curative measures” should not be so severe as would be ordered for intentional destruction]; Silvestri v. General Motors Corp., supra, 271 F.3d at p. 590 [sanctions for lost evidence should be molded to reflect prophylactic, punitive, and remedial purposes].)

That the school district here received harsh sanctions where it meant to preserve the video (but accidentally did not) obscures the potentially pernicious effect of today’s holding. Had the Victor Valley Union High School District—realizing that it might bear some culpability for a child’s sexual assault in the bathroom—decided to erase the video and shred memos about it, the majority’s holding means that no sanctions could be imposed for that destruction. Today’s opinion appears less ignominious because the school district, responsibly, intended to preserve the video. Where we hold there is no duty to preserve evidence about a school sexual assault, though, that means that there is nothing wrong with a less-responsible entity destroying it.

 

 

[1] All undesignated statutory references are to the Code of Civil Procedure.

[2] The trial court subsequently granted judgment on the pleadings for the district and dismissed the cause of action for sexual harassment without leave to amend, and the court granted a request from real parties in interest to dismiss their cause of action for negligent infliction of emotional distress.

[3] The issue sanctions were as follows: “1. District’s employees were negligent in supervising . . . students in the School’s cafeteria during lunch. [¶] 2. District and its employees did not comply with the policies and procedures for the supervision of . . . students during lunch in the cafeteria. [¶] 3. Doe was not responsible for, and did not contribute to, his alleged harm. [¶] 4. District negligently allowed the destruction of video surveillance footage of the moments immediately before and after the March 8, 2018 incident, despite having knowledge that the video evidence was relevant and needed to be preserved as evidence in potential litigation that was reasonably foreseeable.”

The evidence sanctions were as follows: “1. District is precluded from offering any evidence or argument that it did not have knowledge that School’s restrooms were being used for sexual assaults by . . . students. [¶] 2. District is precluded from offering any evidence, argument, or cross-examination that Doe was comparatively at fault for the subject incident. [¶] 3. District is precluded from offering any evidence, argument, or cross-examination that it complied with its policies and procedures relating to the supervision of students.”

[4] Section 2023.010 provides a “nonexhaustive list” of conduct that constitutes a “`misuse of the discovery process.'” (Kwan Software Engineering, Inc. v. Hennings (2020) 58 Cal.App.5th 57, 74.)

[5] “`Electronically stored information’ means information that is stored in an electronic medium.” (§ 2016.020, subd. (e).) “`Electronic’ means relating to technology having electrical, digital, magnetic, wireless optical, electromagnetic, or similar capabilities.” (Id., subd. (d).)

[6] Although the parties to this proceeding have discussed some of the legislative history materials recounted in this opinion, neither party has moved that we take judicial notice of those materials. (See Cal. Rules of Court, rules 8.252(a), 8.485(a).) We do so now on our own motion. (Evid. Code, §§ 452, 459; PGA West Residential Assn., Inc. v. Hulven Internat., Inc. (2017) 14 Cal.App.5th 156, 174, fn. 11.)

[7] Available at (as of Dec. 22, 2022).

[8] Available at (as of Dec. 22, 2022).

[9] Available at (as of Dec. 22, 2022).

[10] In its petition, the district cites two nonpublished Court of Appeal decisions that did address when the duty to preserve evidence for future litigation arises. Except for in limited circumstances, nonpublished decisions of the Court of Appeal may not be cited or relied upon by a party or a court. (Cal. Rules of Court, rule 8.1115(a).) Because we find no applicable exception to that rule (id., rule 8.1115(b)), we will ignore the cited decisions.

[11] Accord, Pettit v. Smith (D. Ariz. 2014) 45 F.Supp.3d 1099, 1106 [ruling nonparty “had a duty to preserve evidence relevant to this case once it knew that litigation was reasonably likely.”]; Bruno v. Bozzuto’s, Inc. (M.D. Penn. 2012) 850 F.Supp.2d 462, 470 [“Plaintiffs had a duty to preserve evidence once litigation became likely.”]; Philips Electronics North America Corp. v. BC Technical (D. Utah 2010) 773 F.Supp.2d 1149, 1195 [“In most cases, the duty to preserve is triggered by the filing of a lawsuit, but that duty may arise even before a lawsuit is filed if a party has notice that future litigation is likely.”]; John B. v. Goetz (M.D. Tenn. 2010) 879 F.Supp.2d 787, 867 [“A duty to preserve may also arise before the filing of the complaint, if a party has notice that litigation of a matter is likely to be filed.”]; Macneil Automotive Products, Ltd. v. Cannon Automotive, Ltd. (N.D. Ill. 2010) 715 F.Supp.2d 786, 801 [party has a duty to preserve evidence “even prior to the filing of a complaint as long as it is known that litigation is likely to commence”; ruling plaintiff would not “have known that litigation between itself and [the defendant] was probable” when it disposed of evidence at issue in later litigation]; Kounelis v. Sherrer (D. N.J. 2008) 529 F.Supp.2d 503, 518 [“An independent duty to preserve relevant evidence arises when the party in possession of the evidence knows that litigation by the party seeking the evidence is pending or probable. . .”]; Cache La Poudre Feeds, LLC v. Land O’Lakes Farmland Feed, Inc. (D. Colo. 2007) 244 F.R.D. 614, 621 [“[T]he obligation to preserve evidence may arise even earlier [than the filing of a complaint] if a party has notice that future litigation is likely.”]; Creative Resources Group of New Jersey, Inc. v. Creative Resources Group, Inc. (E.D. N.Y. 2002) 212 F.R.D. 94, 106 [“[T]he duty to preserve may arise even prior to the filing of a complaint where a party is on notice that litigation is likely to be commenced.”]; Larison v. City of Trenton (D. N.J. 1998) 180 F.R.D. 261, 267 [ruling plaintiff could not prove cause of action for the spoliation of evidence because videotape of his arrest was destroyed before litigation was “pending or probable”]; Baliotis v. McNeil (M.D. Penn. 1994) 870 F.Supp. 1285, 1290 [duty to preserve evidence arises when party becomes reasonably aware of “`pending or probable litigation,'” italics omitted].)

“Unlike in the federal courts of appeals (see, e.g., U.S. Cir. Ct. Rules (9th Cir.), rules 36-1 to 36-5), in the federal district courts there is no formal provision to certify decisions for publication. District court orders that are included in reports such as the Federal Supplement are only `unofficially reported.'” (Barriga v. 99 Cents Only Stores LLC (2020) 51 Cal.App.5th 299, 316, fn. 8 (Barriga).) However, the prohibition on citing nonpublished California decisions (cited ante, fn. 10), does not apply to decisions of the lower federal courts. (Ibid.)

[12] Other circuit U.S. Courts of Appeals require that future litigation be “imminent” before a party is held to a duty to preserve relevant evidence. (See, e.g., Norman-Nunnery v. Madison Area Technical College (7th Cir. 2010) 625 F.3d 422, 428-429; Turner v. Public Service Co. of Colorado (10th Cir. 2009) 563 F.3d 1136, 1149.) We will follow the federal circuit and decline to impose such an imminence requirement on the “`reasonably foreseeable'” standard. (Micron, supra, 645 F.3d at p. 1320; see Hynix II, supra, 645 F.3d at pp. 1345, 1347.)

[13] Rule 37(e) of the Federal Rules of Civil Procedure states in full: “Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court: [¶] (1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or [¶] (2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may: [¶] (A) presume that the lost information was unfavorable to the party; [¶] (B) instruct the jury that it may or must presume the information was unfavorable to the party; or [¶] (C) dismiss the action or enter a default judgment.”

[14] The trial court did not address a statutory duty to preserve evidence.

[15] “[R]outine video monitoring’ means video recording by a video or electronic imaging system designed to record the regular and ongoing operations of the special district, including mobile in-car video systems, jail observation and monitoring systems, and building security recording systems.” (Gov. Code, § 53160, subd. (c).) “`[S]pecial district'” has the same meaning as “`public agency'” in section 53050 (§ 53160, subd. (d)), to wit, “a district, public authority, public agency, and any other political subdivision or public corporation in the state, but does not include the state or a county, city and county, or city.” (§ 53050.) For the limited purpose of this proceeding, we will assume a public school district is a “special district” as contemplated in section 53160.

[16] Real parties in interest’s reliance on J.K. v. Bellevue School Dist. No. 5 (2021) 20 Wash.App.2d 291 is misplaced. In that case, the defendant school district failed to preserve video footage that likely captured sexual assaults of a student “despite having received requests to do so—before the evidence was destroyed—from both the plaintiff and the defendant’s own counsel.” (Carroll v. Akebono Brake Corp. (2022) 22 Wn.App.2d 845, 878 [distinguishing J.K.].) No such requests to preserve the video were made in this case.

Likewise, Zbylski, supra, 154 F.Supp.3d 1146 is distinguishable. In that case, the district court ruled a school district had a duty to preserve evidence about the alleged sexual assault of a student by a teacher even before the student’s parents threatened litigation. (Id. at p. 1165.) We assume without deciding that an alleged sexual assault of a student by a teacher or adult school staff member is more likely to result in litigation than an alleged assault by a fellow student. Moreover, in Zyblski, the school district was aware of rumors of inappropriate relationships between the teacher and two other female students well before the incident alleged in the lawsuit, the school expressly promised parents that it would investigate the rumors but never conducted such an investigation, and the school placed the teacher on administrative leave. (Id. at pp. 1164-1167.)

[17] Real parties in interest did not make this argument in support of their sanctions motion and the trial court did not rely on the district’s invocation of the attorney-client privilege and attorney work product protection when it ruled the district was under a duty to preserve the video before it was erased.

[18] Nor need we decide whether the district forfeited any challenge to the severity of the sanctions by not fully articulating such a claim in its petition. (See Magana v. Superior Court (2018) 22 Cal.App.5th 840, 854, fn. 2 [finding argument petitioner had made in the trial court but did repeat in his petition was forfeited “despite his belated attempt to resurrect it in his reply brief.”]; County of Los Angeles v. Superior Court (2013) 222 Cal.App.4th 434, 452, fn. 14 [disregarding petitioner’s argument “made for the first time in its reply to opposition to petition for writ of mandate”].)

[1] Though employing these expressive descriptions of the “reasonably foreseeable” test, the majority insists upon the unenlightening “gloss” that reasonably foreseeable means “probable or likely.” (Maj. opn., ante, at p. 27.) Probable, in this context, simply “has been held to mean `more than a possibility.'” (In re Napster, Inc. Copyright Litig. (N.D. Cal. 2006) 462 F.Supp.2d 1060, 1068; RealNetworks, Inc. v. DVD Copy Control Assn, Inc. (N.D. Cal. 2009) 264 F.R.D. 517, 524 [“The future litigation must be `probable,’ which has been held to mean `more than a possibility'”].) The tests quoted in the text above are more informative.

