A number of California court cases were decided in 2025 that managers and their boards should be aware of. Among these cases are 11640 Woodbridge Condominium Homeowners’ Assn. v. Farmers Ins. Exchange (“Woodbridge”) and Bird Rock Home Mortgage, LLC v. Breaking Ground, LP (“Bird Rock”).
Woodbridge
In Woodbridge, the association hired a contractor to replace the complex’s roof. While approximately 80% of the roof membrane was removed, a rainstorm hit, damaging the exposed insulation and plywood, and allowing water to enter some of the units. The roofer subsequently removed and replaced the damaged insulation and plywood, added a layer of base paper and base felt, and hot-mopped and tarred most of the roof. The roofer also covered the roof with tarps in anticipation of another rainstorm. The second rainstorm dislodged the tarps, and rainwater penetrated the exposed felt layer and entered all of the units.
The Association had an “all risks” policy with Farmers Insurance Exchange (“Farmers”). The association tendered a claim to Farmers for both the water damage to the units and the roofing work after the first storm and again after the second storm.
Farmers hired an expert to inspect the roof. The expert opined that the tarps that had been used were too small and that the roofer had violated industry standards by removing 80% of the roof at the same time.
Farmers denied the associations’ claims, citing the “water damage” and “faulty workmanship” exclusions contained in the policy.
The association sued Farmers for breach of contract and breach of the implied covenant of good faith and fair dealing (i.e., for the bad faith denial of the claim). The association also sued the contractor.
The Superior Court granted summary judgment in favor of Farmers (i.e., the court ruled in favor of Farmers based on motion papers, before the trial), concluding that the association’s losses were not covered under the policy because of the water damage and faulty workmanship exclusions contained therein. The association appealed the court’s decision.
The California Court of Appeal (“Court”) reviewed the case and reversed the ruling on the summary judgment motion.
The Court held that there was always a roof on the building because “roof” was not a defined term in the policy, and only certain layers of roofing material had been removed when the damage occurred; so the rain damage was covered. Accordingly, the water exclusion did not bar coverage.
As to the “faulty workmanship” exclusion, the Court found the term to be ambiguous because it could refer to faulty or negligent work and/or a faulty or negligent process. Accordingly, the Court found that coverage was not unambiguously excluded and, therefore, there were triable issues of material fact.
Because the Court found that there was a reasonable interpretation of the policy language under which the association had coverage, the Court reversed the summary judgment and sent the case back to the original trial judge so that a full trial could be conducted.
Prior to Woodbridge, there has only been one “all-risk” insurance case decided in California arising out of damage during roof repairs (Diep v. California Fair Plan Assn.). In the Diep case, the insurance company prevailed on summary judgment. The Court looked at the Diep case, but also looked to other states’ decisions on all-risk insurance coverage. Ultimately, the Court decided to follow the cases from New York, New Jersey, and Oregon.
This case is under review by the California Supreme Court, so the outcome of this case could change.
What are the key takeaways from this case? You should tender insurance claims early and often, as it is not always easy to tell whether there might be coverage. Your boards should also hire qualified experts to advise them on matters that are of great importance to their associations, including experts on evaluating denied insurance claims.
Bird Rock
In Bird Rock, homeowners defaulted on the payment of their assessments, leading the association’s trustee to record a lien and initiate a foreclosure sale under the Davis-Stirling Common Interest Development Act and the association’s CC&Rs. At the initial trustee’s sale, Bird Rock Home Mortgage, LLC (“BRHM”) submitted the highest bid and tendered payment. However, the trustee kept the bidding open after the sale pursuant to Civil Code § 2924m, which extends the bidding period for up to 45 days for certain residential foreclosure sales to allow “eligible bidders” to match or exceed the highest bid. During this extended period, Breaking Ground, LP (“BGLP”) (an eligible bidder through its nonprofit partner) submitted a larger bid and received the trustee’s deed.
BRHM sued, arguing that Civil Code § 2924m does not apply to association lien foreclosures because such liens are not “mortgages” or “deeds of trust” under the statute.
The trial court ruled against BRHM, and BRHM appealed.
The California Court of Appeal affirmed the trial court’s holding, finding that the association’s CC&Rs, which created a contractual lien for unpaid assessments enforceable via nonjudicial foreclosure under Civil Code § 2924 et seq., met the statutory definition of a “mortgage” as a security interest in property for performance of an obligation (e.g., the payment of assessments), regardless of whether such liens constitute traditional home loans.
What are the key takeaways from this case? Assessment liens can be treated as mortgages for foreclosure purposes if the CC&Rs grant the association the power to lien for unpaid assessments and the power to sell the separate interest to enforce the lien. Winning bids at association foreclosure sales may not be final for up to 45 days. The commencement of the 90-day redemption period will be delayed if the bidding period is extended. The initial high bid may not determine the final sale proceeds if the bidding period is extended.
Practice Tips:
- Obtain and keep a complete copy of your associations’ insurance policies, including any exclusions and riders so they are readily available for review.
- When tendering a claim, be sure you are complying with all requirements imposed under the policy for tendering claims. Tender the claim in writing and retain a copy for the association’s records.
- Because the laws pertaining to assessment collection are continually evolving and the potential liability for violating these laws can be significant, your boards should not attempt to perform any assessment collection activities themselves beyond conducting the votes needed to lien and foreclose against delinquent properties.