[2] See Doe v. Fairfax County School Board (E.D. Va. June 28, 2019, No. 1:18-cv-00614-LO-MSN) [2019 U.S. Dist.LEXIS 231371, *14] [“duty to preserve started on [the date] when Oakton administrators were informed of a potential sexual assault” by a student telling persons who communicated to school officials]; Zbylski v. Douglas County School District (D. Colo. 2015) 154 F.Supp.3d 1146, 1164 (Zbylski) [“duty to preserve was triggered no later than [the date] when the School District placed [a teacher] on administrative leave” due to concerns about inappropriate conduct with children].

The majority distinguishes Zbylski partly by “assum[ing] without deciding” that teacher sexual assaults result in litigation more often than student-on-student ones. (Maj. opn., ante, at p. 36, fn.16.) That method purportedly distinguishes the case whether or not the assumed fact is incorrect. Litigation in the two situations, however, is similar in that each requires negligence by school employees apart from the perpetrator’s actions. A teacher’s abuse of a student falls “outside the scope of her employment,” so a plaintiff cannot base a claim against a district directly on the acts but instead must base it on the negligence of personnel who knew, or should have known, of the employee’s propensities but “nevertheless hired, retained, and inadequately supervised her.” (C.A. v. William S. Hart Union High School Dist., supra, 53 Cal.4th 861 at p. 865.) Contrary to the majority, I would assume that with equivalent evidence of school officials’ negligence in supervising a person, a lawsuit is equally likely whether a sexual assault perpetrator is a teacher or student.

[3] The district here had previously provided video of incidents to law enforcement, but the police did not request the video in this case until after it had been overwritten.

[4] At present, the mandated reporting website associated with the State Department of Social Services contains a four-hour general training that is a required precursor for a three-hour training for school personnel. (See [accessed Dec. 19, 2022].)

[5] The district claims that its invocation of attorney-client privilege over Navarro’s report “at best, indicates the mere distant possibility of litigation” when drafted, which it views as insufficient to trigger a duty to preserve evidence. District employees surely would provide evidence to the risk manager in situations where a skilled lawyer would deem the possibility of litigation “distant,” as well as those where a lawsuit would be more certain. But adopting the district’s view here means that litigation can be foreseeable enough that a party can choose to preserve as privileged some evidence in case of litigation (Navarro’s report of the video), but not foreseeable enough to create a duty to preserve similar evidence about the same matter (the video itself). At the least, under our deferential review standard, the privilege invocation provides substantial evidence in support of the trial court’s determination that litigation was reasonably foreseeable.

[6] It should be of no moment that the district did not receive notification of a lawsuit until well after the video was lost. One thing that is not foreseeable is that Doe’s parents—presumably concerned with dealing with a child who had been sexually assaulted, finding out the facts, and perhaps proceeding to consult a lawyer—would threaten a lawsuit within the fourteen days before the video was overwritten.

Ray KINSMAN et al. v. UNOCAL CORPORATION

36 Cal.Rptr.3d 495 (2005)
37 Cal.4th 659
123 P.3d 931

Ray KINSMAN et al., Plaintiffs and Respondents,
v.
UNOCAL CORPORATION, Defendant and Appellant.

No. S118561.
Supreme Court of California.

December 19, 2005.

 

Horvitz & Levy, David M. Axelrad, Stephen E. Norris, Encino; Walsworth, Franklin, Bevins & McCall, Michael T. McCall, Robert M. Channell, Cyrian B. Tabuenaand Allan W. Ruggles, Orange, for Defendant and Appellant.

Charles H. Haake, Washington, DC; Gibson, Dunn & Crutcher, Andrea E. Neuman, Irvine; Knott & Glazier, Steven E. Knott and Guy P. Glazier, Los Angeles, for Lockheed Martin Corporation as Amicus Curiae on behalf of Defendant and Appellant.

Sedgwick, Detert, Moran & Arnold and Frederick D. Baker, San Francisco, for American Chemistry Council as Amicus Curiae on behalf of Defendant and Appellant.

Deborah J. La Fetra and Timothy Sandefur, Sacramento, for Pacific Legal Foundation as Amicus Curiae on behalf of Defendant and Appellant.

Greines, Martin, Stein & Richland, Marc J. Poster and Robert A. Olson, Los Angeles, for Farmers Insurance Exchange, 497*497 Truck Insurance Exchange, Fire Insurance Exchange and Mid-Century Insurance Company as Amici Curiae on behalf of Defendant and Appellant.

Graves & King, Patrick L. Graves, Harvey W. Wimer, Riverside, and Dennis J. Mahoney for Lennar Corporation as Amicus Curiae on behalf of Defendant and Appellant.

Law Offices of Daniel U. Smith, Daniel U. Smith, Kentfield, Ted W. Pelletier; Wartnick, Chaber, Harowitz & Tigerman, The Wartnick Law Firm, Harvey F. Wartnick, Charles C. Kelly II, Steven M. Harowitz, Stephen M. Tigerman and Richard A. Brody, San Francisco, for Plaintiffs and Respondents.

James C. Sturdevant, San Francisco; Sharon Arkin, Newport Beach; The Arns Law Firm, Morgan C. Smith, Jonathan E. Davis and Robert S. Arns, San Francisco, for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiffs and Respondents.

Ropers, Majeski, Kohn & Bentley, Mark G. Bonino and Elisa Nadeau, San Jose, for American International Companies as Amicus Curiae.

MORENO, J.

In a series of decisions over the last dozen or so years, this court has delineated the circumstances under which the employee of an independent contractor who is injured on the job may sue the hirer of that contractor. (Privette v. Superior Court (1993) 5 Cal.4th 689, 21 Cal.Rptr.2d 72, 854 P.2d 721 (Privette); Toland v. Sunland Housing Group, Inc. (1998) 18 Cal.4th 253, 74 Cal.Rptr.2d 878, 955 P.2d 504 (Toland); Camargo v. Tjaarda Dairy (2001) 25 Cal.4th 1235, 108 Cal.Rptr.2d 617, 25 P.3d 1096 (Camargo); Hooker v. Department of Transportation (2002) 27 Cal.4th 198, 115 Cal.Rptr.2d 853, 38 P.3d 1081 (Hooker); McKown v. Wal-Mart Stores, Inc. (2002) 27 Cal.4th 219, 115 Cal.Rptr.2d 868, 38 P.3d 1094 (McKown).) This case requires us to consider an issue not addressed by the previous cases: when, if ever, is a landowner that hires an independent contractor liable to an employee of that contractor who is injured as the result of hazardous conditions on the landowner’s premises? Specifically, in this case we must decide whether a carpenter employed by an independent contractor that installed scaffolding for workers who replaced asbestos insulation in an oil refinery facility may sue the refinery owners for injuries caused by exposure to asbestos, when it is claimed that only the refinery owner knew the carpenter was being exposed to a hazardous substance.

We conclude that a landowner that hires an independent contractor may be liable to the contractor’s employee if the following conditions are present: the landowner[1] knew, or should have known, of a latent or concealed preexisting hazardous condition on its property, the contractor did not know and could not have reasonably discovered this hazardous condition, and the landowner failed to warn the contractor about this condition. We further conclude that under the circumstances of the present case, the jury was not sufficiently instructed that the landowner was liable in this case only for failing to warn about a hidden hazardous condition, and that the lack of sufficient instruction was prejudicial to defendant. We therefore reverse 498*498 the jury verdict in plaintiffs’ favor and remand for a new trial.

I. STATEMENT OF FACTS

The following facts, as stated by the Court of Appeal below, are not in dispute: “During the 1950’s, plaintiff Ray Kinsman worked on many occasions as a carpenter at defendant Unocal’s refinery in Wilmington, California. Kinsman was employed by Burke & Reynolds, an independent contractor Unocal hired to perform scaffolding work during periods of `shutdown’ and repair at the refinery. Kinsman built and dismantled scaffolding used by other trades, including pipefitters and insulators. This work exposed him to airborne asbestos, which was produced by other trades — particularly insulators — during their application and removal of asbestos-containing insulation from pipes and machinery. Though Kinsman did not work directly with such insulation, the evidence showed he was exposed to asbestos dust in three ways: (1) When insulators worked on scaffolding, asbestos-containing debris accumulated on the planks. Kinsman was exposed to this asbestos material when he cleared debris from the planks in dismantling used scaffolding. (2) Some asbestos dust was produced from Kinsman’s work `tying in’ scaffolding to insulated pipes or equipment. (3) Asbestos fibers released by the work of other trades `float[ed] in the air,’ exposing Kinsman as he worked nearby. Kinsman did not wear a mask or respirator at Unocal.

“Years later, Kinsman developed mesothelioma, an asbestos-induced malignant cancer of the lining of the lungs. He sued scores of product manufacturers and distributors, as well as several premises owners. Ultimately, the case proceeded to a jury trial against Unocal, a `premises defendant,’ alone. The parties stipulated that Kinsman was exposed to asbestos during his work at Unocal. In addition, following uncontroverted expert testimony that labeled this exposure a `substantial factor’ contributing to Kinsman’s development of mesothelioma, the trial court granted a directed verdict for Kinsman on the issue of causation. Because the parties also stipulated Kinsman bore no contributory fault, the only disputed issues before the jury concerned whether, and to what extent, Unocal was negligent, whether Kinsman’s wife suffered a loss of consortium, and the amount of damages suffered by the Kinsmans.”

Other critical facts are in dispute. Kinsman presented evidence that knowledge of asbestos dust as a hazard in the oil industry was well known by the 1950’s. In particular, the so-called Bonsib Report prepared by the Standard Oil Company and released in 1937 identified the risks associated with asbestos dust in oil refineries. Kinsman argued that given industry knowledge, Unocal should have warned Kinsman’s employer or adopted various safety measures. He produced evidence showing that other oil companies in the 1950’s had adopted various safety measures, including better ventilation, plant design, and use of respirators.

Unocal conceded that it was aware of the hazards of asbestos dust by the 1950’s. But Unocal argued that Kinsman was not exposed to levels of asbestos that were considered unsafe at the time. It contended that according to then-existing industry standards, exposure to asbestos dust was considered unsafe only in concentrations of 5 million particles per cubic foot or more, and that there was no evidence that Kinsman was exposed to such concentrations. In denying Unocal’s motion for a directed verdict on that basis, the trial court concluded this standard was not tantamount to a government regulation, compliance with which would protect Unocal from negligence 499*499 claims. Kinsman, in closing argument, pointed to the lack of evidence that Unocal complied with the industry standards, as well as testimony questioning the validity of those standards.

Burke & Reynolds did not provide safety equipment to Kinsman, and there is no specific evidence in the record regarding whether it, or any other contractor working for Unocal, knew or should have known at the time Kinsman worked at the refinery that asbestos posed a safety hazard.

Kinsman submitted his case on two theories of liability: first, a premises liability theory, that Unocal was negligent in the use, maintenance, or management of the areas where Kinsman worked; second, that Unocal was negligent in the exercise of retained control over the methods of the work or the manner of the work performed by Kinsman. The jury found for Kinsman only on the first theory. It assigned Unocal 15 percent of the fault in causing Kinsman’s mesothelioma, with the remaining 85 percent of fault attributable to “all others,” and awarded Kinsman over $3 million in compensatory damages against Unocal.

Unocal separately appealed from the judgment on the jury verdict and the court’s denial of its motion for judgment notwithstanding the verdict. The Court of Appeal consolidated the appeals and reversed the judgment. After reviewing Privette, Toland, Camargo, Hooker and McKown, the court concluded that “a contractor’s employee cannot recover under [a premises liability] theory unless the landowner had control over the dangerous condition and affirmatively contributed to the employee’s injury.” The court further rejected the argument that the Privette doctrine does not apply because there is no proof the contractor was negligent, and because the dangerous condition was created by other contractors hired by Unocal rather than Unocal itself.

Because the jury instructions given did not accurately reflect Unocal’s limited duty as understood by the Court of Appeal, the court reversed and remanded for a new trial. However, the court opined that, in light of the jury’s finding that Unocal did not retain control over Kinsman’s work, “if the jury had been instructed about the limits on Unocal’s liability described in this opinion, it would likely have concluded Unocal had no liability to Kinsman whatsoever — because Unocal did not retain control over the dangerous condition (i.e., airborne asbestos) present on its land, or because the evidence did not show that Unocal affirmatively contributed to Kinsman’s injury.” We granted review.

II. DISCUSSION

A. The Privette Doctrine

Our discussion begins with a review of Privette and its progeny. In Privette, supra, 5 Cal.4th 689, 21 Cal.Rptr.2d 72, 854 P.2d 721, a roofing contractor was responsible for installing a new tar and gravel roof on a duplex. An employee was injured transporting five gallon buckets of hot tar up to the roof on a ladder, not using the kettle and pumping device previously employed. The employee sought workers’ compensation benefits, but also sued in tort the owner of the duplex who had hired the contractor for whom the employee worked, although the owner was not present during the roofing process and did not participate in the contractor’s decision to have the employee hand carry the buckets. (Privette, supra, 5 Cal.4th at pp. 692-693, 21 Cal.Rptr.2d 72, 854 P.2d 721.) The employee eventually focused on a single theory of liability, that “because of the inherent danger of working with hot tar, [the owner] should, under the doctrine of peculiar risk, be liable for injuries to [the employee] that resulted from [the contractor’s] negligence.” (Ibid.)

500*500 The lower courts denied the owner’s summary judgment motion, but we reversed, rejecting application in this context of the peculiar risk doctrine found in the Restatement Second of Torts, section 416. As we explained: “At common law, a person who hired an independent contractor generally was not liable to third parties for injuries caused by the contractor’s negligence in performing the work. [Citations.] Central to this rule of nonliability was the recognition that a person who hired an independent contractor had `”no right of control as to the mode of doing the work contracted for.”‘ [Citations.] The reasoning was that the work performed was the enterprise of the contractor, who, as a matter of business convenience, would be better able than the person employing the contractor to absorb accident losses incurred in the course of the contracted work. This could be done, for instance, by indirectly including the cost of safety precautions and insurance coverage in the contract price.” (Privette, supra, 5 Cal.4th at p. 693, 21 Cal.Rptr.2d 72, 854 P.2d 721.)

We further explained that numerous exceptions to the rule of nonliability developed over the years, including the peculiar risk doctrine. The basis for that exception, as explained in a leading English case, was that a “`man who orders a work to be executed, from which, in the natural course of things, injurious consequences to his neighbor must be expected to arise . . . cannot relieve himself of his responsibility by employing some one else. . . .’ [Citation.] . . . [T]he English court held a landowner liable for damages to his neighbor’s property when an independent contractor hired by the landowner to tear down an old house on his land and to build a new one on the same site, but with a deeper foundation, undermined the ground supporting the neighbor’s house.” (Privette, supra, 5 Cal.4th at p. 694, 21 Cal.Rptr.2d 72, 854 P.2d 721.)

“The courts adopted the peculiar risk exception to the general rule of nonliability to ensure that innocent third parties injured by the negligence of an independent contractor hired by a landowner to do inherently dangerous work on the land would not have to depend on the contractor’s solvency in order to receive compensation for the injuries. [Citations.] It was believed that as between two parties innocent of any personal wrongdoing — the person who contracted for the work and the hapless victim of the contractor’s negligence — the risk of loss occasioned by the contracted work was more fairly allocated to the person for whose benefit the job was undertaken. [Citation.] Also, by spreading the risk of loss to the person who primarily benefited from the hired work, the courts sought to promote workplace safety, a concern of great significance to the public.” (Privette, supra, 5 Cal.4th at p. 694, 21 Cal.Rptr.2d 72, 854 P.2d 721.)

We concluded that the justifications for the peculiar risk doctrine did not apply to situations in which a contractor’s employee is injured and workers’ compensation is available. As we explained, the peculiar risk doctrine “seeks to ensure that injuries caused by contracted work will not go uncompensated, that the risk of loss for such injuries is spread to the person who contracted for and thus primarily benefited from the contracted work, and that adequate safety measures are taken to prevent injuries resulting from such work. [Citation.] But in the case of on-the-job injury to an employee of an independent contractor, the workers’ compensation system of recovery regardless of fault achieves the identical purposes that underlie recovery under the doctrine of peculiar risk. It ensures compensation for injury by providing swift and sure compensation to employees for any workplace injury; it spreads the risk created by the performance 501*501 of dangerous work to those who contract for and thus benefit from such work, by including the cost of workers’ compensation insurance in the price for the contracted work; and it encourages industrial safety.” (Privette, supra, 5 Cal.4th at p. 701, 21 Cal.Rptr.2d 72, 854 P.2d 721.)

Several cases after Privette extended and elaborated upon its doctrine. In Toland, supra, 18 Cal.4th 253, 74 Cal.Rptr.2d 878, 955 P.2d 504, we rejected a hirer’s liability to an independent contractor’s employee under Restatement Second of Torts, section 413, which provides that a person who hires an independent contractor to do inherently dangerous work, but who fails to provide in the contract or in some other manner that “special precautions” be taken to avert the peculiar risks of that work, could be held liable for the resultant injury. The plaintiff attempted to distinguish section 413 from section 416 at issue in Privette, which imposes liability for peculiar risks “even though the employer has provided for [special] precautions in the contract or otherwise.” (Toland, supra, 18 Cal.4th at pp. 260, 263, 74 Cal.Rptr.2d 878, 955 P.2d 504.) The plaintiff argued that section 416 imposed vicarious liability whereas in section 413 liability was direct. We disagreed: “[P]eculiar risk liability is not a traditional theory of direct liability for the risks created by one’s own conduct: Liability under both sections is in essence `vicarious’ or `derivative’ in the sense that it derives from the `act or omission’ of the hired contractor, because it is the hired contractor who has caused the injury by failing to use reasonable care in performing the work.” (Toland, supra, 18 Cal.4th at p. 265, 74 Cal.Rptr.2d 878, 955 P.2d 504.) Therefore, “contrary to plaintiff Toland’s assertion, our decision in Privette, supra, 5 Cal.4th 689, 21 Cal.Rptr.2d 72, 854 P.2d 721, bars employees of a hired contractor who are injured by the contractor’s negligence from seeking recovery against the hiring person, irrespective of whether recovery is sought under the theory of peculiar risk set forth in section 416 or section 413 of the Restatement Second of Torts. In either situation, it would be unfair to impose liability on the hiring person when the liability of the contractor, the one primarily responsible for the worker’s on-the-job injuries, is limited to providing workers’ compensation coverage.” (Toland, supra, 18 Cal.4th at p. 267, 74 Cal.Rptr.2d 878, 955 P.2d 504.)

In Camargo, supra, 25 Cal.4th 1235, 108 Cal.Rptr.2d 617, 25 P.3d 1096, “we held that an employee of a contractor is barred from suing the hirer of the contractor under the negligent hiring theory set forth in [the Restatement Second of Torts,] section 411. Under section 411, a hirer is liable for physical harm to third persons caused by the hirer’s failure to exercise reasonable care to employ a competent contractor to perform work that will involve a risk of physical harm unless it is skillfully and carefully done, or to perform any duty the hirer owes to third persons. We rejected the argument that Privette and Toland were distinguishable on the ground that in a negligent hiring case the hirer is, in a sense, being taxed with his own negligence, making his liability direct. `[T]he same could be said with regard to an action brought under the peculiar risk theory set forth in section 413. More importantly, under both sections 411 and 413, the liability of the hirer is “in essence `vicarious’ or `derivative’ in the sense that it derives from the `act or omission’ of the hired contractor, because it is the hired contractor who caused the injury by failing to use reasonable care in performing the work.” [Citation.] Therefore, in a negligent hiring case under the theory set forth in section 411, just as in peculiar risk cases under the theories set forth in sections 413 502*502 and 416, “it would be unfair to impose liability on the hiring person when the liability of the contractor, the one primarily responsible for the worker’s on-the-job injuries, is limited to providing workers’ compensation coverage.” [Citation.]'” (Hooker, supra, 27 Cal.4th at pp. 205-206, 115 Cal.Rptr.2d 853, 38 P.3d 1081.)

In Hooker, supra, 27 Cal.4th 198, 115 Cal.Rptr.2d 853, 38 P.3d 1081, a crane operator employed by an independent contractor to help construct a freeway overpass for the California Department of Transportation (Caltrans) would habitually retract the crane’s stabilizing outrigger to allow other construction vehicles to pass. When Hooker attempted to swing the boom of the crane without first extending the outrigger, the weight of the boom caused the crane to tip over, and Hooker was thrown to the pavement and killed. (Id. at p. 202, 115 Cal.Rptr.2d 853, 38 P.3d 1081.) According to the Caltrans construction manual, Caltrans was responsible for compliance with safety laws and regulations, and its construction safety coordinator was supposed to “`recognize and anticipate unsafe conditions'” in its construction projects. (Ibid.) Hooker’s estate contended there was a triable issue regarding whether Caltrans was liable under a “retained control theory” as described in the Restatement Second of Torts, section 414, which states: “One who entrusts work to an independent contractor, but who retains the control of any part of the work, is subject to liability for physical harm to others for whose safety the employer owes a duty to exercise reasonable care, which is caused by his failure to exercise his control with reasonable care.”

We rejected Caltrans’s categorical argument that we should, for public policy reasons, disallow any recovery by a contractor’s employee, even when the hirer retains control over safety conditions. In arriving at this conclusion, we recalled the rationale of Privette that “`[a]t common law, a person who hired an independent contractor generally was not liable to third parties for injuries caused by the contractor’s negligence in performing the work. [Citations.] Central to this rule of nonliability was the recognition that a person who hired an independent contractor had “`no right of control as to the mode of doing the work contracted for.'” . . .’ On the other hand, if a hirer does retain control over safety conditions at a worksite and negligently exercises that control in a manner that affirmatively contributes to an employee’s injuries, it is only fair to impose liability on the hirer.” (Hooker, supra, 27 Cal.4th at p. 213, 115 Cal.Rptr.2d 853, 38 P.3d 1081, italics in original, fn. omitted.)

At the same time, consistent with Privette’s rule against vicarious hirer liability, we concluded that “it would be unfair to impose tort liability on the hirer of the contractor merely because the hirer retained the ability to exercise control over safety at the worksite. In fairness, . . . the imposition of tort liability on a hirer should depend on whether the hirer exercised the control that was retained in a manner that affirmatively contributed to the injury of the contractor’s employee.” (Hooker, supra, 27 Cal.4th at p. 210, 115 Cal.Rptr.2d 853, 38 P.3d 1081, first italics added.) We elaborated that “[s]uch affirmative contribution need not always be in the form of actively directing a contractor or contractor’s employee. There will be times when a hirer will be liable for its omissions. For example, if the hirer promises to undertake a particular safety measure, then the hirer’s negligent failure to do so should result in liability if such negligence leads to an employee injury.” (Hooker, supra, 27 Cal.4th at p. 212, fn. 3, 115 Cal.Rptr.2d 853, 38 P.3d 1081.)

503*503 Accordingly, in Hooker, we concluded summary judgment was appropriate because Caltrans had not exercised its retained control in a manner that affirmatively contributed to the employee’s injury. On the other hand, in the companion case, McKown, supra, 27 Cal.4th 219, 115 Cal.Rptr.2d 868, 38 P.3d 1094, we upheld a jury verdict for an injured employee against the hirer of the contractor, because the hirer had furnished the employee with a defective forklift that had contributed to his injury. (Id. at pp. 223-226, 115 Cal.Rptr.2d 868, 38 P.3d 1094.)

A useful way to view the above cases is in terms of delegation. As suggested by Privette, at common law, it was regarded as the norm that when a hirer delegated a task to an independent contractor, it in effect delegated responsibility for performing that task safely, and assignment of liability to the contractor followed that delegation. (Privette, supra, 5 Cal.4th at p. 693, 21 Cal.Rptr.2d 72, 854 P.2d 721.) For various policy reasons discussed in Privette, courts have severely limited the hirer’s ability to delegate responsibility and escape liability. (Id. at p. 694, 21 Cal.Rptr.2d 72, 854 P.2d 721.) But in Privette and its progeny, we have concluded that, principally because of the availability of workers’ compensation, these policy reasons for limiting delegation do not apply to the hirer’s ability to delegate to an independent contractor the duty to provide the contractor’s employees with a safe working environment. In fact, the policy in favor of delegation of responsibility and assignment of liability is so strong in this context that we have not allowed it to be circumvented on a negligent hiring theory. Nonetheless, when the hirer does not fully delegate the task of providing a safe working environment, but in some manner actively participates in how the job is done, and that participation affirmatively contributes to the employee’s injury, the hirer may be liable in tort to the employee.

Using the framework of delegation, we can understand other cases in which the hirer’s liability or potential liability has been found. In Ray v. Silverado Constructors (2002) 98 Cal.App.4th 1120, 120 Cal.Rptr.2d 251, the employee of a subcontractor was killed when he was struck by a heavy wooden deck blown by a strong wind from a bridge he was helping to construct. He was hit while attempting to secure other construction materials that also had been blown from the bridge, after having stopped his truck so as to block traffic from traveling into the hazardous area. (Id. at p. 1124, 120 Cal.Rptr.2d 251.) His estate sued the general contractor on a negligent retention of control theory. The trial court granted summary judgment for the general contractor, but the Court of Appeal reversed. It reasoned that a highway contractor has a duty to exercise due care to protect the traveling public (see Breslin v. Fredrickson (1957) 152 Cal.App.2d 780, 786, 313 P.2d 597), and that duty may have included the responsibility to close the road to prevent motorists from being harmed by the wayward construction materials. (Ray v. Silverado Constructors, supra, 98 Cal.App.4th at pp. 1134-1135, 120 Cal.Rptr.2d 251.) The court concluded there was a triable issue as to whether the general contractor retained the sole authority to close the road, and whether its failure to do so therefore constituted negligence that led directly to the employee’s injury. (Id. at pp. 1134-1136, 120 Cal.Rptr.2d 251.) In other words, the general contractor may have been liable because its delegation of workplace safety to the subcontractor, the plaintiff’s employer, was limited and did not authorize the subcontractor to undertake the one safety measure that might have saved the plaintiff’s life.

504*504 In Austin v. Riverside Portland Cement Co. (1955) 44 Cal.2d 225, 282 P.2d 69, a case that predates Privette, the employee of an independent contractor hired by the cement company to work on its premises was electrocuted when the boom of a crane used to repair the company’s rock crushing equipment became electrically charged by coming in contact with overhead power lines during nighttime operations. (Id. at p. 229-231, 282 P.2d 69.) In affirming a verdict for the plaintiff, the court concluded there was evidence that these power lines posed a great hazard to the independent contractor’s employees, particularly when the work was carried out at night and the power lines were invisible, and that it was negligent not to request that the power lines be deenergized. (Id. at pp. 231-234, 282 P.2d 69.) It was also clear from the evidence that the company had the sole authority to request the state, which controlled the power lines, to deenergize the power lines, and that the contractor’s supervisor had requested the lines be deenergized but the company superintendent refused because it would have required the plant to be shut down. (Id. at pp. 230-232, 282 P.2d 69.) Therefore, because the hirer had not delegated to the contractor the authority to undertake a critical employee safety measure, and the contractor’s employee was injured as a result of that measure not being undertaken, the court concluded the hirer could be liable to the employee.

With these principles in mind, we review the doctrine of landowner liability and consider how this doctrine relates to the Privette doctrine.

B. Landowner Liability in General and for an Independent Contractor’s Employees

“[T]he basic policy of this state set forth by the Legislature in section 1714 of the Civil Code is that everyone is responsible for an injury caused to another by his want of ordinary care or skill in the management of his property. . . . The proper test to be applied to the liability of the possessor of land in accordance with section 1714 of the Civil Code is whether in the management of his property he has acted as a reasonable man in view of the probability of injury to others, and, although the plaintiff’s status as a trespasser, licensee, or invitee may in the light of the facts giving rise to such status have some bearing on the question of liability, the status is not determinative.” (Rowland v. Christian (1968) 69 Cal.2d 108, 118-119, 70 Cal.Rptr. 97, 443 P.2d 561 (Rowland).) Applying these principles to the facts before it, in which a social guest injured his hand on a cracked water faucet, the court stated: “Where the occupier of land is aware of a concealed condition involving in the absence of precautions an unreasonable risk of harm to those coming in contact with it and is aware that a person on the premises is about to come in contact with it, the trier of fact can reasonably conclude that a failure to warn or to repair the condition constitutes negligence. Whether or not a guest has a right to expect that his host will remedy dangerous conditions on his account, he should reasonably be entitled to rely upon a warning of the dangerous condition so that he, like the host, will be in a position to take special precautions when he comes in contact with it.” (Id. at p. 119, 70 Cal.Rptr. 97, 443 P.2d 561.)

This formulation is similar to the Restatement of Torts Second, section 343, on which Kinsman in the present case partly relies. `”A possessor of land is subject to liability for physical harm caused to his invitees by a condition on the land if, but only if, he [¶] (a) knows or by the exercise of reasonable care would discover the condition, and should realize that it involves an unreasonable risk of harm to such invitees, 505*505 and [¶] (b) should expect that they will not discover or realize the danger, or will fail to protect themselves against it, and [¶] (c) fails to exercise reasonable care to protect them against the danger.”

“Generally, if a danger is so obvious that a person could reasonably be expected to see it, the condition itself serves as a warning, and the landowner is under no further duty to remedy or warn of the condition. [Citation] However, this is not true in all cases. `[I]t is foreseeable that even an obvious danger may cause injury, if the practical necessity of encountering the danger, when weighed against the apparent risk involved, is such that under the circumstances, a person might choose to encounter the danger.'” (Krongos v. Pacific Gas & Electric Co. (1992) 7 Cal.App.4th 387, 393, 9 Cal.Rptr.2d 124 [duty to protect against obvious electrocution hazard posed by overhead electrical wires]; see also Rest.2d Torts, § 343A [possessor of land liable for obvious danger if “the possessor should anticipate the harm despite such . . . obviousness”].)

The question before us is how these general principles apply when a landowner hires an independent contractor whose employee is injured by a hazardous condition on the premises. As we have discussed, the hirer generally delegates to the contractor responsibility for supervising the job, including responsibility for looking after employee safety. When the hirer is also a landowner, part of that delegation includes taking proper precautions to protect against obvious hazards in the workplace. There may be situations, as alluded to immediately above, in which an obvious hazard, for which no warning is necessary, nonetheless gives rise to a duty on a landowner’s part to remedy the hazard because knowledge of the hazard is inadequate to prevent injury. But that is not this case, since Kinsman acknowledges that reasonable safety precautions against the hazard of asbestos were readily available, such as wearing an inexpensive respirator. Thus, when there is a known safety hazard on a hirer’s premises that can be addressed through reasonable safety precautions on the part of the independent contractor, a corollary of Privette and its progeny is that the hirer generally delegates the responsibility to take such precautions to the contractor, and is not liable to the contractor’s employee if the contractor fails to do so. We see no persuasive reason why this principle should not apply when the safety hazard is caused by a preexisting condition on the property, rather than by the method by which the work is conducted.

However, if the hazard is concealed from the contractor, but known to the landowner, the rule must be different. A landowner cannot effectively delegate to the contractor responsibility for the safety of its employees if it fails to disclose critical information needed to fulfill that responsibility, and therefore the landowner would be liable to the contractor’s employee if the employee’s injury is attributable to an undisclosed hazard. Nothing in the Privette line of cases suggests the contrary. As in Hooker and McKown, the hirer’s liability in such circumstances would be derived from the hirer’s rather than the contractor’s negligence.

In view of the above, the usual rules about landowner liability must be modified, after Privette, as they apply to a hirer’s duty to the employees of independent contractors. As noted, the Restatement Second of Torts, section 343, states that the landowner’s duty is triggered when it “(a) knows or by the exercise of reasonable care would discover the condition, and should realize that it involves an unreasonable risk of harm to such invitees, and [¶] (b) should expect that they will not discover 506*506 or realize the danger, or will fail to protect themselves against it.” (Italics added.) In light of the delegation doctrine reaffirmed by Privette, the italicized phrase does not seem applicable to landowner liability for injuries to employees of independent contractors. Because the landowner/hirer delegates the responsibility of employee safety to the contractor, the teaching of the Privette line of cases is that a hirer has no duty to act to protect the employee when the contractor fails in that task and therefore no liability; such liability would essentially be derivative and vicarious. (See Toland, supra, 18 Cal.4th at pp. 268-270, 74 Cal.Rptr.2d 878, 955 P.2d 504 [no duty to supervise work based on the hirer’s “superior knowledge” of the proper safety precautions].)[2] But when the landowner knows or should know of a concealed hazard on its premises, then under ordinary premises liability principles, the landowner may be liable for a resultant injury to those employees.

We therefore disagree with the Court of Appeal in the present case inasmuch as it holds that a landowner/hirer can be liable to a contractor’s employee only when it has retained supervisory control and affirmatively contributes to the employee’s injury in the exercise of that control. Rather, consistent with the above discussion, the hirer as landowner may be independently liable to the contractor’s employee, even if it does not retain control over the work, if (1) it knows or reasonably should know of a concealed, pre-existing hazardous condition on its premises; (2) the contractor does not know and could not reasonably ascertain the condition; and (3) the landowner fails to warn the contractor.[3]

The rule that landowners may be liable to contractors’ employees for injuries resulting from latent hazardous conditions was followed in our pre-Privette cases. In Markley v. Beagle (1967) 66 Cal.2d 951, 59 Cal.Rptr. 809, 429 P.2d 129, for example, the employee of an independent contractor, en route to repair a ventilation fan on the hirer’s roof, was injured when a mezzanine railing inside the building gave way. (Id. at p. 955, 59 Cal.Rptr. 809, 429 P.2d 129.) As the court stated: “Plaintiff was an employee of an independent contractor engaged by the tenant who operated the restaurant to service the ventilating system. He was therefore a business invitee of the owners to whom they owed a duty of reasonable care. They knew or should have known that he would use the mezzanine to get to the fan on the roof, and the jury could reasonably conclude that . . . the owners were negligent in failing to discover the dangerous condition of the railing and to either correct it or adequately warn plaintiff of it.” (Id. at pp. 955-956, 59 Cal.Rptr. 809, 429 P.2d 129.) Nothing in the Privette line of cases suggests that Markley is no longer good law.

Abrons v. Richfield Oil Corp. (1961) 190 Cal.App.2d 640, 12 Cal.Rptr. 271, cited by Unocal, is not to the contrary. In Abrons, the employee of an independent contractor was injured when an oil-saturated ditch on the property of the hirer, the Richfield Oil Corporation, caved in. The Court of Appeal 507*507 affirmed the nonsuit judgment against the employee, stating: “`The Richfield employees exercised no supervision or control of the [contractor’s] employees in the course of the latter’s work. . . .’ . . . The appellant observed that the ground that was being excavated was `oil saturated.’ His testimony, as set forth in the settled statement, was that the `deeper he dug the more oil saturation manifested itself and there was an oily odor within the excavation.’ Braun furnished no shoring materials. No one `from the Richfield Oil Corporation was present at any time and no one from Richfield observed the work or assisted in any way.'” (Id. at p. 646, 12 Cal.Rptr. 271.) Although the Abrons court focused on the hirer’s lack of supervision and control, the fact that is most telling from the perspective of the present issue is that the hazard in question, the oil-saturated ground, although perhaps initially concealed, soon became apparent, and the contractor nonetheless failed to take appropriate safety precautions.[4]

Another case cited by Unocal, Grahn v. Tosco Corp. (1997) 58 Cal.App.4th 1373, 68 Cal.Rptr.2d 806 (Grahn), decided after Privette but before Toland and the other cases, resembles the present case factually and merits discussion. The employee of an independent contractor contracted asbestos-related lung disease from removing and installing insulation on defendant’s jobsite in the 1970’s. The plaintiff proceeded on three theories, negligent hiring, retained control, and premises liability.[5] As to the latter theory, the Court of Appeal held that the general negligence instruction given to the jury was prejudicially misleading. “While a hirer has a duty to maintain its premises in a reasonably safe condition for employees of an independent 508*508 contractor, not every dangerous condition on the hirer’s premises subjects the hirer to liability for physical harm to the independent contractor’s employees. Where the operative details of the work are not under the control of the hirer and the dangerous condition causing injury is either created by the independent contractor or is, at least in part, the object of the work of the independent contractor, the duty to protect the independent contractor’s employees from hazards resides with the independent contractor and not the hirer who may also generally control the premises.” (Grahn, supra, 58 Cal.App.4th at p. 1398, 68 Cal.Rptr.2d 806.)

We find the above formulation somewhat confusing and only partly correct. It is not clear, in the context of premises liability, what it means to say that “[w]here . . . the dangerous condition causing injury is either created by the independent contractor or is, at least in part, the object of the work of the independent contractor, the duty to protect the independent contractor’s employees from hazards resides with the independent contractor and not the hirer who may also generally control the premises.” (Grahn, supra, 58 Cal.App.4th at p. 1398, 68 Cal.Rptr.2d 806, italics added.) If the employee of an independent contractor as part of his job, for example, burrows into ground belonging to the landowner/hirer, and is injured when he ruptures an underground storage tank containing a hazardous substance that the landowner knew was present but the contractor did not, the dangerous condition causing the injury was arguably “the object of the work of the independent contractor.” (Ibid.) But that fact should not preclude landowner liability. What is critical in the above hypothetical is that if the landowner knew or should have known of the hazard and the contractor did not know and could not have reasonably discovered it, then the landowner delegated the responsibility for employee safety to the contractor without informing the contractor of critical information that would allow the contractor to fulfill its responsibility. Under such circumstances the landowner may be liable. Nor would it matter, as Unocal argues, that the substance was not hazardous until the employee performed a certain action that released the hazard. The landowner may be liable for any injury from a latent hazard that a contractor’s employee would foreseeably encounter. (See Rowland, supra, 69 Cal.2d at p. 119, 70 Cal.Rptr. 97, 443 P.2d 561.)

But Grahn’s statement regarding the hirer’s nonliability for hazards on the premises related to “the object of the work of the independent contractor” (Grahn, supra, 58 Cal.App.4th at p. 1398, 68 Cal.Rptr.2d 806) does point to an important limitation on a landowner’s duty toward the contractor’s employees. A landowner’s duty generally includes a duty to inspect for concealed hazards. (See Ortega v. Kmart Corp. (2001) 26 Cal.4th 1200, 1205, 114 Cal.Rptr.2d 470, 36 P.3d 11.) But the responsibility for job safety delegated to independent contractors may and generally does include explicitly or implicitly a limited duty to inspect the premises as well. Therefore, the principles enunciated in Privette suggest that the landowner would not be liable when the contractor has failed to engage in inspections of the premises implicitly or explicitly delegated to it. Thus, for example, an employee of a roofing contractor sent to repair a defective roof would generally not be able to sue the hirer if injured when he fell through the same roof due to a structural defect, inasmuch as inspection for such defects could reasonably be implied to be within the scope of the contractor’s employment. On the other hand, if the same employee fell from a ladder because the wall on 509*509 which the ladder was propped collapsed, assuming that this defect was not related to the roof under repair, the employee may be able to sustain a suit against the hirer. Put in other terms, the contractor was not being paid to inspect the premises generally, and therefore the duty of general inspection could not be said to have been delegated to it. Under those circumstances, the landowner’s failure to reasonably inspect the premises, when a hidden hazard leads directly to the employee’s injury, may well result in liability.

C. Application to the Present Case

The crux of Kinsman’s case is that Unocal knew that asbestos used to insulate the pipes found at its refinery, which was released as dust when the insulation was replaced, was hazardous; furthermore, Kinsman and the contractor for whom he worked did not know of the hazard, either because they did not know they were being exposed to airborne asbestos or did not know that asbestos was hazardous. In light of these facts, Kinsman contends Unocal was negligent in failing to warn the contractor or failing to provide proper safety equipment.

As an initial matter, we note there is no reason to distinguish conceptually between premises liability based on a hazardous substance that is concealed because it is invisible to the contractor and known only to the landowner and a hazardous substance that is visible but is known to be hazardous only to the landowner. If the hazard is not reasonably apparent, and is known only to the landowner, it is a concealed hazard, whether or not the substance creating the hazard is visible. Unocal does not appear to dispute this proposition.

Unocal contends, however, that knowledge of the hazards of asbestos was public at the time Kinsman was injured in the 1950’s, and that Kinsman is in effect attempting to resurrect the “superior knowledge” theory of liability proposed by Justice Werdegar’s concurring and dissenting opinion in Toland, which was rejected by the majority. As the concurring and dissenting opinion stated: “[W]hen conditions within the special knowledge or control of the hirer create a danger inherent and peculiar to the work, there is no justification in statute, policy or precedent to immunize the hirer from tort liability for his or her own failure to require reasonable precautions be taken against the danger. Tort liability for injuries to the contractor’s employees should, therefore, be recognized only when the hirer `was in a better position than the contractor either to anticipate dangers to workmen, to foresee and evaluate the best methods of protection, or to implement and enforce compliance with appropriate on-site safety precautions.'” (Toland, supra, 18 Cal.4th at p. 271, 74 Cal.Rptr.2d 878, 955 P.2d 504 (conc. & dis. opn. of Werdegar, J.).)

The Toland majority concluded that the standard was impractical and would undermine the Privette doctrine. (Toland, supra, 18 Cal.4th at p. 268, 74 Cal.Rptr.2d 878, 955 P.2d 504.) “The term `superior knowledge’ has superficial appeal when considered in the abstract, but its practical application presents considerable difficulties. How is a trier of fact to determine whether to impose liability based on the relative knowledge of two parties, each of whom is `knowledgeable’ in some form or degree? Must the general contractor’s knowledge be `superior’ with regard to industry practices or must it be `superior’ with regard to the actual instrumentality of the injury? Does a general contractor with 25 years of experience in the construction industry possess greater or lesser knowledge than a subcontractor with 5 years of experience in a particular building 510*510 trade? There is little basis on which a jury could sensibly impose liability using the concurring and dissenting opinion’s `comparative knowledge’ rule.” (Toland, supra, 18 Cal.4th at p. 268, 74 Cal.Rptr.2d 878, 955 P.2d 504.) The majority concluded: “In the end, the concurring and dissenting opinion would effectively deprive general contractors of a right available to any other hiring person: the right to delegate to independent contractors the responsibility of ensuring the safety of their own workers.” (Id. at p. 269, 74 Cal.Rptr.2d 878, 955 P.2d 504.)

The theory of premises liability we adopt in this case is significantly different from the superior knowledge theory for several reasons. First, under the premises liability theory, the hirer would only have liability if the contractor did not know and could not reasonably have ascertained the hazard, and therefore the practical problem of identifying whose knowledge is superior does not come into play. Furthermore, whereas the “superior knowledge” theory applies generally to “special risk[s] or the precautions necessary to avoid [them]” (Toland, supra, 18 Cal.4th at p. 277, 74 Cal.Rptr.2d 878, 955 P.2d 504 (conc. & dis. opn. of Werdegar, J.), the premises liability doctrine articulated here applies only to preexisting hazardous conditions on the landowner’s premises. We would not be creating a new duty or liability but rather applying, and in fact limiting, a duty traditionally imposed on landowners. Moreover, we fully reaffirm the right of hirers “to delegate to independent contractors the responsibility of ensuring the safety of their own workers.” (Id. at p. 269, 74 Cal.Rptr.2d 878, 955 P.2d 504.) But we would recognize that such delegation is ineffective when the hirer, as landowner, fails to provide the contractor with the information — the existence of a latent hazard — necessary to fulfill that responsibility.

In fact, Kinsman claims that this is a latent hazard case, and disavows any reliance on the “superior knowledge” theory. He argues that there was no evidence that Kinsman’s employer, Burke & Reynolds, had any knowledge, in the 1950’s when Kinsman’s injuries were incurred, that asbestos dust was hazardous, and that there was considerable evidence that Unocal knew of the hazards. Kinsman further points out that the present case differs significantly from Grahn, in which a premises liability theory based on asbestos exposure was rejected, in that the exposure in Grahn occurred in the late 1970’s and 1980’s, after asbestos had become widely recognized as a carcinogen. (Grahn, supra, 58 Cal.App.4th at pp. 1380-1381, 68 Cal.Rptr.2d 806.) Therefore the Grahn court was justified in stating that the hirer was “entitled to assume” that the contractor would take proper safety precautions (id. at p. 1398, 68 Cal.Rptr.2d 806), an assumption that did not apply in the 1950’s when the injury in question occurred.

Unocal argues that Toland not only rejected the “superior knowledge” theory, but held that the hirer’s liability as a landowner to the independent contractor is limited to instances of fraudulent concealment, and that there is no evidence of fraudulent concealment in the present case. As Toland stated: “Our decision in no way precludes employees of independent contractors from seeking recovery from a general contractor or other hiring person for personal injury resulting from a failure to disclose a concealed preexisting danger at the site of the hired work that was known to the hiring person. Recovery in such a case would be for fraudulent concealment or misrepresentation, however, and would not involve the `comparative knowledge’ analysis proposed by the concurring 511*511 and dissenting opinion, nor would it depend on the peculiar risk doctrine.” (Toland, supra, 18 Cal.4th at pp. 269-270, fn. 4, 74 Cal.Rptr.2d 878, 955 P.2d 504.)

The above statement, while correct, is incomplete. “It is axiomatic that language in a judicial opinion is to be understood in accordance with the facts and issues before the court. An opinion is not authority for propositions not considered.” (Chevron U.S.A., Inc. v. Workers’ Comp. Appeals Bd. (1999) 19 Cal.4th 1182, 1195, 81 Cal.Rptr.2d 521, 969 P.2d 613.) Toland did not involve premises liability for latent hazards, and the court had no occasion to decide the precise conditions under which such liability would attach. (Toland, supra, 18 Cal.4th at p. 257, 74 Cal.Rptr.2d 878, 955 P.2d 504 [plaintiff injured while helping to raise a heavy wall during the construction project].) As explained above, landowner liability in this instance is measured by a negligence standard, and therefore a landowner would be liable not only when it deliberately withholds information but also when it negligently fails to discover or disclose latent hazards. (See Markley v. Beagle, supra, 66 Cal.2d at pp. 955-956, 59 Cal.Rptr. 809, 429 P.2d 129.) Therefore, the element of fraudulent intent required in fraudulent concealment cases (see City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 482, 80 Cal.Rptr.2d 329) is not necessary for premises liability in the present circumstances.

Unocal, following the Court of Appeal, further contends that what hazards existed on the jobsite were created by other independent contractors and were not Unocal’s responsibility. We agree in the abstract that a landowner that does not retain control is not liable for an injury inflicted by an independent contractor or its employees on the employee of another independent contractor. As discussed, Privette recognized the rule at common law that “a person who hired an independent contractor generally was not liable to third parties for injuries caused by the contractor’s negligence in performing the work.” (Privette, supra, 5 Cal.4th at p. 693, 21 Cal.Rptr.2d 72, 854 P.2d 721.) That rule was eventually limited by the need to fairly compensate the victims of the contractor’s negligence, but that limitation is unnecessary when workers’ compensation benefits, paid for indirectly by the hirer in the cost of the job, are available. (Id. at pp. 694, 699-700, 21 Cal.Rptr.2d 72, 854 P.2d 721.) Such is the case here, because workers’ compensation coverage insures against all injuries in the course of employment, including injuries inflicted by employees of other contractors. (See Lab.Code, § 3600; Dimmig v. Workmen’s Comp. Appeals Bd. (1972) 6 Cal.3d 860, 865, 101 Cal.Rptr. 105, 495 P.2d 433 [workers’ compensation covers all acts reasonably contemplated by the employment].) Therefore, although the policy considerations are not identical to those in Privette in every respect, they point to a similar conclusion: that, as at common law, the hirer/landowner who has not retained control over the work should not be derivatively or vicariously liable for injuries contemporaneously inflicted by an independent contractor on another contractor’s employee. (See Smith v. ACandS, Inc. (1994) 31 Cal.App.4th 77, 96, 37 Cal.Rptr.2d 457, disapproved other grounds in Camargo, supra, 25 Cal.4th at p. 1245, 108 Cal.Rptr.2d 617, 25 P.3d 1096 [coming to the same conclusion].)[6] As elaborated below, however, Kinsman argues there is no 512*512 evidence that other independent contractors’ negligence led to his injury.

Finally, Unocal argues that even if Kinsman’s claim against it does not fail as a matter of law, the present verdict cannot stand because the jury was not properly instructed. As discussed, the trial court instructed the jury both on a premises liability theory and a negligent retention of control theory, and rendered a plaintiff’s verdict on only the former. As to that former theory, the jury received a modified BAJI No. 8.01 instruction: “The owner or occupant of premises is under a duty to exercise ordinary care in the use, maintenance, and management of the premises in order to avoid exposing persons to an unreasonable risk of harm. This duty exists whether the risk of harm is caused by the natural condition of the premises or by an artificial condition created on the premises. This duty is owed to persons on the premises and to persons off the premises. A failure to fulfill this duty is negligence. [¶] Ordinary care is that care which persons of ordinary prudence would use in order to avoid injury to themselves or others under circumstances similar to those shown by the evidence.[¶] You must determine whether a person under the same or similar circumstances as the defendant Unocal should have foreseen that a person such as the plaintiff Ray Kinsman would be exposed to an unreasonable risk of harm. If you so find, you are instructed that the defendant Unocal owed plaintiff Ray Kinsman a duty of care and you should determine if the defendant exercised that care, considering all the surrounding circumstances shown by the evidence.”

The above instruction, while an accurate statement of premises liability generally, is partly erroneous when applied to the present situation. As discussed, when, as in the present case, the “dangerous or defective condition” is one which can be remedied by taking reasonable safety precautions, the landowner who has delegated job safety to the independent contractor only has a duty to the employee if the condition is concealed. Because the general premises liability instruction given does not make clear that the hazard must have been unknown and not reasonably ascertainable to the independent contractor that employed Kinsman and to other contractors working contemporaneously on the premises — the jury was instructed in error.

When deciding whether an instructional error was prejudicial, “we must examine the evidence, the arguments, and other factors to determine whether it is reasonably probable that instructions allowing application of an erroneous theory actually misled the jury.” (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 581, fn. 11, 34 Cal.Rptr.2d 607, 882 P.2d 298.) A “reasonable probability” in this context “does not mean more likely than not, but merely a reasonable chance, more than an abstract possibility.” (College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 715, 34 Cal.Rptr.2d 898, 882 P.2d 894.)

We conclude that the failure to properly instruct the jury in this case was prejudicial. Although the jury, in finding Unocal negligent under a premises liability theory, implicitly found that Unocal knew or should have known of the hazard of asbestos dust on its property, it made no finding about whether Kinsman’s employer, Burke & Reynolds, or any other contractor working at the same time as Kinsman, knew or should have known of the hazard, and whether Unocal was or should have been aware that these contractors did not know of the hazard. As discussed, a finding that these contractors did know that the dust in the refinery was asbestos and was hazardous to an employee like 513*513 Kinsman, would, under the principles articulated in the Privette line of cases and in this opinion, completely relieve Unocal of liability for any resultant employee injury.

Whether a hazard is concealed is a factual matter, and the record before us is inconclusive on this issue. On the one hand, there is no evidence in the record before us regarding whether Burke & Reynolds, or any other contractor working on the job site, knew about the hazards of asbestos or even whether asbestos was present. In fact, Kinsman points out that there was no evidence that Unocal used independent contractors, as opposed to its own employees, to remove and replace the insulation.

On the other hand, the various reports issued to the oil industry in the 1930’s and 1940’s, from which Unocal obtained its knowledge, were not secret or classified, and there was a limited public knowledge about the health hazards of asbestos dust.[7] Unocal further points to the jury’s finding that the 85 percent of the liability for Kinsman’s injury was attributable to “all others,” and contends that that the jury implicitly found other independent contractors at fault for his injury. It conjectures that the jury implicitly found that Unocal was negligent in its failure to properly supervise and monitor these independent contractors, which under the Privette doctrine could not serve as a basis of liability. Kinsman contends to the contrary that the “all others” refers to asbestos manufacturers and related entities. It is not clear from the record before us which contention is correct.

In short, a properly instructed jury may have concluded, based on the record before us, that the contractors knew or should have known about the airborne asbestos hazard, which would have meant a verdict in Unocal’s favor. But the evidence does not compel that conclusion. Because the evidence is capable of inferences in both Kinsman’s and Unocal’s favor, and because the concealed hazards issue was never properly submitted to the jury, it is appropriate to reverse the judgment and to remand for a new trial on that issue.[8]

 III. DISPOSITION

The judgment of the Court of Appeal is affirmed in part, inasmuch as it overturns the judgment of the trial court, but reversed inasmuch as its instructions on remand to the trial court are at variance with the principles set forth in this opinion. The case is remanded to the Court of Appeal for proceedings consistent with this opinion.

WE CONCUR: GEORGE, C.J., KENNARD, BAXTER, WERDEGAR, CHIN, JJ., and CORNELL, J.[*]

[1] Although the term “landowner” is used throughout this opinion, and the land in question was owned by defendant Unocal Corporation, that term is used to refer to either an owner or a possessor of land that owes some kind of duty of care to keep the premises safe. (See Alcaraz v. Vece (1997) 14 Cal.4th 1149, 1155-1156, 60 Cal.Rptr.2d 448, 929 P.2d 1239.)

[2] The rule articulated above concerns specifically an employee’s injury while at work on the landowner’s premises. This case does not present the question of landowner liability when the employee is on the premises but not working, as when, for example, the employee is on a part of the premises other than the jobsite.

[3] We emphasize that the holding would not apply to a hazard created by the independent contractor itself, of which that contractor necessarily is or should be aware. (See Zamudio v. City and County of San Francisco (1999) 70 Cal.App.4th 445, 455, 82 Cal.Rptr.2d 664.)

[4] Other jurisdictions have taken a variety of approaches to the issue of landowner liability to employees of independent contractors, and no single approach has emerged as dominant. In some cases, there are no special rules for liability toward contractor’s employees, and general negligence rules are applied. (Roberts v. Owens-Corning Fiberglas Corp. (La.Ct.App.2004) 878 So.2d 631, 639, fn. 5.) Some have not rejected the peculiar risk doctrine in this context and/or have embraced the “superior knowledge” doctrine advocated by the Toland concurring and dissenting opinion discussed below. (PSI Energy, Inc. v. Roberts (Ind.2005) 829 N.E.2d 943, 2005 WL 1515100; Gutteridge v. A.P. Green Services, Inc. (Pa.Super.Ct.2002) 804 A.2d 643, 656-658.) Other courts have endorsed rules similar to the one formulated in this opinion. (Jablonski v. Fulton Corners, Inc. (N.Y.Civ.Ct.2002) 193 Misc.2d 135, 748 N.Y.S.2d 634, 638 [landowner liability for defects on premises of which it had actual or constructive notice]; Plock v. Crossroads Joint Venture (1991) 239 Neb. 211, 475 N.W.2d 105, 118-119 [employer-landowner liable to contractor’s employees for latent defects known to employer but not to contractor]; Glenn v. United States Steel Corp., Inc. (Ala.1982)) 423 So.2d 152, 154 [employer not liable for defects that the contractor reasonably should have been aware of].) Other courts allow for recovery only on the theory that the employer has actively retained control of the jobsite and the contractor’s work. (Callahan v. Alumax Foils, Inc. (Mo.Ct.App.1998) 973 S.W.2d 488, 490; Fisher v. Lee and Chang Partnership (Tx.Ct.App.2000) 16 S.W.3d 198, 200-201 [under Texas statute, retained control and knowledge of latent defect required for premises liability toward the contractor’s employee].) In at least one jurisdiction, the landowner is not liable for injuries occurring on the premises where it has temporarily surrendered possession and control of those premises to the contractor. (West v. Briggs & Stratton Corp. (2000) 244 Ga.App. 840, 536 S.E.2d 828, 832.) In other cases, the rule is not so clear. (See Jones v. James Reeves Contractors, Inc. (Miss.1997) 701 So.2d 774, 782-783 [stating a rule of employer liability based on actual control of contract’s work, but suggesting there may be liability for latent defects].)

[5] Grahn’s treatment of the first two theories was disapproved of in Camargo, supra, 25 Cal.4th at page 1245, 108 Cal.Rptr.2d 617, 25 P.3d 1096 and Hooker, supra, 27 Cal.4th at page 214, 115 Cal.Rptr.2d 853, 38 P.3d 1081.

[6] This rule, of course, does not extend to hazardous conditions created by other independent contractors that, after a passage of time, become latent hazards on the premises that a landowner is aware of or should have reasonably discovered.

[7] The state of the general public’s knowledge of the hazards of asbestos in the 1950’s was summarized in the deposition testimony of Dr. Barry Castleman, an environmental health consultant testifying for Kinsman. He stated that there “were scattered reports in such places as Scientific American in 1949. . . . [I]f you knew to look up cancer in the encyclopedia [Britannica], you see a reference to asbestos as a cause of occupational cancer there. But, I mean, aside from these very few things, you know a scant quote of Dr. Hueper saying that maybe things like asbestos and other carcinogens are responsible for the rising rate of lung cancer in cities, in Newsweek in May 1950. I mean, you can count these things almost on one hand. It wasn’t really until the 1970s with the environmental movement, with the creation of federal agencies like the Environmental Protection Agency and OSHA, with the kind of media coverage that came with that, the people started, and the general population, to know about asbestos.”

[8] Unocal argued in its motion for a judgment notwithstanding the verdict, and continues to argue before this court, that, apart from the Privette issue, there was insufficient evidence to support the jury’s finding that Unocal was negligent, because of the lack of evidence that Kinsman was exposed to asbestos at levels then thought to be unsafe under prevailing industry standards. Kinsman asserts the contrary, as explained in the statement of facts above. Although the Court of Appeal consolidated Unocal’s appeal from the denial of that motion with its appeal from the jury verdict, it never ruled on the denial of the motion or on the insufficient evidence issue, perhaps because its disposition was tantamount to a death knell for Kinsman’s action. We do not decide the sufficiency of the evidence issue in the first instance, which is not fairly included within the scope of the issues of which we granted review, but rather direct the Court of Appeal to decide it on remand.

[*] Associate Justice of the Court of Appeal, Fifth Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

Brian McKOWN v. WAL-MART STORES, INC.

115 Cal.Rptr.2d 868 (2002)
27 Cal.4th 219
38 P.3d 1094

Brian McKOWN, Plaintiff and Respondent,
v.
WAL-MART STORES, INC., Defendant and Appellant.

No. S091097.
Supreme Court of California.

January 31, 2002.

Snyder & Strozier, Snyder, Strozier, Maho & Tomlinson, Barry Clifford Snyder and Will Tomlinson, Santa Barbara, for Defendant and Appellant.

Fred J. Hiestand, Sacramento, for the Civil Justice Association of California as Amicus Curiae on behalf of Defendant and Appellant.

Garza, Garza & Pacheco, John M. Pacheco; Law Offices of Robert H. Pourvali and Robert H. Pourvali, Calabasas, for Plaintiff and Respondent.

Ian Herzog, Santa Monica; William L. Veen; James C. Sturdevant, San Francisco; Brian C. Unitt, Riverside; Dennis M. Elber, Long Beach; David A. Rosen, Los Angeles; The Arns Law Firm, Morgan C. Smith and Robert S. Arns, San Francisco, for the Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiff and Respondent.

BROWN, J.

This is the third in a series of recent cases in which we have been called upon to consider the reach of our decisions in Privette v. Superior Court (1993) 5 Cal.4th 689, 21 Cal.Rptr.2d 72, 854 P.2d 721 (Privette ) and Toland v. Sunland Housing Group, Inc. (1998) 18 Cal.4th 253, 74 Cal. Rptr.2d 878, 955 P.2d 504 (Toland). In Privette and Toland, we held that an employee of a contractor may not sue the hirer of the contractor under either of the alternative versions of the peculiar risk doctrine set forth in sections 413 and 416 of the Restatement Second of Torts (hereafter Restatement),[1] but is restricted instead 870*870 to a claim against the contractor under the workers’ compensation insurance system. The two prior cases, respectively, raise the question whether, under the rationale of Privette and Toland, an employee of an independent contractor is barred from suing the hirer of the contractor under the tort theories of (1) negligent hiring, and (2) negligent exercise of retained control. In Camargo v. Tjaarda Dairy (2001) 25 Cal.4th 1235, 108 Cal. Rptr.2d 617, 25 P.3d 1096 (Camargo), we held that an employee of an independent contractor is barred from suing the hirer of the contractor for the tort of negligent hiring. In Hooker v. Department of Transportation (2002) 27 Cal.4th 198, 115 Cal.Rptr.2d 853, 38 P.3d 1081 (Hooker), a companion to this case, we held that a hirer of an independent contractor is not liable to an employee of the contractor merely because the hirer retained control over safety conditions at a work site, but that a hirer is liable to an employee of a contractor insofar as a hirer’s exercise of retained control affirmatively contributed to the employee’s injuries. In this case, we hold that a hirer is liable to an employee of an independent contractor insofar as the hirer’s provision of unsafe equipment affirmatively contributes to the employee’s injury.[2]

FACTUAL AND PROCEDURAL BACKGROUND

Brian McKown was the employee of an independent contractor hired by defendant Wal-Mart Stores, Inc. (Wal-Mart) to install sound systems in its stores, including the store in Chino where this accident occurred. Installation of the sound systems involved running wires and installing speakers in the store ceilings. Wal-Mart requested that the contractor use Wal-Mart’s forklifts whenever possible in performing the work. The request was understood not to be a directive. The forklift that Wal-Mart employees furnished McKown had equipment for overhead work, consisting of a work platform along with a four-foot extension to raise the platform. For safety, the extension was supposed to be chained to the forklift, and the platform chained to the forklift or to the extension. However, only one chain, securing the extension to the forklift, was provided by Wal-Mart. After discussing the advisability of using the forklift without a chain securing the platform to the extension or the forklift, McKown and his colleague decided to do so. While his colleague was driving the forklift and McKown was working on the platform, the platform hit a ceiling pipe, disengaged from the extension, and fell about 12 to 15 feet to the floor with McKown on it.

A jury found that Wal-Mart was negligent in providing unsafe equipment and allocated 55 percent of the responsibility for the accident to McKown’s employer, 23 percent to Wal-Mart, 15 percent to the manufacturer of the equipment, and 7 percent to McKown. The Court of Appeal affirmed the judgment, concluding that “plaintiffs claim that Wal-Mart negligently 871*871 supplied unsafe equipment was viable notwithstanding Privette and Toland.” We granted review, and limited the issue to be briefed and argued to the question whether, under our decisions in Privette and Toland, an employee of an independent contractor is barred from pursuing a lawsuit against the hirer of the independent contractor on the theory the hirer negligently provided unsafe equipment. After review was granted, we issued our decision in Camargo, extending Privette and Toland to the tort of negligent hiring, and we then requested counsel to file supplemental letter briefs exploring the significance of Camargo for the question whether an employee of an independent contractor may bring an action for the tort of negligent provision of unsafe equipment against the hirer of the contractor. The judgment of the Court of Appeal, which affirmed the judgment of the trial court in favor of plaintiff McKown, is affirmed.

DISCUSSION

The line of cases bearing on the question presented here is discussed in the companion to this case, Hooker, supra, 27 Cal.4th 198, 115 Cal.Rptr.2d 853, 38 P.3d 1081, so that discussion need not be repeated at length here. To summarize: In Privette and Toland, we held that an employee of a contractor may not sue the hirer of the contractor under either of the alternative versions of the peculiar risk doctrine set forth in sections 413 and 416 of the Restatement. Under section 413, a person who hires an independent contractor to do inherently dangerous work, but who fails to provide in the contract or in some other manner that special precautions be taken to avert the peculiar risks of that work, can be liable if the contractor’s negligent performance of the work causes injury to others. Under section 416, even if the hirer has provided for special precautions in the contract or otherwise, the hirer can nevertheless be liable if the contractor fails to exercise reasonable care to take such precautions and the contractor’s performance of the work causes injury to others. In Toland, we rejected the argument that Privette did not bar recovery for direct liability under section 413, but only for vicarious liability under section 416. “[P]eculiar risk liability is not a traditional theory of direct liability for the risks created by one’s own conduct: Liability under both sections is in essence `vicarious’ or ‘derivative’ in the sense that it derives from the `act or omission’ of the hired contractor, because it is the hired contractor who has caused the injury by failing to use reasonable care in performing the work.” (Toland, supra, 18 Cal.4th at p. 265, 74 Cal.Rptr.2d 878, 955 P.2d 504.)

In Camargo, supra, 25 Cal.4th 1235, 108 Cal.Rptr.2d 617, 25 P.3d 1096, we held that an employee of a contractor may not sue the hirer of the contractor under the negligent hiring theory set forth in section 411. Under section 411, a hirer is liable for physical harm to third persons caused by the hirer’s failure to exercise reasonable care to employ a competent contractor to perform work that will involve a risk of physical harm unless it is skillfully and carefully done, or to perform any duty the hirer owes to third persons. In Camargo, we rejected the argument that Privette and Toland were distinguishable on the ground that in a negligent hiring case the hirer is, in a sense, being taxed with his own negligence, making his liability direct. “[T]he same could be said with regard to an action brought under the peculiar risk theory set forth in section 413. More importantly, under both sections 411 and 413, the liability of the hirer is `in essence “vicarious” or “derivative” in the sense that it derives from the “act or omission” of the hired contractor, because it is the hired contractor who caused the injury by 872*872 failing to use reasonable care in performing the work.’ (Toland, supra, 18 Cal.4th at p. 265, 74 Cal.Rptr.2d 878, 955 P.2d 504.) Therefore, in a negligent hiring case under the theory set forth in section 411, just as in peculiar risk cases under the theories set forth in sections 413 and 416, ‘it would be unfair to impose liability on the hiring person when the liability of the contractor, the one primarily responsible for the worker’s on-the-job injuries, is limited to providing workers’ compensation coverage.’ (Toland, supra, 18 Cal.4th at p. 267, 74 Cal.Rptr.2d 878, 955 P.2d 504.)” (Camargo, supra, 25 Cal.4th at p. 1244, 108 Cal.Rptr.2d 617, 25 P.3d 1096.)

In Hooker, we held that a hirer of an independent contractor is not liable to an employee of the contractor merely because the hirer retained control over safety conditions at a worksite, but that a hirer is liable to an employee of a contractor insofar as a hirer’s exercise of retained control affirmatively contributed to the employee’s injuries. Imposing tort liability on a hirer of an independent contractor when the hirer’s conduct has affirmatively contributed to the injuries of the contractor’s employee is consistent with the rationale of our decisions in Privette, Toland and Camargo, because the liability of the hirer in such a case is not in essence vicarious or derivativ e in the sense that it derives from the act or omission of the hired contractor. “To the contrary, the liability of the hirer in such a case is direct in a much stronger sense of that term.” (Hooker, supra, 27 Cal.4th at p. 212, 115 Cal.Rptr.2d 853, 38 P.3d 1081.)

For the same reason, when a hirer of an independent contractor, by negligently furnishing unsafe equipment to the contractor, affirmatively contributes to the injury of an employee of the contractor, the hirer should be liable to the employee for the consequences of the hirer’s own negligence. “The general supervisory right to control the work so as to insure its satisfactory completion in accordance with the terms of the contract does not make the hirer of the independent contractor liable for the latter’s negligent acts in performing the details of the work. [Citation.] An owner is not liable for injuries resulting from defective appliances unless he has supplied them or has the privilege of selecting them or the materials out of which they are made [citation] or unless he exercises active control over the men employed or the operations of the equipment used by the independent contractor. [Citation.]” (McDonald v. Shell Oil Co. (1955) 44 Cal.2d 785, 788-789, 285 P.2d 902, italics added.) McDonald predates Privette, but as the Court of Appeal here observed, it serves to underline the fact that, “where the hiring party actively contributes to the injury by supplying defective equipment, it is the hiring party’s own negligence that renders it liable, not that of the contractor.” Indeed, the jury in this case clearly distinguished between the liability of the contractor and that of the hirer, allocating 55 percent of the responsibility to the contractor and 23 percent to the hirer, Wal-Mart.

Wal-Mart contends it should not be held liable for provision of the unsafe equipment because it merely requested, and did not insist, the contractor use its forklift. To the contrary: The contractor had several contracts with Wal-Mart for the installation of sound systems in Wal-Mart stores, and Wal-Mart, the world’s largest retailer, was a customer the contractor was presumably loathe to displease. (The chief executive officer of the contractor testified that Wal-Mart had requested that the contractor use Wal-Mart’s forklifts whenever possible, and “[a]s a businessman I found that if a customer has a legitimate request, it’s 873*873 usually best to do what the customer asks.”) Wal-Mart presumably believed the forklift it provided was safe, and plaintiff may well have believed that refusal to use it would have generated ill will. The extra expense of renting a forklift would have been chargeable to Wal-Mart. Moreover, renting a forklift would have entailed delaying the installation project for at least 24 hours for the following reasons: The installation work was to occur at night when the store was closed. Wal-Mart provided the forklift to the contractor’s employees around midnight. At that time of night rental yards, where substitute equipment might have been obtained, were closed. Admittedly, Wal-Mart was not the only one at fault, but then the jury’s verdict reflected that.

With regard to the jury’s verdict, Wal-Mart contends it should not be held liable for its negligence because the jury found the contractor was primarily (55 percent) at fault. We have stated that “`it would be unfair to impose liability on the hiring person when the liability of the contractor, the one primarily responsible for the worker’s on-the-job injuries, is limited to providing workers’ compensation coverage.'” (Camargo, supra, 25 Cal.4th at p. 1244, 108 Cal.Rptr.2d 617, 25 P.3d 1096, quoting Toland, supra, 18 Cal.4th at p. 267, 74 Cal.Rptr.2d 878, 955 P.2d 504.) However, in this case, as well as in Hooker, the hirer’s affirmative contribution to the employee’s injuries eliminates the unfairness in imposing liability where the contractor is primarily at fault.

Finally, Wal-Mart contends that, in a suit for negligent provision of unsafe equipment, imposition of liability on a hirer for injuries to an employee of an independent contractor would violate the spirit of the workers’ compensation exclusivity rule and give the employee an unwarranted windfall. For the reasons stated in Hooker, these contentions should be rejected. (See Hooker, supra, 27 Cal.4th at pp. 213-214, 115 Cal.Rptr.2d 853, 38 P.3d 1081.)

The judgment of the Court of Appeal is affirmed.

WE CONCUR: GEORGE, C.J., KENNARD, BAXTER, CHIN and MORENO, JJ.

Concurring Opinion by WERDEGAR, J.

I concur in the result. But as in the companion case, Hooker v. Department of Transportation (2002) 27 Cal.4th 198, 115 Cal.Rptr.2d 853, 38 P.3d 1081 (Hooker), I disagree with the majority’s rule limiting a hirer’s liability for its own negligence to acts that “affirmatively’ contribute” to the injury of a contractor’s employee (maj. opn., ante, 115 Cal.Rptr.2d at p. 870, 38 P.3d at p. 1095). That limitation is an unwarranted intrusion into the jury’s role in finding facts and allocating fault.

In the present case, Wal-Mart Stores, Inc. (Wal-Mart) argues it should not be liable because the jury found it only 23 percent at fault, while finding the 1227Contractor 55 percent at fault, arguably making the contractor the party “primarily” at fault. Wal-Mart’s position is in obvious conflict with the principles of comparative fault. That one party is deemed less responsible than another, or that the more responsible party is assigned more than 50 percent of the fault, does not exonerate or immunize the less responsible party, though it may reduce that party’s ultimate liability. The majority is therefore correct to reject Wal-Mart’s position, but in substituting its own “affirmatively contribute” test (maj. opn., ante, 115 Cal. Rptr.2d at pp. 872-873, 38 P.3d at p. 1097), the majority makes essentially the same error as Wal-Mart. As I explain in my 874*874 dissent in Hooker, supra, 27 Cal.4th 198, 215, 115 Cal.Rptr.2d 853, 38 P.3d 1081, that one party is deemed to have negligently contributed to an accident only by omission, or that another party contributed to the accident by affirmative act, does not exonerate or immunize the party contributing by omission, though it may well reduce that party’s ultimate liability.

The distinction between act and omission, or activity and passivity, is likely to be important to a jury in allocating fault, but it does not properly play a role in a court’s decision whether a hirer may be liable at all for injuries to a contractor’s employee. (See Hooker, supra, 27 Cal.4th at pp. 216, 217, 115 Cal.Rptr.2d 853, 38 P.3d 1081 (dis. opn. of Werdegar, J.).) Just as the majority in this case accepts the jury’s allocation of fault even though Wal-Mart “requested,” rather than “insisted,” that its own forklift be used (maj. opn, ante, 115 Cal.Rptr.2d at p. 872, 38 P.3d at p. 1097), so should it accept a jury’s allocation of fault (if supported by all the evidence) without imposing a rule of complete immunity for hirers who contribute to an accident by negligent omission rather than affirmative act.

[1] Unless otherwise indicated, all section references are to the Restatement Second of Torts.

[2] In Camargo, we noted we were not reaching this question. “Today we have concluded that the rationale of our decisions in Privette and Toland, which involved tort liability under the peculiar risk doctrine, also applies to the tort of negligent hiring. Review has been granted in cases that present related questions—whether the Privette /Toland rationale should apply as well to the tort of negligent exercise of retained control (Hooker v. Depart of Transportation, review granted Nov. 1, 2000, S091601) or the tort of negligent provision of unsafe equipment (McKown v. Wal-Mart Stores, Inc. (2000) 82 Cal.App.4th 562, 98 Cal.Rptr.2d 214, review granted Oct. 18, 2000, S091097)—and our opinion today should not be read as having prejudged those questions.” (Camargo, supra, 25 Cal.4th at p. 1245, fn. 2, 108 Cal.Rptr.2d 617, 25 P.3d 1096.)